# Emergency Exit for Weekly System



## MovingAverage (24 September 2020)

G'day all,

Hope the markets are treating you well.

Being a person to try and take something positive from a bad experience I've been reviewing how my systems performed during the COVID March sell off to see if there is anything I could do to improve my system performance for similar future events. I live trade several different system but the one that troubled me the most during the March sell off was my weekly system. Because of the rapid downturn in March my weekly system experience some very significant drawdown that didn't sit well with my risk profile. The thing about the March downturn was that it was extremely rapid and deep and XAO has not seen anything like that before (at least over the 25 years of historic data that I use)--even the 2008 sell off was pretty slow compared to the March COVID sell off. Of all of the back testing I've done on my weekly system it had never been subjected to the conditions we experienced back in March of this year because XAO hadn't behaved like this before. So, with this in mind I set about augmenting my weekly system with an "emergency exit" that would dump all open positions if there is a significant and rapid downturn in XAO.  To do this may not suit everybody but it suits my personal trading style.

A little about my weekly system: first it is *not* the Radge WTT but it is vaguely related to that. What is relevant for this post is that my weekly system uses a similar index filter and a similar stop loss strategy.  For those not familiar with the WTT the index filter is only used to prevent new positions from being entered if XAO is in a down trend and the stop losses are used to exit open positions when the close drops below the stop loss. I wanted an additional exit of all positions if the market was experiencing a rapid downturn.

The below images represent the current simulation behavior of my system that I have been using since 2015 and live traded through March--AB simulation results.

You can see in the below equity chart that there was a nasty drawdown in early 2020. Mentally this was very tough for me to live trade through.




The drawdown is shown in the below drawdown chart in which the portfolio experience around a 20% drawdown.




And the below chart chart shows the simulation performance of my system since 2015




And finally the below chart shows the Monte Carlo simulation results for my system




So as I mentioned earlier, having live traded my weekly system through March the one aspect of my weekly system I wanted to improve was for it to completely exit all positions in extreme downturns (an emergency exit) like we lived through in March. While I've been experimenting with a number of different emergency exits I binned a lot of the techniques I was working on because they became too complicated and convoluted. I'm a firm believer in KISS when it comes to systems so through some trial and error I landed on an emergency exit that simply sold all open positions if for any given week the close of the XAO index was 4.5% down on the open for the week. After running some simulation...wow, what a difference. The system would now deal with a March downturn in a way that is much better suited to my trading style.

The below images are the performance of my system with the new emergency exit. I'm pretty happy with the improved performance and will include in my live system after I do a few more simulations.

The below equity chart clearly shows that the significant drawdown in early 2020 has been greatly reduced.




The reduced drawdown is shown in the below drawdown chart and the COVID drawdown is only around 8% compared to the above standard system that experienced around a 20% drawdown.




The overall system performance since 2015 is shown below




And finally the overall Monte Carlo simulations are below


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## over9k (24 September 2020)

It's a classic case of taking the stairs up & the lift down. 

I mentioned trading daily vs weekly in skate's thread, and he pointed out that post-march, weekly vs daily was very (very) similar. 

You were obviously stung in march, but you need to ask yourself whether you expect such an event to be repeated. I'm doubtful. 

With that being said, it'd pay to watch the vix like a hawk (i.e daily) even if you don't trade daily.


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## MovingAverage (24 September 2020)

over9k said:


> It's a classic case of taking the stairs up & the lift down.
> 
> I mentioned trading daily vs weekly in skate's thread, and he pointed out that post-march, weekly vs daily was very (very) similar.
> 
> ...




Yes, got hit in March but I've since recovered it all and some so all good. Would I ever expect such an event to be repeated--well who knows because I don't have a crystal ball, but a very wise person once told me "plan for the worst and hope for the best" and that's exactly why I've done what I have. I'm not sure why you're doubtful it will happen again, but adjusting my system on the assumption it will doesn't come at a cost.


