money_manag02

money_manag02 - An Introduction to Money Management II by...

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Unformatted text preview: An Introduction to Money Management II by Dr. Fernando Diz Syracuse University Performance Measures in Money Management Assume that the trading system that you are working on has the following results: Investment: $10,000.00 Profits: $10,000.00 Losses: $5,000.00 Net Profits: $5,000.00 Total trades: 25 Winning trades: 15 Performance Measures in Money Management Losing trades: 10 Maximum draw down: $2,500.00 Performance Measures: Return on Investment (ROI). ROI = net profit / investment ROI = $5,000/$10,000 ROI = 50% Performance Measures in Money Management How do we determine the investment? By convention we shall consider margin equity as our investment although remember that margin equity can be kept in interest bearing securities! If you manage clients money how do you determine their investment? Performance Measures in Money Management Example: Assume your client gives you power to manage an account of $100,000 but tells you to trade it as if it was $200,000? What is the investment? Performance Measures in Money Management Profit to Loss Ratio: P/L = profits / loss P/L = $10,000 / $5,000 P/L = 2 The profit to loss ratio gives you an idea of how efficiently one trades. Example: P/L = $100,000 / $95,000 P/L = 1.05 Performance Measures in Money Management Percentage winning (losing) trades : % Win = Winning trades / total trades % Win = 15 / 25 % Win = 60% Diz (1996) shows that this percentage is highly associated with the type of trading system used. Arbitrage has an average %Win of 69% Trend following has an average %Win of 57% Performance Measures in Money Management Edge and Money Management Variables in a Nutshell 1980-1994 Type of Trader % Wins Average Win Average Loss Win/Loss Ratio Annual Return Arbitrage Non-Classified Discretionary Systematic 68% 59% 59% 57% 3.46% 7.10% 6.40% 6.77% 2.88% 5.25% 4.45% 5.18% 1.20 1.35 1.44 1.31 18.6 21.2 26.1 21.4 Turtles 58% 9.94% 6.10% 1.63 45.9 Performance Measures in Money Management...
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This note was uploaded on 02/09/2010 for the course FIN 459 taught by Professor Yildary during the Spring '07 term at Syracuse.

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money_manag02 - An Introduction to Money Management II by...

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