# $15,000 to Over $750,000 in 7 yrs Impossible? Think again!



## tech/a (5 September 2006)

There are endless posts on.

(1) Can I turn $5000 into $50000 in X years?
(2) What software do I need?
(3) How do I workout which shares to buy?
(4) I'm about to sign up for XYZ course am I doing the right thing?
(5) How does a trader with limited funds get into trading?

To name but a few.--You get the idea.

Trading is really simple and as Radge has said more than once.
(1) Find something that works
(2) Test it.
(3) Trade it.---My apologies Nick but thats the gist of it.

Once you have that there are many things you can do to turn average profits into STELLAR returns.
To this end this post is intended to demonstrate that which is not so obvious to those consumed with the initial basics of a Share Trading/Investing Business.

Ive selected a System which returns an average 15% a year.Anyone could design a system with similar returns.
Ive done this purposely to make a point. Its not a system which is available to the public but is offered here as a demonstration only.

Firstly I tested it over 10000 portfolio's.
It starts with a modest $15,000 which I have also selected for a reason which will become apparent later.

*(1) Firstly * the Montecarlo results which show 100% chance of profit over 10000 simulations.

*(2) The second * shows the Initial Drawdown and the deviation in that drawdown over the 10000 portfolio's as you can see it is small with the actual average initial drawdown being 12%.

The period of trading is 1999 to 1/9/06.
Brokerage is set at a whopping $50 each way.
12.5% of capital is chosen as the allocation to each trade.

*(3) The Third* shows that if we started with $15,000 in 99 today we would have $46,000.

*(4) Lastly * we have a Positive expectancy of over 5 a very important piece of info.

Following this post will be tables showing returns if.

*Without altering this very average system we * 
(1) Reinvest the profits from closed trades.
(2)Then we do (1) and Trade it on Margin ($15,000 being the minimum for BT margin lending)
(3) Then we do (1 & 2) and we wait till we have $30,000 rather than $15,000
to start trading/investing.


----------



## tech/a (5 September 2006)

*Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!*

Now we simply Re invest the profits.

15K to over 100K not bad.


----------



## tech/a (5 September 2006)

*Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!*

Both re invest and Trade margin.(40% margin selected).

$15,000 to over $750,000 even better.


----------



## tech/a (5 September 2006)

*Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!*

Now we will do both of the above and start with $30,000


----------



## tech/a (5 September 2006)

*Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!*

*So how important is exit/entry/how you choose a prospect,Tech analysis or fundamental???*

*I dont care how much you tweek the way you trade you wont come close to the improvement you'll get with the way you USE your and other peoples money*


----------



## clowboy (5 September 2006)

*Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!*

Tech/A

Unless Bt have reduced their min loan amount and not told me about it the min loan size for a margin loan with them is 20k.

Aside from that a very helpful post.


----------



## NettAssets (5 September 2006)

*Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!*

This also proves how hard it is to live on your trading and also build capital.







From these figures if you start with $15000 and only draw $4500 per year out you end up with less than the original $15000 after 7 years.
The power of compounding is magic but you have to leave it in the pot to grow.
Thanks for that TA
John


----------



## brisvegas (5 September 2006)

*Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!*

how about paying the tax as we go and do it properly so we get a realistic profit figure . certainly maximum tax rate last few years .



................... bris


----------



## maffu (5 September 2006)

*Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!*



			
				clowboy said:
			
		

> Tech/A
> 
> Unless Bt have reduced their min loan amount and not told me about it the min loan size for a margin loan with them is 20k.
> 
> Aside from that a very helpful post.




I saw a table for minimum margin loans recently, i think in the Telegraph 'Money' Section. Macquarie Bank offer a minimum 5k margin loan and there were a few others that offered $10,000 minimum loans.


----------



## mit (5 September 2006)

*Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!*



			
				clowboy said:
			
		

> Tech/A
> 
> Unless Bt have reduced their min loan amount and not told me about it the min loan size for a margin loan with them is 20k.
> 
> Aside from that a very helpful post.




Commsec have a $20k minimum. But that is the minimum amount you can borrow. AFAIK you could have $2k capital in the account if they will lend you the money.


----------



## MichaelD (5 September 2006)

*Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!*



			
				tech/a said:
			
		

> (1) Reinvest the profits from closed trades.
> (2)Then we do (1) and Trade it on Margin ($15,000 being the minimum for BT margin lending)
> (3) Then we do (1 & 2) and we wait till we have $30,000 rather than $15,000
> to start trading/investing.
> ...



Nice, but not quite so simple;

If doing the above, do you;
(4) live off Centrelink payments since there is no income from all these reinvested riches?, or
(5) lower living expenses by being confined to jail for tax evasion on all those fully reinvested closed profits?

Accounting for tax makes a MASSIVE impact on the compounding numbers.


----------



## clowboy (5 September 2006)

*Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!*

maffu,

without seeing the report I could not be certain but generally it is 20k min for all lenders, the exception is regular savings plans etc.  IE BT also offers 5k min with a monthly $500 advance.  I would say the macquarie one is similar.

Just had a quick look at the macquarie site and it states a 20k min loan, they offer a reg savings plan but it did not state if that was a lower min.

Mit,

What is AFAIK?


----------



## Julia (5 September 2006)

*Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!*



			
				clowboy said:
			
		

> maffu,
> 
> 
> 
> ...




I imagine it's "as far as I know".

Julia


----------



## tech/a (5 September 2006)

*Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!*



			
				MichaelD said:
			
		

> Nice, but not quite so simple;
> 
> If doing the above, do you;
> (4) live off Centrelink payments since there is no income from all these reinvested riches?, or
> ...





Michael.

The example is using $15K starting capital--thats beer money
The Method I selected also returns a pultry 15%

Lets up the anti!

Now try a method with a 20% return and a Starting capital of $250K.

50% tax and drawing a wage is no problem.*Would you prefer to work with the first table as thats the alternative!!!*
But you knew that anyway!


Pik 1 Same parameters 20% return on $15K (Thats only 5% better performance!!!!)
Pik 2 reinvest
Pik 3 Add margin.
Pik 4 Start with $250K

Now try with 30% ---You get the picture!!!

A $15k or $20K BT initial capital Basis for starting a margin loan is of no consequence to the exercise.

*And yes it REALLY IS THAT EASY.*


----------



## MichaelD (5 September 2006)

*Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!*



			
				tech/a said:
			
		

> Now try a method with a 20% return and a Starting capital of $250K.
> 
> 50% tax and drawing a wage is no problem.



Ah, now we're getting interesting.

That initial capital makes a pretty impressive difference to system performance, does it not? There's a big message there for newbie traders trying to convert pocket change into a quick million.

The other issue which makes it "not so simple" is just how/when do you withdraw funds for wages/tax? You haven't quoted average win/lose hold times, but presumably winners are held for 6 - 24 months or so. Hard to draw a wage/pay the tax man in July if all your funds are invested in a system which only rarely trades (not that there's anything wrong with a system that doesn't trade much).


----------



## tech/a (6 September 2006)

Michael.

In all examples the Tax issue need not be addressed at June 30th As you can see below average trade holding for THIS method is 268 days so it is highly likely that those largest winners will be those held longest and the largest WILL be held for over 365 days so a reduction of 25% in tax.

Now as to the practicality of running it.

Most if not all examples ($15k-250k) can be run by people who also work.
.
*Infact Id recommend that you do.
Not because of the cashflow but because of the sheer Boredom*

The easiest, most consistant and largest profits I would argue are manufatured SLOWLY.

As for funds (If needed) simply liquidate the number of shares from the portfolio to the value you need each month.

There are 3 variables that can make a huge difference.
(1) Initial Capital.
(2) % of profit re invested.
(3) Leverage. in this case I have used 2.5x

Relative drawdown is 9.6% so the maximum I would feel happy with is 3x

Note the difference to the bottom line in the Second table (last Profit summary table).

*The point Im making is that a 20% a year return can give spectacular profit
most however dont think past entry!!!!*


----------



## stink (6 September 2006)

tech/a said:
			
		

> Michael.
> 
> In all examples the Tax issue need not be addressed at June 30th As you can see below average trade holding for THIS method is 268 days so it is highly likely that those largest winners will be those held longest and the largest WILL be held for over 365 days so a reduction of 25% in tax.
> 
> ...




Hey Tech,

Another great post mate.

One question, when you say leverage is 2.5x do you mean 2.5x your intial starting capitol?

Cheers Stink


----------



## tech/a (6 September 2006)

Stink as an example.

