Matt Zimberg explains to the audience how an individual can measure their futures trading performance.
We also have a couple of articles below on how to measure futures trading performance.
- Positive Expectancy is More Important than your Last Futures Trade
- Ratios Used in Evaluating Automated Trading Systems
There is a substantial risk of loss in futures trading. Past performance is not indicative of futures results.
Episode TranscriptRead Show Transcript
[00:00:00] Welcome to Episode 9 of the Optimus Futures Podcast. In this episode your host Matt Zimberg explains to the audience. how an individual can measure their Futures Trading performance.
[00:00:12] Please remember that this matter should be viewed as a solicitation to trade. Trading Futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results, you should there for carefully consider whether such trading is suitable for you in light of your financial condition. Optimus Futures LLC is not affiliated with nor does it endorse any trading systems, methodology, newsletter or similar service. We urge you to conduct your own due diligence.
Have you been looking for practical advice to take your trading career to the next level? Can’t decide on which platform to trade on? Fearful of the current state of the market? Look no further. Welcome to the Optimus Futures podcast, a place to learn from an industry insider with over 20 years of experience in Commodities, Futures, and options. Gain insight to the newest technology, platforms, risk management Concepts, trading philosophy and advice about the current state of the market. For Futures Trading platforms, deep-discount, trading commissions, overnight margins and instructional videos, feel free to visit our website at OptimusFutures.com. Now, here is your host, independent broker veteran and CEO of Optimus Futures, Matt Zimberg.
Hi guys this is Matt from Optimus Futures. Today’s topic is: How do you Measure Your Futures Trading Success? So, what I would like to do is give you certain parameters that you will use in order to measure your trading success. Before I get into that, let me talk about intuition versus data. I’ve been in trading for a long time. I’ve spoken to many successful traders and money managers and there’s one thing that is common to many of them that have been in the business for a long time and have been successful at it. They measure their performance and they rely on data. They rely less and less on their intuition. What I’m gathering from all this is that if I were to ask them about their intuition, they would say it’s one thing, but their data shows them something else. So essentially what they’ve learned is to rely on something more objective, which is data, and this is what you should do. I’m sure that when you start out as a trader, an investor, a long-term trader, or short-term trader you have certain intuitions about the markets in your own behavior, but the minute you put it on paper, the minute you start quantifying it, it becomes completely different. So, the idea here is that you get to the point that you look at data and not just say I feel, or I think, or it seems like and so forth.
So let’s go into the parameters that measure your success as a trader and by the way this applies to all traders whether you’re a long-term trader, a swing Trader or a short-term Trader. I believe that you can always use these parameters. So, the first parameter is draw downs. Basically, it measures the fluctuations that your equity goes through. You can measure it during 1 month, 3 months, 6 months. Obviously, this kind of measure should not be evaluated on a daily basis but draw Downs in your equity are extremely important because basically what you’re learning is the amount of dollars that you’re trading account goes through. through its ups and downs. through its worst and through its best experience and how long it takes to recover from your worst periods. So again, learn about the draw-downs of your method. Now many traders don’t want to address that. They don’t want to think about the fact that their account can go down 20%, 30%, 40% or sometimes even 50% before it recovers, but it happens. So, this kind of data, learn not to ignore it, but rather work with it evaluate it and obviously your goal is to be better at what you do. Your goal is to make yourself better at it. So, the idea is too be exposed to it and not just ignore things like that. Let me give you an example, let’s say you start with a $25,000 account in year 1 and as a trader you end up with $30,000. Again, this is just hypothetical and past performance is never indicative of future results, but let’s say you end up with $30,000. Now you evaluate throughout the year and your $25,000 went as low as $15,000 and then recovered to it’s high of $30,000. Obviously, you went through a big draw-down. Now you need to evaluate how you are going to reduce it. So maybe in year two you could have the same gain, but at the same time you will not go down to $15,000. maybe it’ll only go down to $20,000. So again, the idea is to shrink as much as possible within your method the draw-down or change of method if necessary.
