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Hi Robert,
{There appears to be discussion on the list over several areas of, in
my opinion, overlapping and related system trading production problems.
I would like to briefly share with you some of my views in the
following areas.
1) Optimization
2) System, market and portfolio risk
3) Money management
(Actually I've changed my mind.read below)}
Before I do, I would also like you to consider the following thoughts.
1) There is currently 5-7? turtle like traders (25-40 donchian type
breakouts) managing $2-3 billion?
2)there are several managers managing simple range(volatility)
breakout type systems. Dominion($250m),Crabel($130m)
Grinhams($200m),Northfield ($150m),etc etc
3) The longer-term traders are taking out 1500 -2500 RT per million
under management, the short term in the second group are taking out
4000-6000 RT per million under management.
4) All of them need to manage minimum account size of $2-3,000,000.
They commit varying daily average margin amounts of [the short
termers] 8 -15% of account size and the longer termers 14-25%
5) All of these traders would have IT budgets of $200-2,000,000 per
annum or more.
6) All of these traders need to place multiple systems and market
orders over 30 -70 markets worldwide to have a chance of succeeding
and then some still fail
7) Many of them have drawdowns {daily} is there any other? Of 10 - 35
%(the longtermers) and have annualized returns of 10 - 30 %, monthly
STD of 3.5 to 10.
8) Many of these traders(especially short termers where bet size is
important) only risk .02% on a trade, run extensive correlation
analysis to reduce correlated sector risk (on longer term systems
where bet size may still only be .05%) and trade over multiple time
frames to achieve further diversification.
Given that any sensible ideas I have as described in the first part of
the email need IT budgets of the sort I have spoken about and given
that this essentially is a Zero sum game(- turnover(broker) tax 0f 10
-15%) and given that there is a large body of managed money out there
(a small sample above) taking money out of the markets
And that they need to get their trading profits from somewhere..from
whom? And that the list above is only a small subset to which you can
add kovenor(2 bill),John Henry(2.5 bill),AHL(1 bill),Tudor Jones(?),
Mint(500m) etc etc
Lastly consider that these system professionals are trading for a
living but have no downside risk unlike many list members..they make
4-7% of funds under management..
Therefore for them 2% is often as low as .02-.05% and with all of the
above advantages they still have 1 in 7 year drawdowns of 10 -35 % of
a large portfolio while only commiting minimal amounts to margin
..then...
Food for thought. i should also like to thank the Mark Browns, Pierres
and others who give of their time to contribute
Good luck and good trading
regards
Sam
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