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Impossibly Good?

| | Posted in: Technical Trading

A reader asked: “The performance on Swing-Trading.net must have 200 trades, and no losers. How is that possible?”


The returns presented at Swing-Trading.net appear to be theoretical gains based on perfect foresight and perfect execution (and no trading frictions), assuming exit at the maximum price (minimum price for short sales) during the ten days after entry.

The probability of achieving such perfection is vanishingly small (in other words, zero). Such information does not represent a realistic way to evaluate performance and places a large burden on prospective subscribers to determine whether the trade advice is good or bad. Determination would require development of realistic trade exit rules, modeling of realistic trading frictions and collection of detailed historical price data for each trade.

See “Steve Sarnoff’s Advice at the ‘Options Hotline'” for a sense of how hard it is to get a realistic read on such information.


Sinisa Persich, CEO of Swing-Trading.net and Traderhr.com, commented: “In this article you comment my performance but you didn’t mention that presented results are not exit price. This just shows max potential of our recommendation in a period of 10 days. For detailed results visitors must sign up for our free newsletter and than they receive detailed results. Can you please correct this in your article because someone who read this could receive wrong information about results. Here you can found detailed results at [performance data for members] . Performance doesn’t include brokerage fees.”

Response:

The above reply to the reader’s question, per your message, correctly and clearly interprets the publicly presented performance data, which is essentially uninformative.

As of 2/21/10, the performance data for members on the web page you cite lists 230 trades apparently spanning one year. Some metrics for these trades are:

  • There are an average of 19.5 trades per month
  • The average gross profit per trade is 0.42%.
  • About 59% of trades are profitable based on gross profits.

After incorporating reasonable trading frictions and accounting for open positions not listed, this sample may be market-underperforming and even unprofitable on both net per-trade and net portfolio levels for the typical investor. Trading frictions for individuals trading on advice depend on broker transaction fees, bid-ask spread (depending whether the advisor specifies limit prices) and position size. More concurrent positions translates to smaller position sizes and higher percentage trading friction. Bid-ask spreads are generally higher for stocks with relatively low trading volumes.

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