The second thing that you should consider are ratios. There is a number of ratios, I’m going to provide a link if you’re on Soundcloud or listening to this from our blog, I’m going to provide a link to you guys of about all the ratios that you should use but, essentially again those are objective of ratios. You have the Sortino Ratio, you have the Sterling Ratio, the Sharpe Ratio, you have the Mar Ratio. All those ratios measure something, so learn to trade with ratios at the end of your trading period. Plug in the numbers and see the risk that you take on every single trade.
The third thing is to have some sort of a benchmark. So, some sort of an index. Now some of you may trade gold, crude or grains and that doesn’t necessarily have a benchmark. However, if you trade equities you could measure it across the Dow or across the S&P and basically it gives you an idea of whether you are able to beat the index, or you underperformed it and that’s important so there’s something that you compare it to.
The fourth thing is expectancy. Expectancy is the amount of risk that you take on a per trade basis. Now back in the day I wrote an article and you can find it on Google. I’m going to link it here as well, it’s called positive expectancy is more important than your last futures trade. So basically, what I’m saying with that and the reason that I chose this topic is because I want you to start looking at every single risk that you take on every single trade. So, the idea is to not just be happy with a winning trade, which is your last trade or get depressed over losing trade, but rather start looking at every single time at the risk that you take on every single one. As you see, my approach on this is always from the risk side not from the reward. Everybody can live with the reward, but the idea of analysis, looking at numbers, ratios and everything else; that’s the analysis that you should approach from, again income from the risk side. Another measure that I think would help you it would be the profit versus the range. So, for example, if you’re a day trader and you trade the e-mini S&P and the range was again hypothetically speaking, 50 points and you’re able to take 25 points out of it, well that’s great, but what if you’re able to take only two points or five points? Then you have to ask yourself, what did I do wrong? Why wasn’t I able to max out on the range? But also, as a swing trader you can take the ranges of three days or a week or as long as you’re in a trade and start measuring that. Basically, what you do is you take the amount of points that you’re able to gain or lose and compare it to the range that was provided to you, from the markets of course
The next parameter is the growth of the account and this is where people micromanage it. One of the most important things is to look at prolonged periods of time. Not every day every day in itself and I know this is money. I know it’s easy to sit here and say well just don’t look at it every day, but the truth is the truth. You can’t measure success on a daily basis whether you have a good day or a bad day. You have to measure the growth over a longer period of time and you have to measure over 3 months, 6 months, a year and so forth. If you look at some commodity trading advisors for example, or people who have a lot of assets under management and you look for example at 5-year performance, 10-year performance or even 15 or 20-year performance you would see that it’s not always consistent. So, you can average things and say the average gain was and average loss was, but essentially the growth of the account over time or lack of really measures the fluctuations your Equity goes through, your method goes through. So, it’s important to look at longer periods of time. I suggest regardless of your method whether your day trader or swing trader, start looking at periods such as the three months, 6 months or a year.
The next parameter is the time of the day for your gains and your losses. This is a little bit more for day Traders, I admit however it gives you an idea of where your method might work best or where it fails. Let me give you an example, let’s say that you’re an E-mini S&P trader and let’s say the most amount of gain that you have is always between 9:30 and 11. Now you know that your method is best for that. Let’s say that the most amount of losses occurred between 12:30 and 1:30, right after lunch let’s say Eastern Time. So now you know this is the worst time for you to trade, so start measuring when you are making the most amount of gains and the most amount of losses. Put it in an Excel spreadsheet at the end of every day. I think it would help you out again when you gather data, you will start seeing patterns about your trading that you did not see before and you would be able to change it accordingly again. You know the idea in trading is to always improve your trading. I’m going to tell you this, I know there’s a myth out there that there’s some trading gurus that get up in the morning and know the markets. Nobody knows what the next day will bring. There are experienced people, but those people don’t think for a minute that they just rely on their intuition. They rely on data, their intuition and their experience. So, it’s always a combination of all and I don’t believe that somebody has an intuition to a degree, where they can just rely on that regardless of how many years they’ve been trading. So, as a trader you always have to perform an ongoing analysis. This is your homework. Your homework basically starts when your session stops, so when you stop trading your homework starts forever.