$10,000 down $25,000 borrowed. Total position size $35,000

So in essence you would be borrowing 2.5x your starting capital.

*Those who buy houses * put 20% down then borrow another 80%
Thats 4x and no one bats an eye!!

Not only that if you live in it *its not giving you a return!!!*

Pretty dumb use of funds dont you think?
Wouldnt it be more prudent to trade first if your getting yourself into debt then buy the house with no debt,all the time your money is working for you!!


----------



## stink (6 September 2006)

tech/a said:
			
		

> Stink as an example.
> 
> $10,000 down $25,000 borrowed. Total position size $35,000
> 
> ...




Thanks Tech,

Yeah i thought that was how it was worked out.

I appreciate the example to mate, saved me having to ask for one  

I am guilty of doing exactly that in relation to purchasing a house, i have some intial equity in it though so i just have to be smart in how i use it.

If i knew then what i do now about the SM then i am sure my financial situation would be very different.

Anyway better late then never

Regards Stink


----------



## tech/a (6 September 2006)

> I am guilty of doing exactly that in relation to purchasing a house, i have some intial equity in it though so i just have to be smart in how i use it.




Yeh well so am I.

But as you say once you know,we can all consider these options which most if not all dont even consider.

It doesnt have to be harder than it is!

Attempting to trade $15000 to even $100,000 in say 2 yrs would be an impossibility in 95% of cases,I would suggest.

With a bit of lateral thinking the impossible becomes the achievable to most anyone.


----------



## stink (6 September 2006)

tech/a said:
			
		

> Yeh well so am I.
> 
> But as you say once you know,we can all consider these options which most if not all dont even consider.
> 
> ...




Indeed!


----------



## hardmoney (6 September 2006)

tech,

How did you get tradesim to understand margin in its position sizing setup ?
Great post and I've always noticed that small tinkering with postion sizing makes a much bigger diffrence than small tinkering with parameter values.


HM


----------



## nioka (6 September 2006)

Has anyone thken the effects of taxation by incorporating a super fund?


----------



## tech/a (6 September 2006)

*Hard*.

On the main Parameter table you'll find Margin panel on the right,Its normally set at 100%. 40% is 2.5:1 33.3% is 3:1  etc. I have enterprise edition so that maybe the difference if you have the Pro edition.

Ill post a screen shot when home (Tradesim not at the office) if you cant find it.

It will also give you open and closed equity which is also very handy.
Thats a bit more complex to explain.

*Noika.*
While the tax aspect is advantagous I personally prefer to use my Super in Property--in particular our Offices and warehouse as you may be aware the tax advantages in this case are tremendous.

The main reason for this is that when trading I cant borrow against (Leverage) my positions. The effect of using others money (In my case) is far more profitable than tying it up in Super.

If I take out the leverage the returns even on my best method are (In comparison) to leveraged positions very ordinary.

However having said that its a personal thing.
I have funds I could place in super but choose not to for the reason of flexability,plus I can use the funds how and when I wish with a bigger return even having to pay the tax,mind you most are traded over 12 mths which cuts the tax in half.
Its a matter of balancing return.Sometimes its a minor benifit when compared to alternatives. Accountants who dont trade (Even those that dont trade particularly well!!) tend to be narrowly focused.

My accountant used to snikker (Cant use S******) with the 2 "G's in it.quite loudly when I mentioned I traded,that seemed to stop around 3 yrs ago.


----------



## hardmoney (6 September 2006)

tech,
Thanks, found it all ok, never used margin in trading before.Cant do that in an SMSF.



Rgds,

HM


----------



## stevo (6 September 2006)

Tech
Challenging post!

Challenging in that lots can happen between now and 7 years, but obviously not impossible. 20% return per annum is certainly very achievable with the right system, and in a good year 40% plus....

It gets a little harder as capital rises due to liquidity, although $750,000 isn't a problem in the Aussie market. $10 million plus would be a bit harder. Try getting out of a million worth of stock in a day where liquidity has dried up. 

The key is what you stated in your first post - find something that you know works and trade it. But also make sure that the approach fits in with lifestyle and risk parameters of the individual. 

Also some people should not trade shares and they should not be enticed to do so - they see the end result but they struggle to make the journey. 

stevo


----------



## hardmoney (7 September 2006)

Here is a complete weekly mechanical trading system that I coded up a while ago.It is based on Alan Hulls publically avaliable ActVest system.Now his system has a few subjective components and some fundamental bits,however this Metastock/TradeSim code produces very similar results longer term.

I dont trade this system, however when I run it over the StGeorge margin lending stock list (about 500 symbols) it cranks out about 20% per annum with around 10% drawdown over the last ten years of data.2% fixed fractional postion size 20% limit per stock.




Rgds,

HM

Indicators -Paste into indicator builder
Cental Cord -:

LinearReg(C,13)

LowerDeviation Bull-:

If(LinearReg(C,13)>PREV,If(LinearReg(C,13)-(ATR(13)*2.5)>PREV,LinearReg(C,13)-(ATR(13)*2.5),PREV),LinearReg(C,13))

Sytstem - Paste into Explorer

{START SYSTEM}
IndexFilter:=If(Mov(P,3,E)>Mov(P,10,E),1,0);
{plot XAO weekly and click on it before running exploration}

Short:=Mov(CLOSE,3,E)+ Mov(CLOSE,5,E)+
Mov(CLOSE,8,E)+ Mov(CLOSE,10,E)+
Mov(CLOSE,12,E)+ Mov(CLOSE,15,E);
Long:=Mov(CLOSE,30,E)+ Mov(CLOSE,35,E)+
Mov(CLOSE,40,E)+ Mov(CLOSE,45,E)+
Mov(CLOSE,50,E)+ Mov(CLOSE,60,E);

Value:=((Short-Long)/Long)*100;

Trendy:= Value>3 AND Ref(Value,-3)>3 AND Ref(Value,-6)>3 AND Ref(Value,-15)>3 AND Ref(Value,-26)>3 AND Fml("Central Cord") > Ref(Fml("Central Cord"),-1) AND
Mov(CLOSE,30,E) > Ref(Mov(CLOSE,30,E),-1);



SetUp:=Fml( "ROR") > 30 AND (C < Fml( "Central Cord")) AND (C > Ref(C,-1)) AND   (CLOSE *  VOLUME)  > 10000 AND C > 0.5 AND IndexFilter AND Trendy;
{NOTE - My Data Source Divides Daily Volume by 100}

EntryTrigger:=Setup;
EntryPrice:=OPEN;
InitialStop:= Fml("Lower Deviation Bull");

ExitTrigger:=CLOSE<Fml("Lower Deviation Bull") AND Ref(CLOSE,-1) > Ref(Fml("Lower Deviation Bull"),-1) OR Fml("ROR") < 20;
ExitPrice:=OPEN;




ExtFml( "TradeSim.Initialize");
ExtFml( "TradeSim.SetStartRecordDate",1,1,1997);
ExtFml( "TradeSim.SetStopRecordDate",31,12,2005);  
ExtFml("TradeSim.EnableProtectiveStop",0);
ExtFml("TradeSim.EnableDelayOfEntryByOneBar");  
ExtFml("TradeSim.EnableDelayOfAllExitsByOneBar");
ExtFml( "TradeSim.RecordTrades", 
        "Hull System ", 
         LONG,     
         EntryTrigger,   
         EntryPrice,       
         InitialStop,  
         ExitTrigger,     
         ExitPrice,         
         START);


----------



## hardmoney (7 September 2006)

Sorry, you will need this bit too.

ROR indicator -: { Rate of Return}

200*(LinearReg(C,52)-Ref(LinearReg(C,52),-26))/C

HM


----------



## dj_420 (9 September 2006)

hey tech/a great posts it has got me very interested. im starting to learn about these trading systems am reading tech analysis for dummies, which i've been using combined with fundamental anaylsis to trade lately.

what kinds of systems are available and what is the best way to learn the ropes?? i havent used a trading system at all previously

also some systems in the book are done making an average of i think 8 trades per month, maybe more. do you guys find that it is better to go long in some cases. ie reduced brokerage, reduced tax (capital gains 1yr plus)


----------



## tech/a (9 September 2006)

cathers_420 said:
			
		

> hey tech/a great posts it has got me very interested. im starting to learn about these trading systems am reading tech analysis for dummies, which i've been using combined with fundamental anaylsis to trade lately.
> 
> what kinds of systems are available and what is the best way to learn the ropes?? i havent used a trading system at all previously
> 
> also some systems in the book are done making an average of i think 8 trades per month, maybe more. do you guys find that it is better to go long in some cases. ie reduced brokerage, reduced tax (capital gains 1yr plus)




Cathers.