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## CNHTractor (24 September 2020)

MovingAverage said:


> The reduced drawdown is shown in the below drawdown chart and the COVID drawdown is only around 8% compared to the above standard system that experienced around a 20% drawdown.




Hi, if you can get your weekly system limiting to a 8% drawdown, you are laughing. 



MovingAverage said:


> my weekly system experience some very significant drawdown that didn't sit well with my risk profile.




The "risk profile" is the key to any trader to understand

From my experience a 20 to 25% drawdown would not be deemed unacceptable [although painful]. I see from your original posting that you had been able to recover from the March Covid drawdown.

I'd be interested in seeing what parameters you have brought into play to assist your system drawdown.

I will watch with interest how you go with further simulations. You may be in a position to test in a live market now as volatility ramps up again.

Good luck


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## MovingAverage (24 September 2020)

CNHTractor said:


> Hi, if you can get your weekly system limiting to a 8% drawdown, you are laughing.
> 
> 
> I'd be interested in seeing what parameters you have brought into play to assist your system drawdown.
> ...




Thanks.

In relation to the system drawdown, I haven't adjusted any system parameters. The improved drawdown is only the result of including my emergency exit, which is sell all open positions if a single bar in XAO (keep in mind it is a weekly system) sees a close that is 4.5% down from open.  I'll post up my further sim results soon.


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## MovingAverage (24 September 2020)

CNHTractor said:


> Hi, if you can get your weekly system limiting to a 8% drawdown, you are laughing.




My emergency exit is far from the holy grail of exits. It is only designed to exit in rapid declines in a short time but will not trigger for slower declines. See below drawdown chart which starts 1/1/2000. You can see it doesn't do much around the slower market declines of 08/09.


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## CNHTractor (24 September 2020)

MovingAverage said:


> So, with this in mind I set about augmenting my weekly system with an "emergency exit" that would dump all open positions if there is a significant and rapid downturn in XAO. To do this may not suit everybody but it suits my personal trading style.




This concept brings to mind an article by Marcus Padley "The Collins Class Rule". This article refers to a daily movement in  the US market, but is in line with your thinking " corrections start fast and then trend and you had to have an unemotional mechanical strategy that pulled you out early on big market falls "

You are correct that the number of occasions where such an emergency exit would be enacted is quite rare. You have twigged my interest!


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## MovingAverage (24 September 2020)

CNHTractor said:


> This concept brings to mind an article by Marcus Padley "The Collins Class Rule". This article refers to a daily movement in  the US market, but is in line with your thinking " corrections start fast and then trend and you had to have an unemotional mechanical strategy that pulled you out early on big market falls "
> 
> You are correct that the number of occasions where such an emergency exit would be enacted is quite rare. You have twigged my interest!




I'm going to experiment with a few changes to my emergency exit to see if it can mitigate a 08/09 decline so I'll see how I go with that, but my priority is to handle a March style crash. I'll let you know how it goes. Thanks for the link to the Padley article--I'll read it.


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## over9k (24 September 2020)

The other problem you have is that most financial maths really only properly works under normal market conditions, and times certainly aren't normal. Black-scholes-merton and long term capital management getting wiped out in the asian crisis comes to mind.


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## MovingAverage (24 September 2020)

CNHTractor said:


> This concept brings to mind an article by Marcus Padley "The Collins Class Rule". This article refers to a daily movement in  the US market, but is in line with your thinking " corrections start fast and then trend and you had to have an unemotional mechanical strategy that pulled you out early on big market falls "




Very interesting article, this was most definitely my thinking although I'm doing a complete sell down and not partial.

***


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## MovingAverage (24 September 2020)

over9k said:


> The other problem you have is that most financial maths really only properly works under normal market conditions, and times certainly aren't normal. Black-scholes-merton and long term capital management getting wiped out in the asian crisis comes to mind.




