Often times when comparing trading system performance, the natural inclination, is to compare returns. If you have two trading systems that traded a $100,000 account, and made a 30% return, and produced a 15% drawdown, and had the same length of drawdown, they would seem pretty much the same, right? I would say the answer [...]

Position sizing is determining HOW MANY contracts to trade when a trading system gets a signal. It is one of the most powerful and least understood concepts with many traders. Its purpose is to manage risk, enhance returns and improve robustness through market normalization. Position sizing can end up being more significant than where a [...]

Over the last seven years, the amount of money invested in managed futures has more than quintupled! According to hedge fund tracking firm Barclays, assets under management rose from about 41 billion dollars in 2001 to more than 219 billion dollars today! As worldwide demand for commodities continues to heat up and more investors (institutional [...]

When choosing a Managed Futures Commodity Trading Advisor (CTA) to invest with, one group that must be considered is emerging CTA’s. An emerging CTA is one whose track record is less than five years long and has less than $100 million dollars under management. Although it is often most comfortable to invest in managed futures [...]

I recently scanned a Commodity Trading Advisor database to look at the typical minimum account sizes for managed futures accounts. I found minimum account sizes ranging from as low as $25,000 to as much as $25 million. I also found that the average CTA trading with a small minimum account sizes tends to have concentrated [...]

With computers as powerful as they are today it is easy to optimize a trading system causing it to look exceptional, but an optimized trading system is not a reliable trading system. Just simply because a trader can train a computer to have 20/20 hindsight does not mean that future performance will be anything like [...]

Somebody once asked me, “If you had to decide about a trading system by only looking at one performance report, which report would you choose?” My first reaction was that this was a silly question. There are many factors that must be considered when choosing a trading system. Besides many performance indicators and ratios, there [...]

To the new trading systems developer one of the most exciting things to play with is optimization. Optimization is using the power of the computer to look at every possible sequence of parameters and rules, and then using only those rules and or parameters that have worked the best. With enough computer crunching power, it [...]

Optimized Trading Systems Portfolios We have talked about the dangers of optimizing trading systems (forcing trading systems to conform to historical data), but, one of the subtler forms of optimization happens with portfolio selection. This happens when trading systems are only shown tested across a handful or a small number of markets (or sometimes just [...]