What kind of sample size is ideal?

I'm curious to hear some opinions on what a significant sample size of net positive trades is needed to determine competency in trading. 500? 1,000+? Or do you feel it's less about sample size and more about years trading?

I suppose this is pretty trading style dependent. Obviously 1,000 swing trades encompasses much more time than 1,000 day trades. For the sake of argument, let's assume a daytrader who makes somewhere around 20-30 trades/week.

hey nico, are you competent at trading ?

I think it's perhaps too early to say

100

Good question !

200 over a 4 years period is enough to me. assuming that you trade regularly with fixed risk per trade.

I want to believe this, but I'm skeptical. A daytrader can make this many trades in just a month. Who's to say whether or not market conditions have just been favorable for you and you are yet to really be tested?

For 2017, I'm net positive over 200 trades. I still feel like there's a voice in my head telling me that this could be just a lucky run.

While sample size is a useful proxy measure of trading competence, a more useful guide in determining your trading competency is your ability to handle a wide variety of different market conditions.

It all boils down to your systems ability to manage risk during adverse conditions. It is your ability to survive in a complex system that determines your robustness and survival is a feature of how you manage risk. Is the most successful creature on this earth a human or a cockroach? I actually think the likelihood of cockroaches outlasting us is a pretty safe bet and if long term survival is your aim....then robustness is your game :-)

Making profits during favorable market conditions is the easy part of trading. For example you may have been trading the DJI with a short term long only momentum system and have over 1000 trades under your belt since say January 2016 and be sitting on an obscene windfall simply because market conditions were favorable for this type of strategy over the period. Immediately following the GFC we had a protracted bull run in equities between 2009 and 2014 straight up (a 5 year run) where every man and his dog who traded long began to think that they were proficient traders.

Where proficiency comes in is your ability to survive risk of ruin over a broad range of market conditions. There are according to Van Tharpe probably 6 broad categories of market condition being volatile - long, volatile-short, volatile-sideways, non-volatile - long, non-volatile - short and non-volatile - sideways. These broad market conditions can have extended durations of many years. Unfortunately no single system can handle them all. What this means is that you either need to deploy a portfolio of systems configured for different market conditions if you inhabit the fully automated space, or as a discretionary trader, have a variety of different techniques in your arsenal which you can deploy as a portfolio to ensure you can survive in whatever condition the market throws at you....and this doesn't include fat tailed events which is another market condition you need to know how to deal with to have a chance of surviving.

While a greater sample size indicates that there is a greater chance that you have been exposed to a wider variety of market conditions...there really is no optimal sample size when it comes to trading a complex system. It is simply a probabilistic outcome that a larger sample size is more likely to expose a traders weakness. How many tosses of a coin does it take to expose for a fact that a coin is biased? There is no optimal answer....but what a large sample size gives you is the ability to determine with a greater likelihood whether or not the results of the return distribution produced possessed a bias. The larger the sample size gets the more it approaches the size of the total population of outcomes so the greater chance that the result bears some statistically valid rationale.....however a sample, no matter what the size is just an approximation with a given confidence interval and never a certainty.

RIP LCTM - Even with the nobel laureates in their ranks....the market had the last laugh. Were they proficient traders?

:-)