An important question which I feel (I could be wrong) many would like answered in the way of guidence in their pursuit of developing a trading methodology.
I'm thinking of putting together a thread in answer to your question basically walking you through the steps of systems/method developement.
Not actually designing one although we could do that but more pointing in the right direction.
I expect there would also be some good questions.

If people would like a seperate thread let me know and I'll get started.


----------



## Pager (9 September 2006)

tech/a said:
			
		

> Cathers.
> 
> An important question which I feel (I could be wrong) many would like answered in the way of guidence in their pursuit of developing a trading methodology.
> I'm thinking of putting together a thread in answer to your question basically walking you through the steps of systems/method developement.
> ...




Thats a great idea tech and 1 im sure many would find both interesting and educational


----------



## nizar (9 September 2006)

tech/a said:
			
		

> I expect there would also be some good questions.
> 
> If people would like a seperate thread let me know and I'll get started.




yes please tech


----------



## dj_420 (9 September 2006)

i think thats a great idea. for many ppl like myself i feel i have developed a basic idea on analysing a company on a fundamental basis. BUT am wanting to expand this to a technical viewpoint also.

the more i research the more i feel i have to learn. topic areas like

charting
indicators
patterns
trendlines

trading systems
analysing data
entry/exit points
filters - how to use them and change them
system trading rules


----------



## Porper (9 September 2006)

tech/a said:
			
		

> Cathers.
> 
> An important question which I feel (I could be wrong) many would like answered in the way of guidence in their pursuit of developing a trading methodology.
> I'm thinking of putting together a thread in answer to your question basically walking you through the steps of systems/method developement.
> ...




I would be very interested tech, and I am sure although a lot on here think they trade a method, actually don't.I am not totally happy with my methodology, if I have one.:dunno:


----------



## nizar (9 September 2006)

cathers_420 said:
			
		

> i think thats a great idea. for many ppl like myself i feel i have developed a basic idea on analysing a company on a fundamental basis. BUT am wanting to expand this to a technical viewpoint also.
> 
> the more i research the more i feel i have to learn. topic areas like
> 
> ...




Agree, thats pretty much where im at


----------



## Fugazi (9 September 2006)

Definitely go for it Tech. I'm struggling to get back into my education regime. I thought I was doing well but then got dragged into something at work and all the books & cd's went on the back burner. The only constant at the moment is being able to hit this site whenever I get a spare second.

A big thanks for all the 'edumacation' from all the experienced guys here.


----------



## astroboydivx (9 September 2006)

Tech/A that'd be really appreciated. Thanks.


----------



## WaySolid (9 September 2006)

Interesting post.

Re: Some system design issues.

I have found issues with liquidity in some ASX200 stocks, so Stevo's point is worth considering.

Also I'm interested in how survivorship bias was handled as a 7 year period would incorporate some notable new economy stocks that are no longer gracing our screens. 

My figures for June 99 (13539) - June 2006 (30405) for the AOAI demonstrates a CAGR of 12.26% so a mech system returning 15% is admirable.

Though the point of compounding is a valuable one, and the particular system might not be so important.


----------



## Staybaker (12 September 2006)

Interesting stuff, but I don't understand the numbers. If we start with $15,000 and compound at 15% per annum for seven years, as per the original post, we end up with $39,900, not $46,000 as stated. Add an extra year, though, and we will reach $45,900:


Year 0: 15,000.00
Year 1: 17,250.00
Year 2: 19,837.50
Year 3: 22,813.13
Year 4: 26,235.09
Year 5: 30,170.36
Year 6: 34,695.91
Year 7: 39,900.30
Year 8: 45,885.34

In the next stage, I don't understand what you mean, Tech, when you say "and now we reinvest profits". If you are making a return of 15% per annum and reinvesting profits then surely you will get exactly the results shown above? That is, in the first year, you will make 15% of $15,000, which is $2,250. This is added to your equity and compounded in the second year ... I don't understand how you suddenly jump from an ending equity value of $46K to around $100K. Could you explain this?

Cheers, Staybaker.


----------



## BentRod (12 September 2006)

Staybaker,
                Tech is using Leverage.


----------



## barney (12 September 2006)

tech/a said:
			
		

> Cathers.
> 
> An important question which I feel (I could be wrong) many would like answered in the way of guidence in their pursuit of developing a trading methodology.
> I'm thinking of putting together a thread in answer to your question basically walking you through the steps of systems/method developement.
> ...





Hi lads,  Enjoying my "education" on this forum.  Just thought I'd mention an old thread which I found last night (actually it was very very early this morning!!.........Musos hours unfortunately  :guitar: ) 
I have reposted it in the General Chat section under Trading Plans....
Tech, maybe you could take the thread on from where it is up to..........It is a great start for "learners" like me.......and you could get into a bit heavier stuff for you experienced lads............I still like reading the "heavier" technical stuff even though a lot of it goes over my head.......(maybe I should stop ducking all the time :hide:   Cheers.


----------



## Staybaker (12 September 2006)

BentRod said:
			
		

> Staybaker,
> Tech is using Leverage.



Yes, I know. My question is about the part _before_ he introduces leverage.

Cheers, Staybaker.


----------



## tech/a (12 September 2006)

Sorry Stay just saw your post.

You are looking at a linier return.

In actual practice a tested method will return an average over the period tested. This will include losses,and outlier profits some of 100's of %.

Trades can last days or years so the reinvestment is anything but linier.

I can and will post the yearly and Monthly returns if this makes it easier.

If not then I will go deeper into explaination.


----------



## Sir Burr (12 September 2006)

Re: $15,000 to Over $750,000 in 7 yrs Impossible? Think again!

Tech,

Sorry if this has been repeated, haven't read all the posts but 3 points on the back-testing:


*No consideration of tax.* Software doesn't have any options to add this. No sure how to consider tax besides wiping off a percentage (suggestions?).

*Extraordinary market conditions over the testing period.* Try testing with data in other market conditions.

*Survivorship bias.* Instead of using the current BT list, try turnover to pick stocks.

I think that the above 3 points may considerably alter the outcome?  

SB


----------



## tech/a (12 September 2006)

Sir Burr said:
			
		

> Re: $15,000 to Over $750,000 in 7 yrs Impossible? Think again!
> 
> Tech,
> 
> ...




(1) Tax is a consideration regardless of how you trade. It would be rediculous to suggest that returns be quoted Nett Free of tax on a forum such as this.
But as I stated in a post further up once you use reasonable sums( $250,000) the returns become such that you'd happily pay your tax and hop on the next plane to the bahamas,infact youd probably live in Menorca and not have to worry about tax issues.

(2) The testing period is over the last 8 yrs and is a long system,its designed to return best profit during bull markets. The arguement that a method should be designed to profit equally well in ALL market conditions again is rediculous if trading a portfolio of stocks. However if trading Indexes or Futures which are singularities,then best results would be found from trading both bullish and bearish market conditions.

(3) Survivorship is always an issue when testing. However if a sample is big enough I find that the results are telling us that regardless of what stocks you choose,if you trade in the manner formulated in the tested methodology you are going to get a result within the parameters of the Highest and Lowest deviation of the average.This has certainly been the case with the systems I trade and of the results I am privvy to of traders trading systems,and with knowledge of their systems blueprints.

Im happy to trial based upon Turnover if you would define for me how you define "Turnover" and how to determine it. I have a liquidity filter within the system shown based upon minimum turnover over a month of trading ($500,000).

*The exercise is meant to get people thinking that high return isnt necessarily linked to high returns from your trading---more from consistant returns, Compounding and sensible use of leverage.*


----------



## Sir Burr (12 September 2006)

tech/a said:
			
		

> *The exercise is meant to get people thinking that high return isnt necessarily linked to high returns from your trading---more from consistant returns, Compounding and sensible use of leverage.*




OK definately but:

1) Yes it is ridiculous, $15,000 to Over $750,000 in 7 yrs Impossible? Think again and lower your expectation to 30-50% of that.

2) _"The arguement that a method should be designed to profit equally well in ALL market conditions again is rediculous if trading a portfolio of stocks."_ Yes exactly my point, expect a return of over $750,000 in 7 yrs *IF* we have similar market conditions.

3) Firstly include de-listed shares in your database then create a ticker with the total market turnover in it. Add a moving average to it and use a % of the turnover to find the approx ASX300. Using 500000 will exclude many stocks in the past compared with today (bias).

