Michael Covel

Jan Sand Added:

June 2nd, 2008 at 4:17 am

What is his volatility and sharperatio?

Michael Covel Added:

June 2nd, 2008 at 5:55 am

Go to iasg.com.

Curious how does a Sharpe Ratio help analyze a trend trader?

Michael Covel Added:

June 2nd, 2008 at 6:28 am

More on this:

http://www.edge-fund.com/Hard02.pdf

Chris Clarke Added:

June 2nd, 2008 at 7:36 am

Fantastic results from MJ Walsh and typical of Jan Sand to be the first response asking the dumbest of all questions - MJ Walsh is actually good evidence once again that higher volatility and a lower sharpe ratio are good signs that an investment strategy actually works over the long run - if MJ Walsh has a low sharpe and a high level of volatility then surely the smartest conclusion is that success in the longer term is characterised by trading strategies with higher volatility and lower sharpe ratios - surely that is obvious ? What is not so obvious is that trading strategies with low vol and higher sharpe ratios are usually hiding inherent risks and a usually the riskiest of all bets - evidence of that is everywhere from LTCM to the Sub-prime bebacle - one day investors and traders will cotton on !!!!!

Jan Sand Added:

June 3rd, 2008 at 3:43 am

Don’t know Chris Clarke and he can’t say what’s typical of me. Also, have come to learn in life there are no stupid questions. Had expected more from this forum.

Michael Covel Added:

June 3rd, 2008 at 7:29 am

It is a charged conversation and has been for some time. Many people walk into an analysis of trend traders asking about volatility and Sharpe rations. As I posted there are good resources on the subject.

Doug McCarty Added:

June 3rd, 2008 at 9:35 am

ONe June, two gentlemen, A and B, decide they would like to provide water to their thirsty, desert town (a problem which has plagued the town for several decades), Drywood. A decides that he will tap the aquifers with a mechanical design that fills up his 10,000 gallon tank one gallon a day, steady as a clock. At the end of May the next year A has 365 gallons to distribute to Drywood and believes, given the previous cost of water and his own costs that he will make a reasonable profit.

B creates a series of aqueducts over his land to the nearby mountains. His 10,000 gallon tank gets no water in July, August, September and October, but the rains begin to fall, and then the heavy snows of winter and he finds that by the end of May when all the snow has melted and the spring dry season has begun, his 10,000 gallon tank is full. B could not tell you when he would receive the most water, or whether this winter would be flush with water or very light (the snow could fall mostly away from his collecting device, it could be a dry winter, etc.), and the laws of chaos might determine that water which flowed his way for several years would take a different trend this year, but he knows that generally he will get the lion’s share of the rain fall and snow melt that falls in this area.

A and B’s costs of either drilling for or aqueducting water, and building a storage tank, are effectively the same. Supply and demand being what they are, Drywood only needs about 10,000 gallons of new supply of water and so the local price of water falls a bit. A barely breaks even, B makes incredible returns, even with the slight dip in the price of local water.

Both A and B decide to expand their operations to nearby towns and look for investors (and open up their ideas to potential imitators. In which way will knowledge of the Sharpe ratio in terms of their water collection technique help potential investors and imitators make their decision? Won’t the question really be, which technique is most likely to take advantage of universal (if irregular and chaotic) laws to create the greatest return? What would / should an investor / imitator care whether cash flow (water flow) had a high Sharpe ratio or a low Sharpe ratio?

It would take many, many drought years (where A was still steadily collecting his 365 gallons per year) for B to fall behind A’s “returns”.

Doug McCarty Added:

June 3rd, 2008 at 9:55 am

Postscript, to Jan Sand:

“Also, have come to learn in life there are no stupid questions.”

May I suggest coaching a girls 12-13 year old soccer team for a season to disabuse you of this bromide? Or perhaps listening to CNBC’s regulars for a few days as they formulate questions for guest talking heads? The truth is there is no shortage of stupid questions, and their number is only exceeded by the infinite variety of stupid answers.

Peter Mitchell Added:

June 3rd, 2008 at 8:20 pm

At the end of the day. Whoever is making cash consistently from Trend Trading is my Nemeisis.
If you want to yalk about or discuss stupid this or stupid that, you are all wasting your time, as in that same time frame you could be very well making money Trend Trading, and cutting out all the outside noise..
The beneficiary from Trend Trading is one in which my Family and recipients will benefit from in my Trend Trading success.

Alex Added:

June 3rd, 2008 at 9:35 pm

Hi, Michael,I sincerely think it is possible for such a return. End of the day, the trending market and the trend following approach works extremely well. I myself had been trading commodities for the past 5 years and my results proved that too…..