Monday, September 17, 2007

A New Poll

I've always made fun of the "hillbillies" over at MovetheMarkets for measuring their trading performance in "R." Currently, we are having a friendly debate about "R" and it's usefulness. At least I'm being friendly... I can tell Richard hates me.

I've always found dollars and cents to be a perfectly fine metric for measuring how good or bad a trade was. It works like this... if I make a lot of money, it was a good trade. If I lose a lot, it was a bad trade.

Anyway, I'm interested to see how many of you measure your trades in terms of "R" as opposed to dollar value.

My feeling is that unless I can pay for my daughter's college education with some type of "R" certificate (Dino-Dollars?) that I'll stick to measuring my performance in dollars and cents.

So, here is the poll: Is "R" a useful tool for measuring the success of a trade or does your account total already do that?


Woodshedder said...

I use both. If one wants to get more complicated in his metrics as far as trading results are concerned, it is important to figure R.

In fact, you can figure R with your daytrades as your initial R is really your cutoff limit, whatever that is right now. Not a perfect measure, but it will get you started.

Roman said...

My 2c. or 1R, if you prefer :P

Dollars and cents are fine as long as you have one, or maybe a couple of accounts that you trade with a similar methodology.

Once you start managing a few accounts with several different strategies and wildly varying account balances, dollars and cents isn't the best measuring stick.

"R" after all is dollars and cents, it's just an abbreviation, really.

R. (pun intended)

Dinosaur Trader said...

Interesting. Listen, I just want to say that no matter what happens in this poll, I'll still make fun of the MtM guys...


Bluedog said...

R is valuable in understanding how much risk was taken to achieve a certain outcome.

I'm always conscious of risk, but I'm like you, DT, I keep track of my trades in terms of dollars gained or lost.


Bubs said...

I was never a big fan of "R's" but I can see its value like bluedog said. With that being said I still prefer my actual P&L anyday.

Richard Todd said...

The funny thng is, I don't even track my cumulative R-based results anymore. I think once you have convinced yourself of your system's good expectancy, it's much less necessary. But, until you are convinced, it's an invaluable tool. It's like, the fundamentals underneath your $$ of profit. It's what reassures you that the money you are making (or not making) isn't just luck, but that the trades are actually sane. You can also get this reassurance by being profitable for a long long time, but it's faster to try to factor out luck with some simple extra performance measures.

My whole argument with prospectus was about this attitude that it's either/or, as if they are somehow interchangeable. They are different things, with different purposes. Maybe people get confused becuase so many bloggers only report one or the other, and both call it their "performance." I don't know.

You brought up an interesting point on my blog, about how the size a trader puts on can be considered part of the "goodness" of the trade if it's done skillfully. That's outside of the trade-quality measure from a risk-adjusted standpoint, but there may be a way to account for that via some other method... not sure.

Dinosaur Trader said...


Thanks. That really clears it up for me (honestly, and normally I'm a sarcastic fuck). I guess I can see it's usefulness in the early part of trading, when you're "learning" but after that, it's all about the dollars and cents.

It's like papertrading in a way... it's not real, but it helps figure out if your system or instincts are correct.