SB


----------



## Sir Burr (12 September 2006)

Tech,

I just noticed there doesn't seem to be any Monte Carlo profit (or drawdown) stats for the $15,000 to Over $750,000 in 7 yrs?

*Profit Stats*
	Maximum Profit:	$????????		
	Average Profit:	$750,000 (750.00%)		
	Minimum Profit:	$????????		
	Standard Deviation:	$??????		
	Probability of Profit:	???%		
	Probability of Loss:	???%		

What's the Min/Max profit and deviation?

Also, in regards to your comments about tax and the title of the thread. Yes is impossible to accumulate the amount in question as there will not be the same compounding effect with tax being paid out of your account.

SB


----------



## tech/a (12 September 2006)

God why bother.

I have purposely chosen an example where the system return is 15%.
If I alter even that variable to 40 or 50% which is possible in a longer term trading methodology the 15-750K scenario looks more like 15-3 million which in turn less everything you have suggested Im sure will nett the $750K I cant be bothered running it. Some trades would only be subject to 25% tax as they would be held over 365 days infact pretty well all the big winners would fit here.

Actually to prove a point I altered 2 variables SLIGHTLY and it *doubles return*.To $1,350,000 from the original $15,000
I altered position sizing from 12.5% of capital to 13.5% and I altered Leverage from 2.5:1 to 3:1 That should take care of your tax and other issues-- So yes it can be done.

Table 1

But if it makes you happy I see your point.

Hopefully those who may benifit have understood and digested mine.
Nothing is impossible if you think outside of the square.
Little is possible if you dont. Most get caught in the semantics and lose sight of the message.

Table 2 is the Montecarlo you requested of the ORIGINAL 15-750K over 20000 portfolios.

Hmmm seems that there is a computer problem I cannot write piks to the forum.
I think its a problem my end.
I can email the files to you if you wish just private mail me your email address and i will post off tommorow.

Sorry about that.


----------



## MichaelD (12 September 2006)

Tech,

There have been some valid objections to your projected returns here which really need to be pointed out without being steamrollered over.

Problem 1. Tax is a major issue which you have simply waved away. The effect of accounting for tax is a major reduction in the power of compounding - taking 30% of the compounding amount out per annum to pay the necessary tax will halve the projected return.

Problem 2. This is a MUCH bigger problem and no one has mentioned it so far in this thread. *Inclusion bias.* (Not survivor bias which has a negligible effect.) If you examine the universe of returns I'll guarantee you that you'll have several trades such as Paladin (PDN) in there from 0.02 to 5.00 (or the rough equivalent). Such a trade would NEVER be taken in real life because PDN would not have been in the trading universe to begin with. Thus, the extreme outlier trades which make the numbers look so fantastic should not be counted in the outcome. In my opinion, this is probably THE biggest gotcha of backtesting, and almost nobody seems to consider it.


I'm NOT saying it isn't profitable. I'm saying it's not as profitable as it first would appear.


----------



## tech/a (13 September 2006)

Michael.

The tax issue I will apologise for not heading the thread $750,000 before tax.
However As pointed out above with small changes *same* method returns $1,350,000 before tax,so I'm sure it would return $750,000 after tax.

Inclusion basis.
I certaintly see your point,however in this case this is not the case.
The method only returns 15% net and relies as much on win rate as it does on Profit/trade.
The largest winners in the trade log are  HSP<TOL<CTX 344/306/279% return respectively all held around a year and a half.

I'm happy for you to veiw the trade log. Ill email it if you wish.

Ive often pondered the very point you make. In conclusion this will occur but the whole premise of a good method is that with ANY universe of stocks the results will be within the parameter of the Blueprint of the methodology tested.Today the BT list will not be as it is in 2010 some will be added and some deleted.
As is the case in testing regardless of the combination of trades in the portfolio the results remain in the Blueprint. This is the case when I test universes from other bourses which have similar characteristics to a list like BT.

So to make everyone happy I will submit the second group of settings as the example so that the results are more likely.

Detailed Report
( ASX100 XX1)

Simulation Summary
Simulation Date:                                            12/09/2006
Simulation Time:                                            9:31:10 PM
Simulation Duration:                                      0.35 seconds

Trade Summary
Earliest Entry Date in the Trade Database:                   8/01/1999
Latest Entry Date in the Trade Database:                    25/08/2006
Earliest Exit Date in the Trade Database:                   15/01/1999
Latest Exit Date in the Trade Database:                      1/09/2006

Start Trade Entry Date:                                      8/01/1999
Stop Trade Entry Date:                                      25/08/2006
First Entry Date:                                            8/01/1999
Last Entry Date:                                            25/08/2006
First Exit Date:                                            15/01/1999
Last Exit Date:                                              1/09/2006

Total Trading duration:                                      2793 days

Profit Summary
Profit Status:                                              PROFITABLE
Starting Capital:                                           $15,000.00
Finishing Capital:                                       $1,372,880.02
Maximum Equity/(Date):                       $1,357,880.02 (1/09/2006)
Minimum Equity/(Date):                         -$2,731.38 (24/09/1999)
Gross Trade Profit:                          $1,697,759.39 (11318.40%)
Gross Trade Loss:                             -$339,879.37 (-2265.86%)
Total Net Profit:                             $1,357,880.02 (9052.53%)
Average Profit per Trade:                                   $11,807.65
Profit Factor:                                                  4.9952
Profit Index:                                                   79.98%
Total Transaction Cost:                                     $13,800.00
Total Slippage:                                                  $0.00
Daily Compound Interest Rate:                                  0.1618%
Annualized Compound Interest Rate:                            80.4437%

Trade Statistics
Trades Processed:                                                  356
Trades Taken:                                                      115
Partial Trades Taken:                                                0
Trades Rejected:                                                    78
Winning Trades:                                            56 (48.70%)
Losing Trades:                                             59 (51.30%)
Breakeven Trades:                                            0 (0.00%)

Normal Exit Trades:                                       109 (94.78%)
Delayed Normal Exit Trades:                                  0 (0.00%)
Open Trades:                                                 6 (5.22%)
Protective Stop Exit Trades:                                 0 (0.00%)
Time Stop Exit Trades:                                       0 (0.00%)
Profit Stop Exit Trades:                                     0 (0.00%)

Largest Winning Trade/(Date):                  $252,480.00 (1/09/2006)
Largest Losing Trade/(Date):                   -$40,394.08 (3/02/2006)
Average Winning Trade:                                      $30,317.13
Average Losing Trade:                                       -$5,760.67
Average Win/Average Loss:                                       5.2628

Trade Duration Statistics
(All Trades)
Maximum Trade Duration:                                     749 (days)
Minimum Trade Duration:                                       6 (days)
Average Trade Duration:                                     134 (days)
(Winning Trades)
Maximum Trade Duration:                                     749 (days)
Minimum Trade Duration:                                       6 (days)
Average Trade Duration:                                     231 (days)
(Losing Trades)
Maximum Trade Duration:                                     161 (days)
Minimum Trade Duration:                                       6 (days)
Average Trade Duration:                                      42 (days)

Consecutive Trade Statistics
Maximum consecutive winning trades:                                  8
Maximum consecutive losing trades:                                   8
Average consecutive winning trades:                               2.55
Average consecutive losing trades:                                2.81

Relative Drawdown
Maximum Dollar Drawdown/(Date):                $61,087.98 (28/10/2005)
Maximum Percentage Drawdown/(Date):              31.3900% (16/03/2001)

Absolute (Peak-to-Valley) Dollar Drawdown
Maximum Dollar Drawdown:                          $67,020.99 (7.1620%)
Capital Peak/(Date):                          $935,835.97 (16/06/2006)
Capital Valley/(Date):                         $868,814.99 (1/09/2006)

Absolute (Peak-to-Valley) Percent Drawdown
Maximum Percentage Drawdown:                     39.7300% ($14,753.85)
Capital Peak/(Date):                           $37,135.38 (24/03/2000)
Capital Valley/(Date):                         $22,381.52 (16/03/2001)


Semantics aside,I hope the example of the use of Compounding/Leverage and how the smallest changes in variables NOT WITHIN a methods structure can alter the outcome considerably---has been helpful.


----------



## nizar (13 September 2006)

tech

I find it odd that average losing trade time is (substantially) longer than average winning trade time. if a trade goes against u, wouldnt u pretty much get stopped out straight away?

(while when it goes up, u would just ride the trend?)


