⛓️ Interview Process for All (Step-by-Step)
<aside> 🎯 At Eon Labs Ltd., we recognize that downside volatility, or decline from the peak of equity, is an inherent risk in financial trading. We are willing to tolerate this risk, however, only if the upside profit potential, particularly the Excess Gain beyond the peak, is expected to be equal to, if not greater than, the percentage of drawdown and can be reached within a reasonable timeframe.
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Evaluation. Past performance can be indicative of future results. Therefore, if you have an existing crypto-algorithmic perpetual futures contract (BTCUSDTPERP or ETHUSDTPERP) trading strategies, use the Binance price data that we shared with you on the Take-Home Assessment (THA) to back-test your strategy. Then, submit the most recent thirty-six (36) months of the simulated backtesting results for Evaluation. The results will also help us parameterize your WBUF key trading performance matrices. The Take-Home Assessment (THA) has no time limit and no due date. You are more than welcome to submit and re-submit your backtesting results to us for consideration as long as this Notion-based recruitment page is still visible to you. Once the results assessed based on the HoH model are satisfactory, you can decide if you want Employment or Partnership. Either way, you’ll become our ATSR and we’ll provide you with an MSA to trade your strategy.
Utility. Three (3) risk management criteria (1, 2, 3) that are detailed in Evaluation are used to come up with the four WBUF metrics (a, b, c, d) for the PFP or Profit Sharing:
Investment Time Horizon
→ a) ITH
Minimum Rolling Trading Frequency
→ b) MRTF
Minimum Rolling RRR(H)
→ c) TMAD
→ d) TMAEG
Backtesting or simulated historical trading results can provide insight into the potential performance of a strategy, which is better than having no information at all. However, it is important to note that these results are not always an accurate representation of how the strategy will perform in the real world. Evaluating backtesting results allows us to gain an understanding of how the strategy will fare in various market conditions, and can help us identify potential risks and rewards associated with the strategy.
This evaluation should take into account factors such as the risk-return ratio (RRR), frequency of trades, and the investment time horizon. By considering these factors, it is possible to determine whether the strategy is able to produce a high return with minimal risk.
RRR was first defined and popularized by Dr. Richard CB Johnsson in his investment newsletter ('A Simple Risk-Return-Ratio', July 25, 2010).
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where $P_{start}$ and $P_{end}$ simply refer to the price levels of an equity balance by the start and end of the time period.
The risk is measured as the percentage maximum drawdown $(MDD)$ of NAV for the specific period:
$$ MDD = \max\limits_{t\in(start,end)} (DD_t)\;where\;DD_t= \begin{cases} 1 - (1-DD_{t-1})\frac{P_t}{P_{t-1}} &\text{if}\; P_t - P_{t-1}<0\\ 0 &\text{otherwise} \end{cases} $$
where $DD_t$, $DD_{t-1}$, $P_t$ and $P_{t-1}$ refer the drawdown $(DD)$ and prices $(P)$ at a specific point in time, $t$, or the time right before that, $t-1$.
The risk-return ratio is then defined and measured, for a specific time period, as:
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Note that dividing a percentage numerator by a percentage denominator renders a single number. This RRR number is a measure of the Excess Gain in terms of risk. It is fully comparable, i.e. it's possible to compare the RRR for one equity growth of a strategy with the RRR of another strategy, just as long as it's the same time period.
For example, if you had a portfolio worth $100,000 that suffered a 20% as the percentage maximum drawdown $(MDD)$, its value would fall to a trough of $80,000. To recoup this loss and break even, you would need to make a gain of $20,000, which is equal to 25% of your trough portfolio value of $80,000. That is, in order to just enough to recoup a $MDD$ of X%, you need to make a gain of X/(1-X). For example, a loss of 20% requires a gain of 20/(100-20) = 25% to break even. Similarly, a loss of 50% requires a gain of 50/(100-50) = 100% to break even, and so on. When $RRR = 1$, not only do we have to break even, but also have to gain beyond the peak by X%. If the $MDD$, X is equal to 20, then the formula (1+X/(1-X))*(1+X) would be equal to (1+20/(100-20)%) * (1+20)% = (1+25%) * (1+20%) = 1.25 * 1.2 = 150%. This means that to recoup a 20% loss and then make an additional gain of 20%, you would need to make a total gain of 50% from the trough. Therefore, the percentage gain from trough needed if RRR = 1:
$$ Gain_\text{trough} = \frac{2*MDD}{1-MDD}\; if\; RRR = 1 $$
where $Gain_\text{trough}$ is the required percentage of recovery and expansion from the tough if there is an equivalent $MDD$ percentage gain beyond the break-even point.