Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

Recommended Posts

Hi People,

 

I just ran across the Scar Ratio in a book I just read. Scar stands for "Simple to Compounded Accelerated Returns" Ratio. Anyone have any experience with this? The book is entitled "Investment Catch-Phrase Fallacy: The New Risks of Traditional Investing". The author is apparently a top hedge fund manager. This is a quant guy whose fund uses the formula because of the frequency of the exits of their trades which invokes a substantial compounding effect. I just ran my SCAR ratio using their excel download http://www.scarratio.com and it was interesting because it does kind of make you keenly aware of the impact of the compounding effect in your trading methods. BTW my scar ratio wasn't very good :-(

 

Anyone else using this?

Todd

Share this post


Link to post
Share on other sites

According to the website, the formula is:

 

The SCAR ratio formula:

 

SCAR = ((CV-IV)/IV)+1

 

Where:

 

IV = Initial Value (beginning portfolio value of time-frame being measured)

CV = Current Value (portfolio value as of last trade of time-frame being measured)

 

I don't really see how this is really different than calculating percentage return over a period? Looks to me to be the same thing, just slightly repackaged with a new fancy name.

 

I am always suspicious when someone do that as in many cases they just do that to market themselves so that they can sell you something.

Share this post


Link to post
Share on other sites

Yes thanks. In my case I actually bought the book first then learned about the scar ratio. Yeah I think you are right about it being a simple measure, which is exactly what I thought until I started to think about what the measure told me about my trade losses. I actually lost 11% in 2008. So my scar ratio is .85 which I guess means that I’m still suffering the effects of my previous losses in my current trades, it being a measure of the previous 12 months. Oh yeah they did try to sell me a tee-shirt lol.

Share this post


Link to post
Share on other sites
I actually lost 11% in 2008. So my scar ratio is .85 which I guess means that I’m still suffering the effects of my previous losses in my current trades, it being a measure of the previous 12 months.

 

This means that you have lost 15% of your account over the last 12 months and has nothing to do with the previous losses. This is a simple calculation to see what your return is over the last 12 months. Just because he decided to give it a fancy name, doesn't mean it is something fancy.

Share this post


Link to post
Share on other sites

hmmmm. Well you are right in that it's not fancy. In fact I think the author stated in his book that it was very basic and wasn't fancy. However if it was simply another way of calculating loss (or gain for that matter) then in my case my scar ratio would be 15. However my scar ratio was .85 so... clearly there is something more here.

 

Hyder says it's always the "current value of a 1% trade gain in relation to my principal of one year ago." So I’m going to go ahead and disagree with you about what this is and agree with you that it's not complex.

 

I'm not a rocket scientist (I’m sure some of you here actually are) lol. But I think we as investors have a "can't see the forest for the trees" situation about this. Which is why I thought the ratio was so interesting. Yes clearly it’s simple, even Hyder says it is, but I think the point is to look at your trade methodology in a new way as it relates to the acceleration of the compounding effect.

 

For example, I've made several good trades this year and it changed my scar ratio because at the same time old losing trades are dropping off. This is what I think the author was attempting to make investors aware of... the style of trading as it relates to your daily advancing year old principal.

 

For what it’s worth...

Share this post


Link to post
Share on other sites

The formula to calculate SCAR over a specific period is:

 

SCAR = ((CV-IV)/IV)+1

Where:

IV = Initial Value (beginning portfolio value of time-frame being measured)

CV = Current Value (portfolio value as of last trade of time-frame being measured)

 

The formula to calculate return on account over a specific period is:

 

Return = ((CV-IV)/IV) * 100

Where:

IV = Initial Value (beginning portfolio value of time-frame being measured)

CV = Current Value (portfolio value as of last trade of time-frame being measured)

 

The only difference is that in one case you add 1 and the other case you mulitply with 100. Multiplying or adding a result with a different constant, doesn't give you any new information, but if you think it does, then more power to you.