----------



## Sir Burr (13 September 2006)

Hi Tech,

Personally I bothered because I just had some points to make. I believe I put them across with no malice intended and in a non-derogatory manner.

The above figures you posted are from the Detailed Report not the Monte Carlo report. Monte Carlo indicates the range of outcomes of all statistics rather then a possible best case put forward in a single simulation run.

OK say we exclude tax, compounding, curve fitting, outliers and biases etc and accept that the profit is $750000 over the past 7 years. My main point of reply was that *the period of testing is majority a bull market* and not to expect the same returns going forward. Just one out of the 7 years testing period was down, 2002.

I understand your points about money management and they are excellent but it would be interesting to see results in a bear market on margin. If you were using a method which keeps you out of a bear market, then again these high profits would not be seen as I believe the system tested is long only.

Try reversing the system making it a “short” and see what the returns would have been over the same 7 year period. An exception with this is the maximum profit on a trade would be 100% only.

About the tax, correction: 25-50% tax (+ Medicare).

SB

Edit: Tech/A, being traders it is our job to try and rip apart any theories to try and find problems with trading systems (isn't it?).  :


----------



## tech/a (13 September 2006)

tech/a said:
			
		

> Trade Duration Statistics
> (All Trades)
> Maximum Trade Duration:                                     749 (days)
> Minimum Trade Duration:                                       6 (days)
> ...




Sorry Nizar not with you??

Average winning trade time 231 days 
Average losing trade time 42 days


----------



## tech/a (13 September 2006)

Sir B

I'll answer your post in greater detail later.

I am very aware that the Report posted wasnt as asked.

Here is the Monte Carlo report of the original. 15-750k

Monte Carlo Report
( ASX100 XX1)

Simulation Summary
Simulation Date:                                            13/09/2006
Simulation Time:                                            7:57:10 AM
Simulation Duration:                                     35.47 seconds

Trade Parameters
Initial Capital:                                            $15,000.00
Portfolio Limit:                                               100.00%
Maximum number of open positions:                                  100
Position Size Model:                               Equal Percent Units
Trade Size (% of total cap):                                    13.00%
Pyramid profits:                                                   Yes
Transaction cost (Trade Entry):                                 $60.00
Transaction cost (Trade Exit):                                  $60.00
Margin Requirement:                                      from Database

Trade Preferences
Trading Instrument:                                             Stocks
Break Even Trades:                                  Process separately
Trade Position Type:                          Process long trades only
Entry Order Type:                                        Default Order
Exit Order Type:                                         Default Order
Minimum Trade Size:                                              $0.00
Accept Partial Trades:                                              No
Volume Filter:                               Ignore Volume Information
Pyramid Trades:                                                     No
Use Level Zero trades only:                                        Yes

Simulation Stats
Number of trade simulations:                                     20000
Trades processed per simulation:                                   356
Maximum Number of Trades Executed:                                 128
Average Number of Trades Executed:                                 123
Minimum Number of Trades Executed:                                 118
Standard Deviation:                                               1.45

Profit Stats
Maximum Profit:                                 $926,828.39 (6178.86%)
Average Profit:                                 $785,185.41 (5234.57%)
Minimum Profit:                                 $587,810.38 (3918.74%)
Standard Deviation:                               $63,795.80 (425.31%)
Probability of Profit:                                         100.00%
Probability of Loss:                                             0.00%

Percent Winning Trade Stats
Maximum percentage of winning trades:                           50.83%
Average percentage of winning trades:                           48.27%
Minimum percentage of winning trades:                           45.97%
Standard Deviation:                                              0.81%

Percent Losing Trade Stats
Maximum percentage of losing trades:                            54.03%
Average percentage of losing Trades:                            51.73%
Minimum percentage of losing trades:                            49.17%
Standard Deviation:                                              0.81%

Average Relative Dollar Drawdown Stats
Maximum of the Average Relative Dollar Drawdown:             $4,858.44
Average of the Average Relative Dollar Drawdown:             $3,857.02
Minimum of the Average Relative Dollar Drawdown:             $3,214.72
Standard Deviation:                                            $340.92

Average Relative Percent Drawdown Stats
Maximum of the Average Relative Percent Drawdown:              2.8634%
Average of the Average Relative Percent Drawdown:              2.5953%
Minimum of the Average Relative Percent Drawdown:              2.3725%
Standard Deviation:                                            0.0960%

Maximum Peak-to-Valley Dollar Drawdown Stats
Maximum Absolute Dollar Drawdown:                           $70,168.24
Average Absolute Dollar Drawdown:                           $41,421.12
Minimum Absolute Dollar Drawdown:                           $27,015.00
Standard Deviation:                                          $8,939.94

Maximum Peak-to-Valley Percent Drawdown Stats
Maximum Absolute Percent Drawdown:                            30.7737%
Average Absolute Percent Drawdown:                            30.7217%
Minimum Absolute Percent Drawdown:                            30.6682%
Standard Deviation:                                            0.0518%


----------



## dj_420 (13 September 2006)

tech/a

just wondering what do i have to do to use a system like this in my current trading plan. what software should i buy that will allow me to perform the calculations you have made.

if i have a possibility of making some excellent returns using a tech a system then i want to try it.

what do you think is better tech/a, fundamental long term trades or using a syetm with many short term tech analysis trades


----------



## stock_man (13 September 2006)

Congrats on a great thread topic Tech.

I have just read over the whole thread, and there are some great ideas and comments.

However, it seems the thread is full of negativity. From my understanding the point of this thread was to open people's minds up to the possibility that this kind of capital growth is viable.

People need to understand that by being so cynical and critical of ideas, only caps their thoughts. Its only when we expand our horizons and thought patterns that the unimaginable becomes a reality.

You must remember that once the earth was thought to be flat - people ridiculed this idea and called them insane. Or maybe when the idea of internation flights was dreamed upon.

Thanks again Tech, your thread has only opened up my thought process to think of other possibilities of creating $1M.


----------



## MichaelD (13 September 2006)

tech/a said:
			
		

> Inclusion basis.
> I certaintly see your point,however in this case this is not the case.
> The largest winners in the trade log are  HSP<TOL<CTX 344/306/279% return respectively all held around a year and a half.



Fantastic. That's really good to hear and certainly improves my estimation of the robustness of the system.

I'll raise two more objections, though;

1. The time frame traded. I for one would like to see this same system traded from 1-Jan-1988 to 31-Dec-1992 with all other parameters as initially set. This will give a better indication of system survivability during lean times.

2. I'd also like to see the closed equity curves for both time frames to get a feel for how the system trades/how long it is in drawdown in good and bad times.


----------



## tech/a (13 September 2006)

Cathers.

The analysis itself isnt important.
I use T/A as I can write formulas which can then be tested. The key I believe in introducing Compounding and Sensible leverage is the ability to have the parameters known that testing will provide.

Stockman.

Its a common Aussi trait. Unfortunately it blinds many to the possiblilites of thinking outside the shoe box. Most live in the shoe box.

Michael.

its NOT ABOUT THE SYSTEM PRESENTED,we could dissect it endlessly.
I will run some tests and sure I agree in less than ideal times the results will alter.
When I Started techtrader years ago I had no idea what the future bought,I have no idea what the next 4 yrs will bring either.

What I do know is that whatever I trade I will continue to trade provided it falls within the "Blueprint".
I am at the moment looking into "Switches" as I like many others believe there are times to be fully exposed and times to have no exposure at all.
Not having a position wether it be trading or property is in fact HAVING A POSITION.

Money---Big money comes not from being right constantly but from the WAY YOU USE your money. I have proven this time and again.


----------



## jwatkins (13 September 2006)

T/A... I completely agree that the system is quite irrelevant, but I'd be terrified in using a 70-75% LVR as you suggest! 

Does there even exist a system that would not generate a margin call repeatedly during a bear market (without the benefit of knowing in hindsight that you were in a bear market)? I know you argue that you'd use a different system to T/A during a bear market, but
a.) what sort of ideas would the system use
b.) would it impale you if it turned out you weren't in a bear market afterall
c.) could it survive a major shock?

I'd take 15%... heh I think I'd take 10% p.a. over the next 7 years. Of course, I'm very open to proof that 10% returns are pathetic


----------



## Sir Burr (13 September 2006)

Does living in a shoe box mean I am closed to ideas? Maybe this is some gang of weirdo's who think that backtesting statistics over a bull market should never be questioned?   