Let’s go to the next parameter and it’s your average win versus your average loss. Basically, this is where you measure what your method does in terms of wins and losses. Let me give you an example. You will see the bottom line, and all of this is to seek the net result. Let me give you an example, let’s say that your average win is $300, but your average loss is $250. So, now you have a $50 gain every single time between the gains and the losses and again over a longer period of time. Of course, now you can start thinking how to minimize it and maximize out others. So, it’s important to know your average win and your average loss, not just every single one of them. The right the average of all them which is very important as well
[00:12:46] The next parameter is the biggest win and the biggest loss. I wrote this down specifically because there are traders out there that unfortunately, because of one loss have destroyed their account. There is no other word to use, but really that’s what it is or that they shrunk it substantially, if I were to be nice about it. The reason is because either they were over leveraged or they carried it for too long. They weren’t able to cut their losses short, but essentially, it’s important to look at your loss because you’re not only looking at numbers at this point. You’re looking at your method and you’re also looking at personality and this is where you have to evaluate, where can I assume less risk and what do I need to change about myself not to take such losses in the market now? I’m going to tell you this, every experience has gone through a period of losses. There’s no such thing that somebody was born a natural trader. Mangy traders had to cope with it at some point in his or her trading career, so it is important that you acknowledge that. I hope that never happens to you, but nevertheless learning from other people’s experience and knowing that it could happen. Just realize, don’t think that you’re immune to any of that. Essentially, it could happen, so think about the risk okay now. I also measure the biggest win. I want to give credit obviously to those who had a really big one as well in the market and through the year they were able to bring their account up substantially because of their biggest win. That’s also something to analyze. How are you able to take it what is good about your method? What in your personality allows you to take advantage of such an opportunity? And so forth.
The last one is the average time that you’re in a trade. This is the last parameter that I chose. I’m going to talk about it now and explain to you, however, before I do that I just wanted to tell you that you can make your own parameter as well, so it’s important. What I’m telling you here is something that I felt is important to share, but there are there could be other parameters that you have that you can come up with or other people have advised you with so, I don’t want you to think that what I say here is the Bible. It’s just something that I thought is important and I’m sharing with you. So again, going back to the average time in a trade. I would assume this is more for day traders but let me give you an example. Let’s say you see that every time you win, and every time your profit’s come by, your average time in a trade is 3 minutes. When you lose your average time in a trade is 50 minutes. What does it tell you? It tells you that essentially, your profits are occurring really, really fast. So maybe the time to realize that your setup is no longer valid should be shorter and you shouldn’t wait 15 minutes. So, maybe if the time period was shortened, for example, then you’re not profitable within 5 minutes. What would be the loss? Maybe you would be able to minimize it. Now I’m going to tell you this, sometimes time is your best friend, but sometimes time works against you. It really depends on your method. That’s really what it is. I cannot tell you whether time is a good factor or a bad factor for you. Somebody who was an investor might say, look it’s great with time, you know. It takes a long time for good things to happen. If you’re a short-term trader maybe time is not a benefit to you.
So this was the last one. I appreciate your attentiveness and I appreciate you coming to the podcast again. I look forward to talking to any of you. If you want to call me you’re more than welcome to go to our site at OptimusFutures.Com. I would love to earn your business as a futures trader and I hope I was able to help you as well. That’s it guys, until the next podcast. All the best. Bye.
Thank you for listening to the Optimus Futures podcast. Subscribe to our podcast on iTunes, SoundCloud and Google Play. You can also find us on YouTube, Facebook, Twitter and Google Plus all under the username Optimus Futures. If you have any questions feel free to send us an email to Support@OptimusFutures.com or give us a call directly at 561-367-8686 or toll free at +1-800-771-6748. Once again, thank you for listening to the Optimus Futures Podcast.
Please remember that this matter should be viewed as a solicitation to trade. Trading Futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results, you should there for carefully consider whether such trading is suitable for you in light of your financial condition. Optimus Futures LLC is not affiliated with nor does it endorse any trading systems, methodology, newsletter or similar service. We urge you to conduct your own due diligence.