REAL vs. HYPOTHETICAL Performance – Detailed Study

Live Session Performance Compared to the Hypothetical Results (Used for Presentations)

My own methodology how the so-called HYPOTHETICAL RESULTS are calculated with the REAL SESSION RECORDED + COMPARED with the HYPOTHETICAL results

I am often questioned about the real performance of the PetronelSystems. The question is not easy to answer as it looks to be. The real performance is affected mostly by two trade expenses – trade commission and trade slippage.

I always want to be as most transparent and reliable as possible with presentation of PetronelSystems results.

I have to choose one value for commission and slippage (could be different for each system) for publication of past performance of PetronelSystems. Here is how I choose those values.

1/ Commission

PetronelSystems are traded by tens of brokers – from those with full and supervised service, typically Striker, to semi-automated brokers requiring daily trader´s attention – TradeStation. Each broker uses different commission plan – fixed, tiered, per side quantity based, with different discount possibilities etc.

Apparently THERE IS NO ONE “RIGHT” COMMISSION to be used.

For the presentation purposes, often called as hypothetical, I use $2.5 commission for one contract and one side of the trade = $5.0 round turn/1 ct. 

It is my real commission in most of my brokerage accounts, but other traders could have different commissions depends on factors mentioned above.

2/ Slippage

Slippage is much more complicated to determine than commission is. Here are some factors influencing the trade real slippage:

  • market environment
    • general volume of particular instrument traded (highly liquid to low liquid instruments)
    • high/low volume in particular moment of the trade execution ( fi. peak moment after report could result in big slippage)
    • period traded (day session, night session, opening period, closing period…)
    • maturity of the contract traded
    • general market volume (holiday season with low volume traded)
    • particular-day volume traded ( fi. special occasions like elections, voting. world´s events, disasters…)
    • and others
  • broker´s order placement 
    • software
    • hardware
    • internet connection to the exchange
    • and other factors
  • trader´s computer connection to broker – for semi-automated solutions only
    • trading platform used
    • internet connection delay
    • internet speed
    • distance to broker´s orders routing
    • hardware (reliability, computing speed, RAM…)
    • using of home computer or dedicated VPS and location of it
    • and other

 

Again, THERE IS NO ONE “RIGHT” SLIPPAGE to be used. Even the same trade realized by the same broker, same strategy, same computer has different slippage sometimes when traded in multiple instances.

PetronelSystems uses mostly market orders, and we have good reasons for that, so trade slippage is inevitable. I am keeping daily records of realized slippage from live trades and using them to set-up “hypothetical” slippage.

For the or the presentation purposes, often called as hypothetical, I use the nearest rounded dollar value to THE LONG-TERM REALIZED AVERAGE SLIPPAGE. 

The slippage calculations, long-term realized average, I use in most cases as follows:

  • 1 tick move value for each side of the trade (2 ticks round turn) in high liquid markets (ES, CL, YM…)
  • 1.5 ticks move value for each side of the trade (3 ticks round turn) in less liquid markets (EMD, TF)
  • hypothetical value is strictly declared/calculated for each system separately

3/ Real vs. Hypothetical study, both compared

Dramatic live session from May 10th., 2017 recorded. 

7 systems traded, 1 system each, 11 contrats altogether. In order how they entered market:

Trading session was quite dramatic. Opening with red, rocketing to $4,170 highest opened profit, thanks to CL + QM systems. Energy CL+QM faded to $712(!) closed profit and added by indexes, EMD, to final $1,598 realized net profit. About $4,000 opened profit faded during the day, sweetened by some $600 in the session end.

Here is explanatory picture link how to read TradeStation platform, where to find Hypothetical and Real Profit/Loss, for those who are not familiar with it. I trade more systems in different TS desktops for different TS subaccounts than those shown in recorded video.

Recorded trade session shows NET REAL PROFIT realized in May 10th., 2017 as $1,598.60

HYPOTHETICAL PROFIT, the sum of daily Profit/Loss of traded systems, in the set-ups described above is $1,635

Pegas c5 CL = $410
Gryfon QM = $200
Pegas 1 CL = $55
Nassos CL = $105
Folos CL = $110
Talos EMD = $325
Ladon EMD = $430

The difference between hypothetical and real profit observed in May 10th., 2017 is $36 in total or 2.2% Distributed to all 11 contracts traded and 22 one-way trades it makes the $1.6 difference for 1 ct and trade.

You can see, Hypothetical Performance is very close to the Real Performance by the methodology I am using.

Oldrich Karas

Check the trade session from May 10th., 2017 recorded here:

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