This blog post started as a comment in yesterday’s post, specifically in response to a comment from Jan. I felt it deserved its own post:
Jan – Thanks for the references & link to Don Miller. I took his 2008 P&L and divided by the contracts traded:
$1,635,103 / 586,184 = $2.79/contract
A more realistic benchmark for me would be the figures he gave for non-member rates:
$1,125,052 / 586,184 = $1.92/contract
I originally incorrectly labeled those as pts/contract and I thought “Wow, that’s awesome”. Then I realized pts was no where in the equation and that it’s $/contract. $2/contract doesn’t sound so good. In fact it sounds bad, so bad that I wonder how someone could make over a million dollars averaging $2/contract.
In How Large An Edge Do You Need to Succeed at Daytrading? Dr. Steenbarger examines the edge of one of his followers and comes to the conclusion that the edge is 1 tick. he says that’s enough to cover costs but one would have to trade large size or frequently to make a good income.
So how does Don Miller make just $2/trade (per contract)? That seems very low to me. Suspiciously low. As in “I must have made a mistake somewhere”.
I was calculating expectancy differently, but in order to simplify comparisons with other traders I have added back in the simple net profit / total contracts calculation (calling it PL/Contract):
For ES it’s $14.25 which is basically 1 tick/contract. For Bund it’s 18 euros which is 1.8 ticks/contract. I’m still going to try and increase this but I’m not going to obsess about it. My primary focus is to do at least 1 tick/contract with a minimum risk. In November I used loose stops and sometimes averaged down. For January I want to to have at least the same performance with tight stops (6 ticks max). Once risk is under control I can focus on increasing the profit per contract.
Also note that my expectancy & PL/Contract are not the same – this is due to different position sizing and scaling in & out. For example if on one trade I average down (trading 2 + 2 contracts) and scratch the trade my expectancy on that trade is 0 and is equally weighted with another trade that had 2 contracts. However it I calculate PL/Contract the 4 contracts will drag the average down. In January I plan to go back to 1 contract and will not average down so these two should be the same going forward.