Share this post


Link to post
Share on other sites

Sevensa is correct. SCAR Ratio is a re-labeled and re-packaged simple return calculation (a rose by any other name). In answer to your earlier question, I constantly use return calculations.

 

Yes, return will increase as performance improves during any given period of time.

Edited by Dacamic
Clarification

Share this post


Link to post
Share on other sites

I'm sorry but you both are incorrect. It is not a simple return calculation it is a compound return calculation that always measures its relation to the first 1% non-compounded gain. I agree that it is simple to understand and simple to calculate but the value of the ratio is that it keeps you aware of how your next trade gains compare to your original principal. The real reason you dismiss the scar ratio is because you are too "smart" to see the forest. According to your comments it has to be complex to have value. Tell me what does a 2.15 scar ratio tell you? It tells you that a 1% return gives you a 2.15% return in relation to your original principal. Are you telling me that knowledge isn't important in a trading methodology? Telling yourself you made 115% doesn't give you that information. You both have completely missed the point because of your (not invented here) superior intelligence. I've read the book (which is now free on the author’s web site) and this guy had made 82% in the last 12 months with a full 15% of that 82% because of the scar ratio concept. Have either of you made 82% in a 12 month window? I know I haven’t.

Share this post


Link to post
Share on other sites
Tell me what does a 2.15 scar ratio tell you? It tells you that a 1% return gives you a 2.15% return in relation to your original principal.

 

It tells me that for every $1 I had in the beginning of the calculated period, I now have $2.15. In other words, each dollar returned 115%.

 

Here is an example:

 

12 months ago you had $100 in your account and today you have $215.

 

SCAR = ((215 - 100)/100) + 1 = 1.15 + 1 = 2.15

 

Return on Account = (215 - 100)/100) * 100 = 1.15 * 100 = 115

 

The only difference is that for SCAR you add 1 to 1.15 to get 2.15 and in case of ROA you multiply 1.15 with 100 to get to percentage return of 115. Why do you think adding 1 instead of multiplying with 100 gives you more information?

 

According to your comments it has to be complex to have value.

Talk about missing the point. We have said it is virtually the same thing than return on account and doesn't give you additional information. Please read the previous posts again.

 

You both have completely missed the point because of your (not invented here) superior intelligence.

 

There is no reason to come with personal attacks because we have shown you that mathematically SCAR ratio is virtually the same thing as Return on Account calculated over the specified period. Math is math.

 

Have either of you made 82% in a 12 month window?
What does that have to do with anything? Just because someone made 82% last year doesn't mean he what he say about math has more credibility or that someone who didn't, has less. If you stop believing whatever that guy is telling you because he made 82% and look at the math, you will see yourself. Edited by sevensa

Share this post


Link to post
Share on other sites

There is the possibility this thread is more about promotion than enlightenment. On the chance my skepticism is unwarranted, I offer a link to the ROI calculation per Investopedia:

 

http://www.investopedia.com/terms/r/returnoninvestment.asp.

 

With respect, as Sevensa has said, SCAR is mathematically identical to ROI. Furthermore, the suggested interpretation for SCAR is to describe 1% x $20,000 as 2% x $10,000, which doesn't seem a revolutionary idea, either.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Topics