I'm not so sure it's a problem with financial maths--not that my system uses any "financial maths". My system is nothing more than a bunch of buy rules and sell rules--no maths. Fundamentally the problem is all about the historical data being used and the fact that my buy and sell rules are based on the behavior of XAO over the past 20 odd years. When XAO behaves in a way it hasn't done in the past 20 odd years (like we saw in March) I have no buy/rules to account for that behavior. To me this is one of the major flaws with back testing systems on historical data. Even walk forward testing on historical data doesn't address this issue. If I could have one wish for system testing it would be that someone like Norgate could provide an artificially created XAO database that models a lot of different and extreme market conditions. Then I could develop a more comprehensive set of buy/sell rules.


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## frugal.rock (25 September 2020)

Probably a good time to be considering the subject matter all in all IMO. 
FWIW, 
I am at unease with certain world conditions ATM. 
VIX levels, gold falling, oil stalling, materials metals mining behaviour (boom), tech boom, banks at lows, world virus levels still peaking, 2nd waves striking, fiscal stimulus measures waning, world GDP well below stock price equivalents, US elections and vested (superpower) interests in detrimental outcome.
It just all adds up to the question,  why are we experiencing  a "euphoric" bull market?

Personally, I am pulling out of the market trade by trade, not in a great hurry, but a concerted effort to only be about 20% in, at any one time. Just keep the big toe in the waters, so to speak.

On the topic of the emergency exit or GTFO, which is Skates Get The Funds Out filter (clean version), I don't see why weekly traders can't have a more regular check on emergency exit  conditions in periods of heightened volatility... such as now.
Cheers.


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## CNHTractor (25 September 2020)

CNHTractor said:


> You have twigged my interest!




I have run a test on one of my systems this morning, unfortunately it hasn't added value to my "GTFOH" filter.  When I have time I will run it though some of my other systems,


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## MovingAverage (25 September 2020)

CNHTractor said:


> I have run a test on one of my systems this morning, unfortunately it hasn't added value to my "GTFOH" filter.  When I have time I will run it though some of my other systems,




How does your GTFOH filter work? Just high level, not needing details


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## quanttraderx (25 September 2020)

With my weekly stocks portfolio, I also have a leverage treasury etf strategy running.

I mainly trade the US markets but the concept should work just as well in the Australian market. Unfortunately the ETFs on the ASX are very illiquid.


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## CNHTractor (25 September 2020)

MovingAverage said:


> How does your GTFOH filter work? Just high level, not needing details




The GTFOH filter I’ve used on this system operates at 2 levels.

A yellow flag ⚠️ is raised if the Index Gann Trend is negative.

The GTFOH filter 🚩 is then triggered if there is sell signal on the symbol using the Jim Berg codes, whilst the Index yellow flag is waving. The sell trigger irrespective of normal buy/sell conditions.

When there is no index warning flag I do not use the Jim Berg buy/sell signals.

Using the index as a caution has allowed trades to be taken under normal buy/sell conditions if they have continued to trade with momentum.


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## MovingAverage (25 September 2020)

CNHTractor said:


> The GTFOH filter I’ve used on this system operates at 2 levels.
> 
> A yellow flag ⚠ is raised if the Index Gann Trend is negative.
> 
> ...




Very Interesting


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## frugal.rock (25 September 2020)

MovingAverage said:


> Being a person to try and take something positive from a bad experience I've been reviewing how my systems performed during the COVID March sell off to see if there is anything I could do to improve my system performance for similar future events



G'day MA, was there anything in current events to push you to do this? or is it a case of just getting around to it?
I ask due to noting Skate and Cam both have index filters that are off. 
That may change on this weekend scans?, but I think not yet.
Cheers


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## MovingAverage (25 September 2020)

frugal.rock said:


> G'day MA, was there anything in current events to push you to do this? or is it a case of just getting around to it?
> I ask due to noting Skate and Cam both have index filters that are off.
> That may change on this weekend scans?, but I think not yet.
> Cheers



Howdy, I’ve been working on this for a few months but just a case of getting around to it. It all takes time to revisit my live trades during COVID, do research on the topic and trialing various alternatives in AB. But my weekly has been performing extremely well over past few months so make hey while the sun shines


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## qldfrog (26 September 2020)

Do you check that 4.5% fall daily or weekly.
If you do the check weekly, are you not at the mercy of timing?
And should you not do a daily check similar to:
Exit all if fall on the last n session is above xx %?


