Past Performance
No matter how many times we come across the warning phrase “past performance may not be predicative of future returns” it seems we are doomed to ignore it. Past performance data seemingly ends up the most misused information in the investment business.
I am going to list my past performance trading forex using the 4×1 methodology. There are potentially many uses for this information. For example, it could be used to compare my performance to that of other forex traders or benchmarks.
Do not overweight my historical returns in any equation used to predict future performance. According to Mark T. Finn and Jonathon Finn, in an article titled ‘The Triumph of Hope over Long-Run Experience’ (contained in the book ‘Just One Thing’) past performance should only get a 4 percent weight when assessing a trader’s future performance.
The authors of the article give prior beliefs about the range of skill of traders in general a 35 percent weight. In other words this is your belief as to the abilities of all active forex traders in general.
Top of the list, with a 61 percent weight, is information about the trader excluding past performance data. This other information includes the process and philosophy employed by that trader. This sort of information about myself is contained within the numerous other articles and posts that I have written on this blog, so feel free to browse through the rest of the site to get a better understanding of what my process and philosophy are.
A few good articles to start with include:
Keys to trading success
Look! No indicators
Seeking clarity
After that roundabout introduction here are the relevant statistics:
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March 2006: 7.14% (demo)
April 2006: 7.1% (demo)
May 2006: 5.65% (demo)
June 2006: (1.128%)
July 2006: 8.92%
August 2006: 3.68%
September 2006: 4.145%
October 2006: (3.9%)
November 2006: 3.25%
December 2006: 0.5%
January 2007: 9.5%
February 2007: 6.6%
March 2007: 3.66%
April 2007: 3.05%
May 2007: (1.50%)
June 2007: (4.69%)
July 2007: 3.59%
August 2007: 2.05%
September 2007: 19.78%
October 2007: 50.08%
November 2007: 1.91%
December 2007: (79.09)%
January 2008: 7.9%
February 2008: 19.91%
March 2008: (17.68%)
April 2008: (43.08%)
May 2008: 2.52%
June 2008: 11.39%
July 2008: (9.07)%
August 2008: 1.37%
September 2008: (22.195%)
October 2008: 0% (no live trades)
September 2009: 5.5% (demo)
October 2009: 12.52% (demo)
Comments
Comment from Colin McGinley
Time 10 December, 2007 at 3:28 pm
Up until August 2007 my monthly target return was always in the 3-5% range. In August 2007 I decided to become slightly more aggressive and began to target a return of 7-10% a month.
I became more aggressive in two ways. The first was to increase my gearing on individual trades by 50% as compared to what I had been using previously.
Secondly, I started trading on additional pairs. I added USD-JPY first and have recently also added AUD-USD.
In retrospect, mainly due to the larger than desired unrealised drawdown in November 2007, I have decided to cut my gearing back to its original levels. I will continue to look for the additional monthly gains through trading on multiple currency pairs.
Comment from Kc
Time 19 January, 2008 at 9:01 am
You was doing so good until September and I can tell that you started to over leverage your account dramtically which ultimately let to the demise of your account. It looks like throughout the year as you gained confidence with your trading that you also gained a little bit of greed as you gained that confidence. Its sad to see that you was consistently making profit then lost it so abrutly. I will definately learn from your mistake. There are times when I feel like I’m doing really good and I want to increase my lot size by not abiding to my money management rules but I after reading this blog I know that would definately be a mistake. Im sure you will overcome this and actually become a better trader in the end. You just cant let emotions get the best of you. Good luck in the future.
Comment from iice74
Time 24 March, 2008 at 12:55 pm
I am just curious about what lessons you’ve learned from Dec07? And if there is anything you would like to share with everyone? Was the loss caused by adding new currency pairs? Or the additional risk? or something else?
Thanks,
H.Y.
Comment from Jaymanicus
Time 26 May, 2008 at 1:21 pm
@iice74:
The answer is simple! He was taking too many signals from Boris-Kathy and Grace Cheng!
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Comment from caprica
Time 8 December, 2007 at 5:06 pm
I noticed you had abnromally high returns compared to past performance in september / ocotober. DId you have higher than 4 time leverage in those months?