  • Posts

    • How's about other crypto exchanges? Are all they banned in your country or only Binance?
    • Be careful who you blame.   I can tell you one thing for sure.   Effective traders don’t blame others when things start to go wrong.   You can hang onto your tendency to play the victim, or the martyr… but if you want to achieve in trading, you have to be prepared to take responsibility.   People assign reasons to outcomes, whether based on internal or external factors.   When traders face losses, it's common for them to blame bad luck, poor advice, or other external factors, rather than reflecting on their own personal attributes like arrogance, fear, or greed.   This is a challenging lesson to grasp in your trading journey, but one that holds immense value.   This is called attribution theory. Taking responsibility for your actions is the key to improving your trading skills. Pause and ask yourself - What role did I play in my financial decisions?   After all, you were the one who listened to that source, and decided to act on that trade based on the rumour. Attributing results solely to external circumstances is what is known as having an ‘external locus of control’.   It's a concept coined by psychologist Julian Rotter in 1954. A trader with an external locus of control might say, "I made a profit because the markets are currently favourable."   Instead, strive to develop an "internal locus of control" and take ownership of your actions.   Assume that all trading results are within your realm of responsibility and actively seek ways to improve your own behaviour.   This is the fastest route to enhancing your trading abilities. A trader with an internal locus of control might proudly state, "My equity curve is rising because I am a disciplined trader who faithfully follows my trading plan." Author: Louise Bedford Source: https://www.tradinggame.com.au/
    • SELF IMPROVEMENT.   The whole self-help industry began when Dale Carnegie published How to Win Friends and Influence People in 1936. Then came other classics like Think And Grow Rich by Napoleon Hill, Awaken the Giant Within by Tony Robbins toward the end of the century.   Today, teaching people how to improve themselves is a business. A pure ruthless business where some people sell utter bullshit.   There are broke Instagrammers and YouTubers with literally no solid background teaching men how to be attractive to women, how to begin a start-up, how to become successful — most of these guys speaking nothing more than hollow motivational words and cliche stuff. They waste your time. Some of these people who present themselves as hugely successful also give talks and write books.   There are so many books on financial advice, self-improvement, love, etc and some people actually try to read them. They are a waste of time, mostly.   When you start reading a dozen books on finance you realize that they all say the same stuff.   You are not going to live forever in the learning phase. Don't procrastinate by reading bull-shit or the same good knowledge in 10 books. What we ought to do is choose wisely.   Yes. A good book can change your life, given you do what it asks you to do.   All the books I have named up to now are worthy of reading. Tim Ferriss, Simon Sinek, Robert Greene — these guys are worthy of reading. These guys teach what others don't. Their books are unique and actually, come from relevant and successful people.   When Richard Branson writes a book about entrepreneurship, go read it. Every line in that book is said by one of the greatest entrepreneurs of our time.   When a Chinese millionaire( he claims to be) Youtuber who releases a video titled “Why reading books keeps you broke” and a year later another one “My recommendation of books for grand success” you should be wise to tell him to jump from Victoria Falls.   These self-improvement gurus sell you delusions.   They say they have those little tricks that only they know that if you use, everything in your life will be perfect. Those little tricks. We are just “making of a to-do-list before sleeping” away from becoming the next Bill Gates.   There are no little tricks.   There is no success-mantra.   Self-improvement is a trap for 99% of the people. You can't do that unless you are very, very strong.   If you are looking for easy ways, you will only keep wasting your time forgetting that your time on this planet is limited, as alive humans that is.   Also, I feel that people who claim to read like a book a day or promote it are idiots. You retain nothing. When you do read a good book, you read slow, sometimes a whole paragraph, again and again, dwelling on it, trying to internalize its knowledge. You try to understand. You think. It takes time.   It's better to read a good book 10 times than 1000 stupid ones.   So be choosy. Read from the guys who actually know something, not some wannabe ‘influencers’.   Edit: Think And Grow Rich was written as a result of a project assigned to Napoleon Hill by Andrew Carnegie(the 2nd richest man in recent history). He was asked to study the most successful people on the planet and document which characteristics made them great. He did extensive work in studying hundreds of the most successful people of that time. The result was that little book.   Nowadays some people just study Instagram algorithms and think of themselves as a Dale Carnegie or Anthony Robbins. By Nupur Nishant, Quora Profits from free accurate cryptos signals: https://www.predictmag.com/    
    • there is no avoiding loses to be honest, its just how the market is. you win some and hopefully more, but u do lose some. 
    • $CSCO Cisco Systems stock, nice top of range breakout, from Stocks to Watch at https://stockconsultant.com/?CSCOSEPN Septerna stock watch for a bottom breakout, good upside price gap
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.