Risk and Time in The Market

[achalk 10]

Can anyone refer me to any reference work on risk and time in the market.

 

E.g. if two strategies have equal returns but one has the trader in the market longer than the other, how do we calculate the strategies' relative risks?

 

Thanks.

[MightyMouse 12]

Can anyone refer me to any reference work on risk and time in the market.

 

E.g. if two strategies have equal returns but one has the trader in the market longer than the other, how do we calculate the strategies' relative risks?

 

Thanks.

 

Are trying to determine the relationship between time and risk?

[Do Or Die 10]

E.g. if two strategies have equal returns but one has the trader in the market longer than the other, how do we calculate the strategies' relative risks?

 

Thanks.

 

Usually the strategy which takes the larger number of trades is better assuming other performance metrics are same.

 

Say a Strategy A keeps the trader in market for first two hours while Strategy B keeps the trader in market for full day. Both take same number of trades and have the same performance metrics. In this case Strategy B is better because it is validated for longer time in the market. If there is a regime change in opening session of the market, B is less likely to be effected.

[achalk 10]

Usually the strategy which takes the larger number of trades is better assuming other performance metrics are same.

 

Say a Strategy A keeps the trader in market for first two hours while Strategy B keeps the trader in market for full day. Both take same number of trades and have the same performance metrics. In this case Strategy B is better because it is validated for longer time in the market. If there is a regime change in opening session of the market, B is less likely to be effected.

 

But strategy B keeps the trader's capital at risk for longer. Is it not, therefore, a more risky strategy?

[Do Or Die 10]

But strategy B keeps the trader's capital at risk for longer. Is it not, therefore, a more risky strategy?

 

See it this way... strategy B has been validated in a better way by keeping (managing) the trader's capital for a longer time.

Edited October 2, 2011 by Do Or Die
typo

[JohnTaylorHK 10]

See it this way... strategy B has been validated in a better way by keeping (managing) the trader's capital for a longer time.

 

Would you rather lend your cash to someone for a week to earn $100, or to someone else for a month. Lending for a week only means I can get a risk-free return for the other free weeks, and is hence the more rewarding strategy.

[Do Or Die 10]

Would you rather lend your cash to someone for a week to earn $100, or to someone else for a month. Lending for a week only means I can get a risk-free return for the other free weeks, and is hence the more rewarding strategy.

 

You can also argue on similar lines- "would you rather make $$$$ from 100 sales or from two sales" on the number of trades a system makes (everything else remaining same.)

 

Your take, I'm over with this post

[JohnTaylorHK 10]

You can also argue on similar lines- "would you rather make $$$$ from 100 sales or from two sales" on the number of trades a system makes (everything else remaining same.)

 

Your take, I'm over with this post

 

Strategy B has worse performance since it took longer to make the same amount of money

[livernik 10]

Can anyone refer me to any reference work on risk and time in the market.

 

Thanks.

I don't know any reference work about, but if there is any , many "...it depends on ..." should be included.

In previous posts ,replies were based in personal experience.

I believe in cash, taking quick profits and cash again.

[TheNegotiator 13]

If generally one strategy takes longer than another, then it probably has different risk parameters anyway as a market's price movements on longer timeframes are larger. So I'm not sure comparing two strategies of different average length in the market is useful.

 

What I would say is this. If you have a certain strategy, the longer you have the trade on without it showing signs of moving your way, the more likely it is to not achieve your targets before taking you out. Of course this would depend on current market activity, volatility etc., but over all, if it's not doing what you think it should be, chances are there's a good reason and others in similar positions will end up needing to exit too.

 

Maybe you should plug in your trade data into excel. For each strategy you could simply plot length of time against profitable or not per trade. See whether you can determine any patterns.

Edited October 5, 2011 by TheNegotiator