Systems: How good is good enough?

[kariye2]

I have been kicking around the question of how good is good enough when it comes to trading systems. I mean, how much better than the S&P does a system have to be to make it 'worth while'. I have heard a few different ideas, some figure in the difference between short term and long term tax rates, some folks look at it compared to the returns of managed funds. What are your thoughts?

[katenaLype]

Graysteel said: ↑
I have been kicking around the question of how good is good enough when it comes to trading systems. I mean, how much better than the S&P does a system have to be to make it 'worth while'. I have heard a few different ideas, some figure in the difference between short term and long term tax rates, some folks look at it compared to the returns of managed funds. What are your thoughts?
I'd be inclined to keep any system that gives me 10 pts of alpha related to it's benchmark, if I was a believer in systems.

[KayorOl]

Graysteel said: ↑
I have been kicking around the question of how good is good enough when it comes to trading systems. I mean, how much better than the S&P does a system have to be to make it 'worth while'. I have heard a few different ideas, some figure in the difference between short term and long term tax rates, some folks look at it compared to the returns of managed funds. What are your thoughts?
With my covered call approach, I'm happy if I add a couple of percentage points to the S&P 500 for the year.

Individual trades will bring much higher returns. That said, if an honest accounting of all trades gives me that 2% boost, I'm happy.

Evaluating a system? IMHO Only way to do it is total return over a year or more.

[KelseyGD]

Base capital of $50,000 (2:1 leverage = 100,000 buying power) opened and closed each day. Money market interest is 3.9% APR because no trades are held overnight.

$10,000 to $15,000 per trade, at 8-10 trades a day (margin / not always simultaneous positions / not including averaging in) = $150,000 per day in trades / all positions closed by EOD.

220 trading days per year.

33 million a year in total day trades at 1/2% overall gain = $165,000 yearly income. Better file mark to market and trader status!

165,000 profit from base capital of 50,000 = 330%.

This is a "working" account and not a passive / semi-passive trading approach.

From the income, deduct taxes, living expenses, and INVESTMENTS. Comparatively the same as working a high stress professional job for "the man". And you trade in your underwear, LOL!

It's a model. It is achievable.

OP Quote:

[KennettthHize]

"I mean, how much better than the S&P does a system have to be to make it 'worth while'. I have heard a few different ideas, some figure in the difference between short term and long term tax rates, some folks look at it compared to the returns of managed funds."

I would pose the question....time = money? How much of YOUR time you "invest" in trading should be in proportion to the return? Among other factors of course...but if you daytrade as a business and spend 9-10 hours of your life "working", you should see profits well-above the S&P or you will find you work for peanuts. Better moonlight at Burger King for rent money.

$50,000 a year is the interest on a million dollar base from a common money market account or treasuries (roughly). Totally passive income. No time or effort required (relatively speaking).

That same 5% a year return for working your ass off behind the screen everyday? How about 10%? That amounts to peanuts on a monthly basis. Would you consider this a good wage if you were spending the time working in a "job"?

How about 20% APR (beating the S&P) on a 50k account. = $10,000/year. Great return, but relative to how much time spent from your "life"? If this is from passive acounts-------> fantastic return!

What is the time spent worth?

I pose these for thought, not for argument. Each trader / investor has to answer these questions on their own. :?