How consistent is good enough?

Well, my first year as a day trader is over now, and over the course of the year I've been fortunate enough to make a very good amount of profitable trades. I've been researching over the last gew nights to try to find out what the average daily rate of return a pattern day trader normally makes. If I divide my total yearly gains by the number of trade days there are in one year I come out with a 5.5% aveage daily rate of return. Of course i cheated, being a software developer i was able to develop an automated algorythmic trading software that trades for me, rather than risking the emotion of trading myself.

I was curious as to how many traders are abe to make a 5% daily rate of retun on average, and weather the algorythm would be worth anything, if anyone were to purchase the algorythm, how would i price it?

I'm really looking for feedback from more experienced traders, as I've only been trading for 1 year (with my algorythm) does anyone have any idea of what the algorythm would be worth? Or who i would approach to sell it? Oh and before you ask. Yes my trades are all real and backed up by a real trade history and account balances. So the sales pitch would be completely verifyable.

Any thoughts would be apprciated.

If what you claim is true then you would be a complete idiot if you sold that system. Your system is worth hundreds of million dollars and if you sell it for anything less then you'll raise suspicions about it.

Well, that's one way to look at it. Another way is if I was offeed 100M for it I would rather take 100M now than wait for the return. When you start trading in the millions, you have to spead out the accounts, and then this whole thing becomes actual work. Although, if I wasn't greedy or lazy, I would be fine just moving forward and trying to push the ceiling past 10 Million myself. if it didn't take so much work to set it all up.

But I wasnt sure until tonight just how good that ate of retun was. I actually had to look up what rate of return the average day trader was getting.

Well I assume its worth somewhere in that realm. But how do I do a valuation on it?

Why don't your approach Merrill Lynch or Goldman Sachs? At that rate of return they'll be fighting over each other to buy it off you. You don't need to value it. Take your statements to them and ask for $100M and then negotiate from there.

Well I've approached a few people, and interestingly enough when they see the software in action, and we get into negotiation it seems as though they all just want to try to get me to trade for them. Concerns that come up are

Well it may have worked for a year, but how do we know it won't stop working in the next month.

My answer to that was You can see it's performance in good market conditions and you can see its perfomance in poor market conditions. What are the odds of it working for a whole year in various market conditions, then just breaking down in a month?

Another thing I've been asked is how does it work? For me to sit there and explain that, would be rediculous, if not really bad for me.

Then the hardest thing to deal with is their disbelief that some random guy from a small town with no college education, could have built this, and that it works.

I guess I'm really afraid of the negotiations. That process would be more stressfull than trading.

Hire a lawyer or the like to do the negotiating for you. With the amount of money that you made over the last year you should easily be able to get someone good to do that for you.

hmmm. I have to over analyze that first,. But on the surface that's a good idea. I'm going to make some calls and look into that.

greenarrow,

What instument(s) do you trade?

How many shares/contracts per order?

Does the software work in all markets in all timeframes?

If you are serious about selling your program and are fearful of handling your own negotiations (as you shoulde be--that is the job of a professional), I would be happy to entertain acting as your agent/consultant. I have a long career working on Wall St. in mergers & acquisitions. In situations like this, my compensation is contigent upon the closing of a successful transaction on your behalf.

If the program produces as you've stated, a transaction could be consumated very quickly. Feel free to email or PM me if you want to have a free, no obligation consultation.

I tend to agree that any large firm would likely make a huge offer without a lot of negotiations. I would also be looking at major hedge funds, who would want to snap it up before any competitor gets it. I doubt any large firm, if you are talking to someone who can make decisions like this, would in any way want you to trade it. They would want it for their top trading team, and to work it with billions, in my opinion, totally under their control. If they are asking you to trade it, you are not looking in the right place, again in my opinion.

One thing I did think of, though, is this. If you show actual statements to anyone to look over, you will be revealing all your trades, and that will give them a lot to study to perhaps discover what you are doing. Given the potential value of this program, I could see a meeting held where you allow them to look over statements, but not copy them, or even look at them for a long time. This was discussed in advance as a condition of the meeting. Meanwhile, they have hidden zoom cameras in the ceiling, like any typical security cameras than many places have, and they purposefully position the statements one by one to take pictures of them.

Then they hire a team to study every single trade, and start modeling and programing, trying to figure it out. If they were willing to pay $100 million for it, maybe spending a mil or two to try to figure it out first would be worthwhile to them. If you use audited statements, and then only reveal the results, you must trust the audit company, and that no one there would be tempted, for example, to sneak copies out to someone for, say, a million dollars.

Myself, I'd be pretty paranoid about all the above. Almost like winning the lottery for $100 million, then getting it in cash and having to walk to your bank with the money, in a bad neighborhood, and people know you have the money. Good luck with this, it does seem like you hit the lottery big time.

One question I do have, as just asked above. What instrument did you use, and how did you calculate the return? For example, if you traded a futures contract (I'm assuming the most likely instrument you used was the ES), what margin did you use for the calculation?

Equities. Not Futures, not options, not forex.... SHARES. STOCKS, if you have another defenition for "what instruments are you trading" then please restate the question. I answered that in my email.

As far as cameras in the ceiling... They would have an extremely difficult time reverse engineering as it doesn't use "patterns" like a strategy does.

They would seriously be stumped for years. Doesn't make any sence to spend a year and 2 million reverse engineering something they could have access to for 2 million dollars. Just not exclusivity.

I'm also not concerned with having to cash the check. Since I'm the only one who understands the algoythm, and there are safeguards in place. That cloak and dagger crap doesn't exist.

Nope, I only wanted to know what you were trading. Futures and the margin used would tell me the leverage. Doing an approximately 1375% yearly rate of return unleveraged is incomprehensively phenomenal. I can't see selling it for 2 million, I was comparing them spending 2 million instead of 100 million, which, in all honesty, doing what you did on no margin, I think it would be 'worth' substantially more than 100 million, but that's just my opinion.

As far as the cloak and dagger crap, I'm not sure I agree. I used to work for industry, and they had a computer program, and this was decades ago, that did what was called a 'matrix deconvolution' of a sample. Basically what it did was analyze a sample and take a UV spectral anaysis. It then had a store of thousands and thousands of spectras from various compounds. It then looked at all possible combinations, including the relative percentages needed to form the curve that was seen. It was amazingly accurate. We had to do other various tests from completely different methodologies to confirm the results, and they were quite accurate.

Given the technology and computer power of today, it would actually be quite easy to program in 700 or 1000 indicators (I didn't know there were anywhere nearly that many) and do a 'deconvulation' analysis until the given trades were produced. May sound a little science fictiony, but mathematically it wouldn't be that hard, in my opinion. If you do any studying on industrial espionage, you would see it is big business, and the spying and money spending they do is unreal. But, as you said, you have no worries about that, so you are set with your course of action. I was just thinking with a once in a lifetime thing like this, you would want to be extra cautious, but I see you have it under control. Just don't settle for 2 million, do what DT said and shoot for at least 100 million :-)