Just how good is a crypto trader?
It's a fair question, but "good" is one of those words that can mean SOOOOOO many different things, that to people like me, it generally doesn't mean much. It's like "natural." WTF is that?!
The reality is that if we are going to measure how "good" or "skilled" a trader is, we need numerical data; the actual data behind a trader's performance and the metrics associated with it.
Even though we've only been dabbling in cryptos since 2017, some of the guys in our group have been trading other markets for decades: stocks, forex (foreign exchange or "FX"), options, futures...you name it!
In Forex, we have access to some pretty cool tools that I wish we could tap into for cryptos.
For example, check out this cool tool from MyFXBook. It actually breaks down an FX trader's historical performance and gives you a lot of important information associated with it.
In the example above, you'll notice that the trader is up 407.56% since he started on May 2016, which equates to 6.89% a month compounded.
Sounds like a darn good return, right?
The reality is that looking at return without taking risk into account doesn't really give you the complete picture you need to make an informed decision about a trader's skill or lack thereof. In the world of hedge fund trading, six (6) percent a month is actually pretty high, but when you take into account that the trader above had a drawdown (or maximum downside deviation in equity) of 64.05%, then the return doesn't look as good.
I know that in a market as volatile as crypto, dropping 64% in an account might be the style du jour for many, but the reality is that we don't know many traders that have survived for too long by letting their equity drop by that much!
Don't get me wrong, just looking at a trader's return in proportion to historical drawdowns is not enough. You need to consider many different things. How does his average win compare to his average loss? What percentage of his long/short trades are profitable? All of these things are important, as well as many others.
But my goal here is not to assess a trader's report card. That is a subject for a much more in-depth, future post!
I just wanted to bring up the topic of tools that we think all traders need; tools like the ones above, which would make the lives of both novice and experienced cryptocurrency traders alike a lot easier.
Given that we are planning to eventually launch a crypto fund [hopefully this year], we are craving for tools like these. We've looked and looked, but haven't found anything remotely close.
How about you...do you use anything similar to this to analyze your crypto trading performance?
If you're a dev, do you know of a group or project that's working on something like this for the crypto market?!