Commentary on R
May 12th, 2006There’s some great commentary on R over at the Trader’s Narrative. It does seem natural to compare results in terms of dollars, but as the articles points out, “Dollars don’t matter in trading - risk does.”
Here’s another quote from the post:
Also, if you compare your trades with a friend’s using dollars, you are comparing apples and oranges. This is because you are not taking into account different markets, trading methods, portfolio sizes, and many other considerations. But by using R you can effectively compare across all of those differences by standardizing performance according to the risk that was undertaken to achieve it.
Amen. I feel like there was a fundamental shift in my trading when I started thinking about it in terms of R after reading Van K. Tharp’s Trade Your Way to Financial Freedom when TraderMike suggested it. There had been plenty of trades that I entered without defining my risk beforehand. On a day like today (or yesterday) where we’re seeing significant drawdown, not defining your risk could be a disaster.
I’m now thinking about trading in terms of my risk and it’s far less stressful. Here’s a summary of my trading journal from StockTickr that I’ve made public. Take a look at my interview with Van K. Tharp from earlier in the week to learn from the master himself.
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livermoresghost Said,
May 12, 2006 @ 12:09 pm
Don’t think I agree with the part about being able to compare with other types of trading,etc. If you are comparing a trading system that trades something that is not volatile with something that is volatile, it would still seem that just looking at what the r values are would not be a good standardized comparison.
Trader Eyal » Blog Archive » Several interesting posts Said,
May 12, 2006 @ 4:15 pm
[...] Sharky on To R Or Not To R Trader’s Narrative on Why R? Stocktickr Commentary on R [...]
Dave Said,
May 13, 2006 @ 3:00 am
livermoresghost, Trader Eyal pointed us to an article by Van K. Tharp where he addresses the issue of volatility in trading systems and using standard deviation of R to define it. Thanks for your comments!