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## MovingAverage (26 September 2020)

qldfrog said:


> Do you check that 4.5% fall daily or weekly.
> If you do the check weekly, are you not at the mercy of timing?
> And should you not do a daily check similar to:
> Exit all if fall on the last n session is above xx %?



Weekly at this stage. You can see from the sims that it halved the March DD to around 8-9% which is pretty respectable and something I can live with. I’m definitely interested in doing a daily check as you suggest, but haven’t had time to code and sim yet, but I will do.


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## qldfrog (26 September 2020)

MovingAverage said:


> Weekly at this stage. You can see from the sims that it halved the March DD to around 8-9% which is pretty respectable and something I can live with. I’m definitely interested in doing a daily check as you suggest, but haven’t had time to code and sim yet, but I will do.



interested in the results..obviously not ideal as the aim of weekly is to keep serene until EOW... but choosing an arbitrary date like Friday night to decide doing the check could just bet on a repeat timing of a crash..obviously not a given.
Anyway, very interested and good job btw, especially after having 2 catastrophic weekly results on my own in a row


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## MovingAverage (26 September 2020)

qldfrog said:


> interested in the results..obviously not ideal as the aim of weekly is to keep serene until EOW... but choosing an arbitrary date like Friday night to decide doing the check could just bet on a repeat timing of a crash..obviously not a given.
> Anyway, very interested and good job btw, especially after having 2 catastrophic weekly results on my own in a row




I've been thinking about this this morning and given my emergency exit based on the weekly time frame has reduced the March drawdown from around 20% to around 8-9% I'm not sure moving my emergency exit from weekly to daily will yield much of a dramatic DD improvement on the current 8-9%. My feeling is that expecting to reduce the DD even further is probably optimistic as I think an 8-9% DD is pretty respectable. Still, I'm interested in trying so will see how it goes. Having said all of that, I think moving my emergency exit to daily timeframe could well benefit the performance of my daily swing system so I'm going to focus my effort on seeing what impact my emergency exit will have on my swing.


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## qldfrog (26 September 2020)

MovingAverage said:


> I've been thinking about this this morning and given my emergency exit based on the weekly time frame has reduced the March drawdown from around 20% to around 8-9% I'm not sure moving my emergency exit from weekly to daily will yield much of a dramatic DD improvement on the current 8-9%. My feeling is that expecting to reduce the DD even further is probably optimistic as I think an 8-9% DD is pretty respectable. Still, I'm interested in trying so will see how it goes. Having said all of that, I think moving my emergency exit to daily timeframe could well benefit the performance of my daily swing system so I'm going to focus my effort on seeing what impact my emergency exit will have on my swing.



What i mean is that your weekly check is a daily check done on friday night:
 is there a way your DD reduction is not a strike of luck because the last crash was timed well for that check?
What if the crash had started  2 days later, would your same code not have missed the whole exit by a week? and so you would have been hit much harder?
That's all what i mean.Conceptually, if i was to trigger such an exit, i would do it along these independence from crash start.just because we have too few historical data with such crashes,  means we can not sorely  rely on thatmarch backtest for timing..yet need to take the scale of the crash into account
And genuinely interested in your work.
Hope i am not confusing you, or seem to belittle you, in no way the idea.
being in a middle of a move, i do not have enough free time to spend researching properly that area..yet as you, i believe it is needed now


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## MovingAverage (26 September 2020)

qldfrog said:


> Hope i am not confusing you, or seem to belittle you, in no way the idea.
> being in a middle of a move, i do not have enough free time to spend researching properly that area..yet as you, i believe it is needed now




All good...taken as a constructive observation. Although I am a little confused as to understand what your suggesting so forgive me if I'm misinterpreting you. But here goes. I'm not the sharpest tool in the shed so maybe if you can give me a simpler actual example I can better tell you how my emergency exit will respond to that scenario. 



