|
PureBytes Links
Trading Reference Links
|
At 10:27 PM 4/1/98 -0800, Michael Paauwe wrote:
>Mark Johnson reports an impressive 87.8% actual return on Futures Truth
>ranked system, trading 25 markets with an account size of US$149,841. The
>portfolio rose to a peak of $335,146 during the first year, 1997, even after
>withdrawing $15,000 in cash, in a spectacular demonstration from one of
>1990's top PART TIME End of Day traders.
Yea, yea, yea - many of us read Johnson's account in the 98.02 issue of
Club 3000 News (I'm puzzled though why you didn't credit C-3000 in your
exerpt?).
>He [and K D Angle] says: " this 2-1 ratio of return to drawdown is a very
>common occurrence in the vast majority of trading programs..."
I'm a bit mystified by your arithmetic, however...
- as you noted, Johnson's equity peak was $335,146
- according to the article, his equity low point was $194,022
- so, his maximum drawdown was $335,146 - 194,022 = $141,124
- Johnson's gain between 1/1/97 and 12/31/97 was $118,443
So, I would calculate the ratio of return to drawdown as: $118,443/$141,124
or 84%. Put another way, the maximum drawdown was 120% as large as Johnson's
gain for the calendar year. Put still another way, if Johnson had opened
his account on April 10th (date of his equity high) his account would have
been drawn down by 42% by the date of the subsequent equity low, 2-1/2
months later on June 30th. Had his investment "window" been April 10th to
December 31st, his percent return would have been MINUS 24% (calculated as
1 - $335,146/$253,284).
>Look and learn... Mark Johnson is living proof it can be done with minimal
>work. He made 118,443 in one year, trading one lots, working 120 minutes a
>week!
I am not questioning that Mark Johnson made $118,443 in 1997, nor that he
did it working 2 hours a week, or that he used canned systems. However,
to ignore the point that his maximum drawdown was 20% larger than his
annual gain - statistics that Johnson includes in the full text of his
article - is misleading. Further, to suggest that the ratio of return to
drawdown was 2 : 1 - when in fact it was .84 : 1 - is just plain wrong
(in Michael's defense, he is just repeating Johnson's error - in the
C-3000 article, Johnson gets the 2:1 ratio by dividing his January-
December return on equity (87%), by his drawdown (42%).
Johnson succeeded because of fortuitous timing: he made $184,806 in the
January to March runup, before the April to June drawdown cut his
account by $141,124. To suggest that this is a triumph for mechanical
systems, or vendor systems, is just plain wrong - the guy simply
gambled and won!
Jay Mackro
|