What Is a Tradeable Strategy?

The purpose of this book is to show the reader how to develop a tradeable strategy. But before the how-to part, you need to realistically understand what a tradeable strategy must encompass. I say realistically because some traders envision a tradeable strategy as one that never loses a trade, never has a losing day, and at least doubles your money each year. It’s nice to have lofty goals, but you’ll never find a strategy that meets those criteria. To show the art of the possible, the first part of this chapter will present documented performance from some of the best traders over the last five years. Then we’ll look at metrics that best characterize a trading strategy’s performance. Lastly, a set of questions will be presented to help you define what would constitute a tradeable strategy according to your risk‐taking tolerance.

Realistic Return/Risk Expectations

Table 1.1 shows Barclay’s top 20 Commodity Trading Advisors (CTAs) for the five‐year period of July 1, 2005, through June 30, 2010. It was compiled by Barclay’s from the 290 CTAs that submit performance information to them.

Table 1.1 raises a number of interesting points:

Across all 20 funds, the average annual yearly performance of 27.98 percent is only about 3.5 percent higher than the average of the max draw‐downs.
Out of the 20 funds, 17 had an entire one‐year period without any gain.
The best 12‐month period heavily skewed the average five‐year return performance numbers. ...

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