qldfrog said:


> What i mean is that your weekly check is a daily check done on friday night:




Are you suggesting that on Friday night I check each and every daily bar for that week; that is, separately check each of the five daily bars for Monday to Friday and if any of those bars has a 4.5% drop then trigger my emergency exit? If this is what you're suggesting then I think it would be prone to false triggers. For instance, assume Wednesday of a given week had a 4.5% drop but then had a strong rebound on the Thursday and Friday to recover Wednesday drop and put on gains--that to me would incorrectly sell of my entire portfolio despite the market finishing the weekly strongly. Like I say, maybe I am misunderstanding your suggestion.



qldfrog said:


> What if the crash had started 2 days later, would your same code not have missed the whole exit by a week? and so you would have been hit much harder?




My code (and my emergency exit) is not dependent on when the crash started during the week--it can start Mon, Tue, Wed, Thu or Friday. So long as any single week closes 4.5% (and I should say a week is Mon to Friday) down from open then it will trigger. Sure a decline in the market might be slower and spread over many weeks and in that situation my emergency exit will not be triggered because the 4.5% decline occurs over many weeks with each week seeing only a 1% or so decline. I'd mentioned this in one of my earlier posts, my emergency exit will only capture a "flash crash" scenario...it will not catch slower sell offs.   



qldfrog said:


> That's all what i mean.Conceptually, if i was to trigger such an exit, i would do it along these independence from crash start.just because we have too few historical data with such crashes, means we can not sorely rely on thatmarch backtest for timing..yet need to take the scale of the crash into account




I am keen to better understand the scenario you're talking about as I'd like to make sure my emergency exit is solid. Thanks for the input.


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## qldfrog (26 September 2020)

simply speaking:
if the index is stable all week but fall 4 % on Friday: you stay in
then on Monday  it falls 4% and stay there all week, you are still in: after a 8% fall which can repeat itself again and again;
I acknowledge your normal exit might trigger but in that scenario:

the market has fallen 8% in 2 sessions, yet all is good for that weekly detection
 and potentially if tuesday to friday have been disastrous you would still wait till the next Monday to react
All good for a long slide down, not for a big crash
I would prefer a : if the index falls by more than say 4.5% (could be different value now) in 5 last session, sell all;
if the week had been shifted to the blue lines I added below (roughly, just to share the idea), would you have exited?That is my worry in a nutshell


have a great week end


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## MovingAverage (26 September 2020)

qldfrog said:


> simply speaking:
> if the index is stable all week but fall 4 % on Friday: you stay in
> then on Monday  it falls 4% and stay there all week, you are still in: after a 8% fall which can repeat itself again and again;
> I acknowledge your normal exit might trigger but in that scenario:
> ...




Absolutely, my threshold being 4.5% then yes my emergency exit would not trigger because you'll have two bars each with a decline of less then 4.5%. But in that first week if the Friday fall was 4.6% then my emergency would trigger. If I look back at XAO during March my emergency exit only kicked in halfway into the decline, but that was early enough to reduce the drawdown from 20% to 8-9%.


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## MovingAverage (26 September 2020)

You got me thinking @qldfrog

I just changed my code so the XAO decline is measured across 2 bars (two weeks); that is, I now compare the close of the current week to the open of the prior week. I ran some optimizations and it now appears the sweet spot is a decline of 5% over two bars (weeks). In summary, the overall profit took a bit of a hit but the March COVID drawdown is improved. Here's the sim results, which is over the same period as my original post.

The equity chart below shows I've sacrificed some equity for improved DD (no surprise there) but nothing major.




You can see from the below that the DD has now been reduced to around 6% for the COVID March.







And the MC results seem a lot tighter than the single bar strategy, which I really like.




I have a feeling that this multi-bar approach will probably turn in an improved DD over the 08/09 crash. I'll be running some sims over that period shortly. I'm also going to look at the performance of this over a range of bars not just 2 so will let you know how that goes. Thanks for pointing me in this direction--it looks promising.


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