exp system

[exp]

WLD, let me explain the 10% number...

assume that we have these daily % changes in NDX during the 10 trading days next month:

 
 +2% -2% +3% -2% +1% +5% -2% +1% -3% +4%   
 

the corresponding absolute daily % changes in NDX during the 10 trading days next month will be:

 
 +2% +2% +3% +2% +1% +5% +2% +1% +3% +4%   
 

the sum of these 10 absolute daily % changes is 25%...so, similarly, over 20 trading days the sum of the 20 absolute daily % changes would be 50%...

my Excel spreadsheet shows that 50% was the average sum of the 20-21 absolute daily % changes over a typical month since 1/2000 till now...

so, if one has only winning trades, one can capture the full 50% of the sum of absolute daily % changes over a typical month...and in Profunds, this would mean capturing the full 100% of these absolute daily changes (of course compounded 50% would produce more than a 50% return)...

now, one will have some winning trades and some losing trades...assuming one has 60% of daily winning trades and 40% of daily losing trades (which is probably realistic for a top trader) and assuming that winning and losing daily trades have on average the same daily percentage changes (which is probably realistic as well) one can expect to accumulate

.6 (50%) + .4 (-50%) = 10%
of the 50% average sum of the 20-21 absolute daily % changes over a typical month...

using Profunds this doubles to 20% of 100% average sum of the 20-21 absolute daily % changes over a typical month

that's how I estimate 10% in NDX gains per month and 20% in Profunds gains per month...all subject to above assumptions on % of winning trades and on average sizes of winning versus losing trades...

it's possible that average winning trades could be larger than average losing trades in which case the % of winning trades could be just 50% and still produce reasonable gains...finally position sizes matter as well and, to simplify, I was assuming so far that all trades are done with equal position sizes...

in reality, one does looks at all trades even multi-day ones simply as single trades so that the calculations above would not correspond to typical record of trades unless one looks at the results day by day...

regardless of the particular computational approach though, I do get a ballpark figure of 10% in NDX and 20% in Profunds as a reasonable limit of what can be captured on a monthly basis...