Granted, a virgin starts out with Techtrader a few years ago with market conditions as they have been, has pocketed a motza like everyone else. A virgin starts out with Techtrader in '87 and for 7 years what have they achieved, $750,000, $200,000, -$15,000?

My problem is not that $750,000 is impossible (in 7 years), simply that it is dependent on market conditions (using "long" only).

You have made it look slick as and this is not a tricky question but again, how would trading on margin look in a market, say '87 thru '93?


----------



## tech/a (13 September 2006)

jwatkins said:
			
		

> T/A... I completely agree that the system is quite irrelevant, but I'd be terrified in using a 70-75% LVR as you suggest!
> 
> Does there even exist a system that would not generate a margin call repeatedly during a bear market (without the benefit of knowing in hindsight that you were in a bear market)? I know you argue that you'd use a different system to T/A during a bear market, but




No.



> a.) what sort of ideas would the system use




If I did trade it would be futures,but as it stands If I personally was exited out of my methods due to market conditions pushing the systems beyond my "Blueprints".I probably wouldnt trade.Id spend the time investigation something like Frank D's methods.



> b.) would it impale you if it turned out you weren't in a bear market afterall




No,Id be following my method and its Numbers.




> c.) could it survive a major shock?




My portfolios as they stand could yes.


*If you started today * the stops are at 10% of purchase price (My methods) and as such a shock tommorow could fail it.
But then any trader in the market will git hit by a shock just like me if Im in.



> I'd take 15%... heh I think I'd take 10% p.a. over the next 7 years. Of course, I'm very open to proof that 10% returns are pathetic




Any return used wisely is a good return

SIR



> Does living in a shoe box mean I am closed to ideas? Maybe this is some gang of weirdo's who think that backtesting statistics over a bull market should never be questioned?




No but your hooked on the semantics not the thinking outside the shoe box. 



> Granted, a virgin starts out with Techtrader a few years ago with market conditions as they have been, has pocketed a motza like everyone else. A virgin starts out with Techtrader in '87 and for 7 years what have they achieved, $750,000, $200,000, -$15,000?




Firstly the system used as example isnt Techtrader.
Secondly I have no idea.



> My problem is not that $750,000 is impossible (in 7 years), simply that it is dependent on market conditions (using "long" only).




Yes that is true of any trading. Long or Short.But I will continue to argue that regardless of market conditions--returns,any returns,can be enhanced through compounding and leverage.Sure you could argue that your timing could be at the begining of a bear market and you could lose to the extent of the maximum drawdown of the method you have tested and decided to trade.

But then the alternative is to trade in a discretionary manner with NO blueprint whatso ever.At least I will know when to sit it out even leveraged Id lose 30% of initial capital,which I would also suggest to budding trader would not be your total nett worth!



> You have made it look slick as and this is not a tricky question but again, how would trading on margin look in a market, say '87 thru '93?




I've not made it anything---its as it is tested.
Again I have no idea I dont have data back that far.
But again your missing the whole idea of trading with a blueprint.

*What I have done though is tested the period 1998 to 2004 which is pretty flat.*

The market rose from 2500 to 3300 in approx round terms.
Or around 33% $15000 would have grown to $19800.

I didnt think the results were that bad over that period---what do you think??


Detailed Report
( ASX100 XX1 03)

Simulation Summary
Simulation Date:                                            13/09/2006
Simulation Time:                                            9:54:09 PM
Simulation Duration:                                      0.24 seconds

Trade Summary
Earliest Entry Date in the Trade Database:                   9/04/1998
Latest Entry Date in the Trade Database:                    29/08/2003
Earliest Exit Date in the Trade Database:                   17/04/1998
Latest Exit Date in the Trade Database:                     19/11/2004

Start Trade Entry Date:                                      9/04/1998
Stop Trade Entry Date:                                      29/08/2003
First Entry Date:                                            9/04/1998
Last Entry Date:                                            28/03/2003
First Exit Date:                                            17/04/1998
Last Exit Date:                                             19/11/2004

Total Trading duration:                                      2416 days

Profit Summary
Profit Status:                                              PROFITABLE
Starting Capital:                                           $15,000.00
Finishing Capital:                                         $522,871.39
Maximum Equity/(Date):                        $507,871.39 (19/11/2004)
Minimum Equity/(Date):                         -$3,666.13 (14/05/1999)
Gross Trade Profit:                             $561,575.72 (3743.84%)
Gross Trade Loss:                               -$53,704.33 (-358.03%)
Total Net Profit:                               $507,871.39 (3385.81%)
Average Profit per Trade:                                    $7,468.70
Profit Factor:                                                 10.4568
Profit Index:                                                   90.44%
Total Transaction Cost:                                      $8,160.00
Total Slippage:                                                  $0.00
Daily Compound Interest Rate:                                  0.1471%
Annualized Compound Interest Rate:                            71.0036%

Trade Statistics
Trades Processed:                                                  164
Trades Taken:                                                       68
Partial Trades Taken:                                                0
Trades Rejected:                                                    28
Winning Trades:                                            30 (44.12%)
Losing Trades:                                             38 (55.88%)
Breakeven Trades:                                            0 (0.00%)

Normal Exit Trades:                                       68 (100.00%)
Delayed Normal Exit Trades:                                  0 (0.00%)
Open Trades:                                                 0 (0.00%)
Protective Stop Exit Trades:                                 0 (0.00%)
Time Stop Exit Trades:                                       0 (0.00%)
Profit Stop Exit Trades:                                     0 (0.00%)

Largest Winning Trade/(Date):                 $162,588.00 (19/11/2004)
Largest Losing Trade/(Date):                   -$7,632.00 (12/07/2002)
Average Winning Trade:                                      $18,719.19
Average Losing Trade:                                       -$1,413.27
Average Win/Average Loss:                                      13.2453

Trade Duration Statistics
(All Trades)
Maximum Trade Duration:                                     749 (days)
Minimum Trade Duration:                                       6 (days)
Average Trade Duration:                                     144 (days)
(Winning Trades)
Maximum Trade Duration:                                     749 (days)
Minimum Trade Duration:                                       7 (days)
Average Trade Duration:                                     279 (days)
(Losing Trades)
Maximum Trade Duration:                                     154 (days)
Minimum Trade Duration:                                       6 (days)
Average Trade Duration:                                      37 (days)

Consecutive Trade Statistics
Maximum consecutive winning trades:                                  7
Maximum consecutive losing trades:                                   8
Average consecutive winning trades:                               2.31
Average consecutive losing trades:                                2.92

Relative Drawdown
Maximum Dollar Drawdown/(Date):                $16,624.89 (14/08/2002)
Maximum Percentage Drawdown/(Date):              23.4800% (16/02/2001)

Absolute (Peak-to-Valley) Dollar Drawdown
Maximum Dollar Drawdown:                         $16,624.89 (11.4500%)
Capital Peak/(Date):                          $145,163.27 (28/06/2002)
Capital Valley/(Date):                        $128,538.39 (14/08/2002)

Absolute (Peak-to-Valley) Percent Drawdown
Maximum Percentage Drawdown:                     32.4500% ($11,756.60)
Capital Peak/(Date):                           $36,234.08 (24/03/2000)
Capital Valley/(Date):                         $24,477.48 (16/02/2001)


And its over a shorter period!!

{ I can still get close to $750K actually $710K by altering the variables only slightly}

AT CFD leverage of 10:1 {Which of course is insanity even with a tested drawdown of 52%} is over $4 million.During the same flatish period.


----------



## MichaelD (13 September 2006)

tech/a said:
			
		

> its NOT ABOUT THE SYSTEM PRESENTED,we could dissect it endlessly



But it IS about the system. Long term trend following requires long term trends to make money. Years of range bound markets simply whipsaw the system, slowly depleting equity. Add margin into the equation and you simply deplete your capital faster.

If the market behaves cyclically as it has done for the last 20 years then there will be plenty of bullish times to more than compensate for the bearish times and long term trend following will continue to make good money over time.

But what happens to long term trend following traded on margin - to your business plan - when the edge disappears for years and years in a secular bear market?


----------



## tech/a (13 September 2006)

See above what do you think as well!


----------



## lesm (13 September 2006)

> But it IS about the system. Long term trend following requires long term trends to make money. Years of range bound markets simply whipsaw the system, slowly depleting equity. Add margin into the equation and you simply deplete your capital faster.




The obvious question is why would you permit your equity to slowly bleed to death in a market that the system is no longer suitable for?

Using margin simply speeds up the end result, as you have stated.

