This entry was posted on Tuesday, December 18th, 2007 at 12:28 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
In a previous post of mine, I talked about how the compensation structure of the average hedge fund could lead to unnecessary risk taking. The ironic thing is that the same structure can lead to avoid prudent risks.
For example, today is 12/17/2007, there are ~10 trading days left in the year. My account has performed well and I am well ahead of S&P 500. Now, I had a signal this morning from my long only NQ system. This system has multiple entry signals and while extremely profitable, can often have big drawdowns as it buys at times of high volatility. In the last wave down (one that started late Oct), the first entry was down ~230 NQ points (like I said, very volatile).
Now this system has a 70% winrate and a profit factor of ~2, so obviously quite a big edge of random entry. As I prepared to take the trade today, I thought about what I would do if I was managing other people’s money. Knowing I already had a good year with 10 days left, do I take a large risk trade and risk significantly reducing not only my end of year numbers but also my compensation (assuming I’m paid a percentage of yearly profits)? Probably not.
However, I’m trading my own money and am in this to make maximize my profits over the long term. Whether my account has 3% drawdown on the last trading day of December or the first trading day of January is not important to me. The signal has a definite edge so I’m taking it. BTW, the second entry triggered for this morning.
- John
January 2nd, 2008 at 10:43 pm
[...] Christmas, I mentioned one of my NQ systems had recently triggered both of it’s entries. Now that the trades are [...]