I have been chatting recently to someone who asked my advice on optimising futures systems and whether to optimise for individual futures or apply the same parameters to the whole portfolio.
Leaving that aside I had to offer a piece of jaundiced and cynical general advice:
The vast majority of comment and trading advice out there it utter, utter garbage. Much of it written by fools, or worse, knaves. What you should do is to look at the long term track record of CTAs and try and get hold of records for dead programs. Happily over the years I have noted many of these but they have probably now disappeared from public view.
From memory, average MAR (CAGR/Max DD) came to around 0.2. Horrendous stuff. What this means is that short term back test results and short term actual trading records are meaningless. In the long term, the ridiculous MAR and other metrics you see bandied around are unobtainable.
Many fools are sucked in to this business and they are inevitably spat out again. I have certainly made horrendous mistakes of judgement myself over the years.
I am not saying it is all a waste of time. I am saying that over the years the vast majority of even professional fund managers (and or their individual programs) have crashed and burnt.
The fund manager emerges unscathed: he has reaped a fortune from his 2 and 20. His investors have lost a fortune.
Even if a program has survived, most investors will lose money. They will buy into the program at the top and sell out at the bottom.
In the long term I do not believe any system will achieve returns much above the “market” (whatever that means to you). In the short term there will always be fund managers who achieve spectacular returns through sheer chance for a period. And then crap out losing their investors a fortune.
Just let me give one example of my thinking. Stock Markets. Probably the biggest market for would be Boy Genii and Market Wizards and Masters of the Universe. The world has long been full of people who think they can beat a given index. The overwhelming likelihood is that without an edge (such as the bid offered spread, or the crooks who front run in HFT) you can’t.
For ordinary probability based traders, the overwhelming likelihood is that they will come unstuck through a mixture of greed, ignorance and disregard for history. Especially if they use leverage.
The S&P lost 90% + of its value after October 1929. 55% after 2008. Even limited leverage would have been enough to wipe you out.
Market timing won’t always work to get you out.
Thus says Cyd Cynical.
Argue if you will. But if you are convinced otherwise you are probably someone with something to sell or an idiot.