This is one the reasons that some system developers are looking at switches to turn systems off when the system is no longer viable in changed market conditions



> If the market behaves cyclically as it has done for the last 20 years then there will be plenty of bullish times to more than compensate for the bearish times and long term trend following will continue to make good money over time.




If you follow the logic of the first paragraph this is on true if you haven't bled to death first and can survive the potential drawdown and equity depletion. We cannot necessarily predict in advance the length of the next bear cycle. The premise in the above paragraph relies on the ability to survive the bearish cycle. It may actually be wiser to stop trading or change the trading approach to one that is better suited to the the relevant market conditions.



> But what happens to long term trend following traded on margin - to your business plan - when the edge disappears for years and years in a secular bear market?




This assume that the long term trend following trader has a true edge, whihc is not necessarily true. A large number of long term trend followers are really just herd followers, with no (trading) edge.

Cheers


----------



## MichaelD (13 September 2006)

tech/a said:
			
		

> Earliest Entry Date in the Trade Database: 9/04/1998
> Last Exit Date:                                             19/11/2004



Ah, our posts crossed paths.

This shows up another TradeSim/backtesting gotcha which you expose yourself to when you deselect Ignore Open Trades.

The XAO went from 2806 to 3846 during the period actually simulated (9/4/1998 to 19/11/2004). This is NOT a flat market that you've simulated over. Instead, there's a huge tail of bull market winners in there for the last 12 months past where you think you stopped testing which will be severely biasing the results.


However, having said all of that, I think we are indeed losing sight of the wood for the trees.

Your assertion is that adding compounding and leverage to a robust trading system will multiply results. I agree with this. However, I differ on what I consider robust. I do not believe that long term trend following of one market is sufficiently robust in all market conditions to be traded safely as you advocate.

I believe for a trading business plan to be truly robust (and thus capable of safely utilizing leverage) it needs the following features;

1. There must be more than one time frame traded with different edges. This does NOT mean a daily long term trading system and a weekly long term trading system. These are basically correlated systems. Trading different edges can be simplistically considered as trading markedly different exits. (Money and risk management are givens in all of this.)

2. Non correlated markets should also be traded.

To me, the issue of leverage and compounding is not about how much more you could make. It is about how best you can utilize leverage to minimize your drawdown and smooth your equity curve. The profits will then come as a byproduct of trading well.


----------



## MichaelD (13 September 2006)

lesm said:
			
		

> Why would you permit your equity to slowly bleed to death in a market that the system is no longer suitable for?



I wouldn't. My (and no doubt all of Tech's long term trading systems) have termination parameters of % drawdown.

But...that's not the real issue. HOW do you know at the time whether a market is unsuitable for long term trend trading? Answer: you cannot know this until after the fact. All the switches I have looked at to date end up simply being curve-fitted and not robust.

When is a system's true maximum drawdown apparent? During backtesting? After live trading for 1, 2, 5, 10 years? When do you reasonably stop trading a system with a backtested edge that is steadily drawing down? How do you know that the day after you stop isn't the day that market conditions suddenly become favourable to your system again?

The answers to all of these questions are unknowable in advance.


----------



## lesm (14 September 2006)

Michael,

You are absolutely correct, we will never know in advance, but we do know the design characteristics of our system.

Sytem tesing enables us to gain an understanding of the systems expected behaviour prior to using it in the live market. 

As an aside, another unknown is how the system will actually perform when it goes live. Again, this will only be known after the fact.

Hence, once we start trading the system live we will be gathering information as to its acutal performance. This information enables us to refine the information with respect to the system and to monitor its performance.

Some of the characteristics we my observe are that the number of identified potential trades drop off or goes to zero over an extended period of time, or that the run of losing trades is increasing over the expected number, or the winning trades are decreasing both in number and size of return, or the stop loss is being hit more frequently. I am sure that you could expand/extend the list.

Just simple observation of the market behaviour or its dynamics could indicate a change in conditions, or even just simple common sense. No curve fitting is really required and is a dangerous approach in any situation.

If market conditions appear to be changing we can always look for confirmation of the change, but to keep trading a system in a market that it is not suited to it on the basis that it might become favourable is a gambling approach and not a smart trading approach.

Due to the lack of a holy grail or a reliable crystal ball, we need to learn to become wise traders and realistic in our approach to trading and longevity in the market. In this regard, we need to learn when to be active or be cautious, or step back from the market. Some of this comes from experience rather just blind reliance on writing system rules, as there is need to write rules that are effective and representative of the potential situations that may arise.

On another aspect, technical analysis in its pure form, I would argue, leaves most technical traders exposed to market risk. A single major event could wipe a significant amount of profit off the table and without a GSL facility, as available using CFDs, would also leave them exposed to potentially significant slippage, whihc could result in major losses. So much for a stop loss if there are no buyers and in the process you are thinking that market might be favourable. All because you keep trading your system and can't pull the trigger and switch the system off. Again we can't know in advance when an event like this may occur, but only after the fact.

Cheers.


----------



## Bobby (14 September 2006)

lesm said:
			
		

> Michael,
> 
> You are absolutely correct, we will never know in advance, but we do know the design characteristics of our system.
> 
> ...



Yes Lesm you have got it !

When the markets go funny so do the systems.
I.m going to pay the small Ins for GSL ( CFDs ) and go discretionary.

Bob.


----------



## lesm (14 September 2006)

*Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!*



			
				tech/a said:
			
		

> *So how important is exit/entry/how you choose a prospect,Tech analysis or fundamental???*
> 
> *I dont care how much you tweek the way you trade you wont come close to the improvement you'll get with the way you USE your and other peoples money*




tech/a,

You have actually made a very good point here and probably one that people lose sight of.

Cheers


----------



## Shane Baker (14 September 2006)

> When is a system's true maximum drawdown apparent? During backtesting? After live trading for 1, 2, 5, 10 years? When do you reasonably stop trading a system with a backtested edge that is steadily drawing down? How do you know that the day after you stop isn't the day that market conditions suddenly become favourable to your system again?




This is true of all systems over all timeframes not just long term systems. In fact short term systems can reach their maxDD a lot quicker simply because they trade so frequently.



> 1. There must be more than one time frame traded with different edges. This does NOT mean a daily long term trading system and a weekly long term trading system. These are basically correlated systems. Trading different edges can be simplistically considered as trading markedly different exits. (Money and risk management are givens in all of this.)




I agree with this. Obviously non-correlated markets will help.



> To me, the issue of leverage and compounding is not about how much more you could make. It is about how best you can utilize leverage to minimize your drawdown and smooth your equity curve. The profits will then come as a byproduct of trading well.




This is an age old argument about smoothing the equity curve. It is based on managing money rather than your own account (although I will concede your own psychgology comes into play a lot). It is pretty well accepted that traders that are in the game for long term growth should use the highest geometric rather than arithmetic mean return. Tony Crabel manages funds with 10% CAGR and extremely little drawdown whereas Ed Seykota runs his funds on 25% CAGR with much greater variance in returns and drawdown. Over twenty five years of trading I know where I would rather have my money even if the ride might be a little rougher.


----------



## tech/a (14 September 2006)

*Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!*



			
				lesm said:
			
		

> tech/a,
> 
> You have actually made a very good point here and probably one that people lose sight of.
> 
> Cheers





*Ah!! A TREE*


----------



## tech/a (14 September 2006)

> Again we can't know in advance when an event like this may occur, but only after the fact.




Im not totally convinced of this statement.
Frank D has part one in my view.
Econophysics may have part 2.

Being 
Pt 1
Systematic dynamics of price action coupled with TIME.
Pt 2
Mathamatical observance of price action over time which can give accuracy to direction up or down and magnitude of out of the Normal price moves.


----------



## WaySolid (14 September 2006)

Well I did say that it was an interesting thread.

Though we do tend do be collective knockers I don't think that applies to this thread, the questioning points were raised in a friendly and constructive matter, and there are some big issues to examine with backtesting, certainly a potential value add proposition and nothing to do with boxed thinking. 

Inclusion bias? This is a new one for me, perhaps this could be explained with an example. 

And I believe that survivorship bias is a really big issue, and not a small one, not only can it get you in dud trades it might also keep you out of your better trades (assuming limited capital) for a long term system. I'm not certain how to best go about that, certainly you would need older data.

Accumulation index figures should be used and not XJO when measuring market performance. As I posted the AOAI was running +12% over the test period, so the question needs to be asked of a system what value is it adding?

