What kind of VaR and drawdown should one aim for?
I've been reading about PMs at these funds and deciding how I want to build a track record and scale my 30+ strategies. I currently just trade my own money successfully.
That said, I have read about tight numbers like 1-2.5% intraday 99% VaR and alarms start going off, 2-5% drawdown to get cut in half, 5-7.5% drawdown to get fired. It certainly makes me want to take risk management a lot more seriously. With a single digit percent losses, I also hear only single digit percent returns are expected?
But I am just an outsider so does anyone have specific numbers for intraday/monthly/annual VaR and drawdown at their gig so I can have some legit examples to go by? Any other stats like volatility, sharpe, max position size, risk per trade, etc. would also be appreciated. Thank you.
The numbers you quoted sound about right, but vary depending on the institution and strategy (equity L/S, fixed income RV, etc.). I'm not sure what kind of strategies you trade on your own, but the way these funds trade, it's actually difficult to draw down 5%+. Without more information, it's really difficult to give you advice.
The other thing to note is that it would be very unlikely for any of these funds to take your PA trading seriously. A prop trading firm may be more willing to give you a shot though.
So yes, I admit I not very aware of how hedge funds actually trade. I don't trade equity L/S or fixed income RV or arb. Where would you recommend I can learn more about these strategies? Would you say it is possible to replicate them on my own or probably not? My 30+ strategies are mostly just some form of mean reversion or trend following on equities. But combining so many strategies long/short, and across intraday/short-term/medium-term/long-term, small-cap/mid-cap/large-cap, entire Russell 3000 (so Russell 1000/2000 and S&P500 and Nasdaq and symbols outside of them too), various ETFs and commodities for more diversification, just BTC/ETH for crypto, and betting very small for each, ends up creating a pretty market neutral and smooth equity curve. It's mostly automated so I trade as many symbols as I can. Personally, I can typically handle up to a 5% daily loss and a 15-20% max drawdown myself, but things are predictable and adjustable enough that I could target and make it difficult for me to ever drawdown 5%+.
Besides being as clueless as I sound in this post :p, what are the particular reasons that I would not be taken seriously at these funds? And yes, I have already gotten deals from prop firms. But they don't like to pay a good salary and it's less capital, haha. About $10mm+, 50%+ payout, but drawdown 10%+ is acceptable.
If anything, I think learning to trade more like a hedge fund by imposing strict VaR/drawdown limits on myself instead of being a degenerate gambler, is something to aspire to and will make me a better trader and create a better track record. Thanks!
It’s about your strategy and risk tolerance really. I can get some pretty crazy numbers when doing VaRs 😂. I got a very high risk tolerance and some crazy strategies.
As long as isn’t to crazy of a number compared to what your working with I wouldn’t be too worried.
Just curious, what's your personal risk tolerance like? My stomach hurts a little and I start acting kind of weird and questioning life above 20% drawdown, which would be unacceptable at these funds. :p
The great game of Pot Limit Omaha is a good teacher for handling swings and variances
I can handle the swings and variances fine on my own. But if losing 5% gets you halved and 7.5% gets you fired, I feel like the idea is just not to lose much in the first place? Rule #1: just don't lose money. :p
I fully understand, was more as a joke with the PLO comment as swings there are brutal
No one with 30+ strategies is going to get past an initial phone call screen.
The way these funds work is they have multiple managers who run a particular strategy, then restrict any one from losing too much, to diversify streams and create smooth returns, yes? So if I am one person who can run very many with my automation, is that actually seen as a bad thing because I am not a specialist in any one of them? It's actually a big part of what makes things work for me. If I picked just one strategy and ran it by itself, even my best one, I would certainly not do as well as if I added a single other that was uncorrelated.
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