For a general outside the box thinking thread, perhaps better to leave the system entirely out of it and just run with the compounding issues and a question like is 1% compounding daily possible? Do the maths on that one


----------



## MichaelD (14 September 2006)

WaySolid said:
			
		

> Inclusion bias? This is a new one for me, perhaps this could be explained with an example.
> 
> And I believe that survivorship bias is a really big issue, and not a small one, not only can it get you in dud trades it might also keep you out of your better trades (assuming limited capital) for a long term system. I'm not certain how to best go about that, certainly you would need older data.



An example of inclusion bias;

Universe traded: ASX300
Trade Paladin Resources from 0.02 to 5.00. Make a HUGE profit on the one trade.

The problem? The test universe you are running the backtest on is TODAY's ASX300, not the ASX300 of a few years ago.

At 0.02, Paladin was not in the ASX300, so the trade in real life would never have been taken, but the backtesting took the trade.

Inclusion bias means a bunch of penny dreadfuls which have made it big can inflate your backtesting return even though when the system is traded forwards in real life these trades would never be taken.


Survivor bias has an insignificant effect. I've backtested on stock universes including multiple delisted entities and even on a reconstructed ASX300 as it was when the ASX300 was first devised - the results are no different.

Or to put it another way - the trailing stop usually gets hit before the company gets suspended from trading. There's usually plenty of technical warning of trouble ahead.

In regards to the one that got away - that's why you use MonteCarlo testing to get a feel for the possible range of results expected. It's really not that much of an issue as it all tends to average out in the long run.


----------



## Sir Burr (14 September 2006)

MichaelD said:
			
		

> The problem?



Good lord. Michael, you need to mix in some slightly different backtesting circles where there is no pessimism and everything is simply business as usual.   

SB


----------



## tech/a (14 September 2006)

> It's really not that much of an issue as it all tends to average out in the long run.




This is true of the inclusion basis problem AND the survivor issue as well.

To get a more conservative result from testing you can remove the top 3 and bottom 3 from the test results.


----------



## Shane Baker (14 September 2006)

> At 0.02, Paladin was not in the ASX300, so the trade in real life would never have been taken, but the backtesting took the trade.




This is quite true and there are methods to exclude this issue including using lists comprised from old asx 200 lists as an example.You can then test from that date forward eg list from asx 200 as at Jan1, 2000 tested forward to say Jan 1 2003.Then use the list from Jan 1 2003 etc etc. 

One method to exclude the bulk of the problem is to set a lower price limit of say 0.50. Only 6% of the current asx 300 have a price less than 0.5% but 57% of the FPO list are less than 0.5. Price and liquidity filters will eliminate most but not all candidates. Very few penny dreadfuls will pass price and liquidity filters if correctly constructed.

Proper backtesting creates a robust set of parameters that give an indication of expected results and parameters that show when the system is not performing as expected. Nothing in trading is a guarantee but I must say I struggle to understand how someone can have acheive meaningful statistical results for discretionary trading when they would have to trade for at least five years to have some form of database comprising enough data and stages of market activity.


----------



## tech/a (14 September 2006)

Where can I get such a list?


----------



## Sir Burr (14 September 2006)

tech/a said:
			
		

> Where can I get such a list?




Obviously know that it is difficult (to get) but if you go back to page 3 you will see a way to get the same result which is achievable without a "list". Just requires you to do a little work. :whip 

SB


----------



## tech/a (14 September 2006)

Sir Burr said:
			
		

> Obviously know that it is difficult (to get) but if you go back to page 3 you will see a way to get the same result which is achievable without a "list". Just requires you to do a little work. :whip
> 
> SB





Have you got a list?

If so then all I need is the list of symbols and Tradesim will do the rest.

I dont have total market or even daily market turn over.

Hmm maybe I have Just data have all sorts of charts I have no idea what they record I'll also ask them.

In answer to your questioning as part of being a trader---yes.


----------



## Shane Baker (14 September 2006)

For those interested in creating such a list the changes from 2000-2006 for the asx 200 are available at

http://www2.standardandpoors.com/se...l=EN&b=4&s=6&ig=42&i=77&si=&d=&xcd=ASX200&f=2


----------



## MichaelD (14 September 2006)

tech/a said:
			
		

> Where can I get such a list?



Took one hell of a lot of digging on the 'net to find it, but this is a little nugget of gold IMHO;

http://www.asx.com.au/about/pdf/CompanyIndex.pdf

Processing this into usable stock universes for backtesting took me an entire weekend a while back, but I felt the effort was well worth it.

You can also go backwards through the S&P site to reconstruct the original indicies as per Shane's post, but even I think that is simply too painful.


----------



## Sir Burr (15 September 2006)

tech/a said:
			
		

> Have you got a list?



No it is not a "list". You didn't read the idea!



> I dont have total market or even daily market turn over.



OK I'll make it easy, try  this, use the A-D ticker.



> In answer to your questioning as part of being a trader---yes.



Lost me - what do you mean?

SB


----------



## tech/a (15 September 2006)

I read it,I understand it.
If you used it you would already have the universe at your disposal.
That would be a list.Doing as you say in your post on page 3 will also eventually give you a list.

Your patronism is not necessary.

Youve made your point Ive made mine.




> Lost me - what do you mean?




Your comment on post#52---the post you accuse me of not reading/understanding.

To make it easy on you cast your eyes to the bottom left of the post the line starts with the letter "E"


----------



## Sir Burr (15 September 2006)

tech/a said:
			
		

> I read it,I understand it.
> If you used it you would already have the universe at your disposal.
> That would be a list.Doing as you say in your post on page 3 will also eventually give you a list.



A list, you mean every stock that had been in the ASX300 over the past 7 years into a list? Surely you don't want that do you, a stock that was kicked out of the ASX300 in 1999 still in "the list" in 2006?

Maybe I didn't make myself crystal clear. I'm a bit like that sometimes, please accept my apologies Tech/A. What I propose is dynamic.

As you now have the free data installed, you shall drop a 30 day moving average on it or any other indicator/timeframe that takes your fancy. Adjust the indicator by adding a percentage of the indicators value.

The theory is the ASX300 has higher turnover than those outside. The percentage may be adjustent to capture the approximate number of stocks you wish. How much of the markets turnover do you think is in the ASX300 80%, 90% more?

Now that you have done that, pop-open your system and get rid of any silly fixed lists you used for backtesting and add to your code: BUY = Stock turnover must be above *T*he *A*wesome.*I*dea.of.using.a.*N*ew.*T*urnover.indicator.

I suggest you check the percentage and confirm filtered stocks with both todays ASX300 and if possible an ASX300 list back in 1999.



> Your patronism is not necessary.



Maybe or maybe not, others could be peering above their shoe boxes.

Now, back to that darn tax problem. You might be able to get more realistic results by selecting the trades in the Tradesim Trade Log that have been exited in the per year. Deducting 25% tax, adjust capital and step through the backtest for each year in the period. See how you go.


----------



## tech/a (15 September 2006)

Sir

I like your idea one out of the box.
I will look into it in the future.
I have no need or desire to go into depth with the system results offered up for this example.

I'll leave it at that at this time re the results,I just dont have the time.

The point that Compounding and sensible leverage will boost return well in excess to "Tweeking" a method is the point I was making.


----------



## Sir Burr (16 September 2006)

Tech/A,

Assumes all trades are greater than 12 months:

Final capital reduced ~$200000, result of tax and compounding.


----------



## Sir Burr (16 September 2006)

Sir Burr said:
			
		

> Assumes all trades are greater than 12 months:



Just noticed the average winning trade length is 231. That will bump up the negative tax and compounding effect shown above.

Lets try an average rate of 35% tax. The "Year Ending Capital after Tax" is just under $395,000.



> (Winning Trades)  Maximum Trade Duration: 749 (days)
> Minimum Trade Duration: 6 (days)
> Average Trade Duration: 231 (days)


----------



## Shane Baker (16 September 2006)

Obviously dividends and franking credits are not included in the calculations


----------



## tech/a (16 September 2006)

Thanks for that.

Out of interest what would the return have been without Compounding and without Leverage less tax etc.

By the way by tweeking the Compounding to 3:1 and position size 13% rather than 12.5%
The return is $1,300,000.
So could still achieve $750K .

I do see your point however.


----------



## Sir Burr (16 September 2006)

tech/a said:
			
		

> Thanks for that.
> 
> Out of interest what would the return have been without Compounding and without Leverage less tax etc.







*haven't tried leverage over a bear market yet!  
:behead:


----------



## nizar (14 March 2007)

Just had another read.
Great thread.


----------

