# A paper -- Developing Robust Trading Systems



## howardbandy (26 April 2012)

Greetings --

I have written a paper describing an original approach to evaluating the health of a trading system, and an original approach to determining position size based on system health that might be of interest to some of you.

It is entitled: Developing Robust Trading Systems, with Implications for Position Sizing and System Health

The technique described:
• Is of practical significance to practitioners of active investing.
• Produces both faster account growth and lower risk when compared with a passive buy-and-hold strategy.
• Is illustrated using a fully disclosed trading system, written in AmiBroker.

It can be found on the Resources page, in the Books category:
http://www.blueowlpress.com/WordPress/links/#books

Comments are welcome.

Best regards,
Howard


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## captain black (27 April 2012)

Thanks for posting that here Howard. Your willingness to share your knowledge and time both here and on the AB Yahoo group is much appreciated. Open discussion and a willingness to share and offer help is what keeps forums such as this important resources for Amibroker users and traders in general.


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## Gringotts Bank (27 April 2012)

Howard, on your website you link to a guy called Chris White who sells "EFT Bandit" system.  Do you know him?  Is he legit?


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## tech/a (27 April 2012)

captain black said:


> Thanks for posting that here Howard. Your willingness to share your knowledge and time both here and on the AB Yahoo group is much appreciated. Open discussion and a willingness to share and offer help is what keeps forums such as this important resources for Amibroker users and traders in general.




While Im sure Howard is a nice guy
Dont lose sight that he has a vested interest (Business) in what he does.
We and I are customers.


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## captain black (27 April 2012)

tech/a said:


> While Im sure Howard is a nice guy
> Dont lose sight that he has a vested interest (Business) in what he does.
> We and I are customers.




Sure, but his willingness to openly answer questions and post code here and on the Yahoo group should be acknowledged. I think there's a difference between being helpful and blatant self promotion. Unlike a few others around I don't think Howard has crossed that line.


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## tech/a (27 April 2012)

captain black said:


> Sure, but his willingness to openly answer questions and post code here and on the Yahoo group should be acknowledged. I think there's a difference between being helpful and blatant self promotion. Unlike a few others around I don't think Howard has crossed that line.




Yes I agree.

There is one thing I have noticed.
Howard doesnt get a great deal---if any flack on ASF
The reason I feel is he's a mathamatics PHD. So
the conversations seem to flow better.


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## captain black (27 April 2012)

tech/a said:


> There is one thing I have noticed.
> Howard doesnt get a great deal---if any flack on ASF




When there is debate or discussion on technical issues like coding, system design etc then there really isn't any need for there to be any "flack" like there is on some of the more general discussion type threads where "personalities" come into play.

The Amibroker FAQ thread is a great example of somewhere where there is some great discussion and sharing of code and ideas. I've mentioned before that I have a background in open source software and have benefited greatly over several years from people generous with their time and knowledge. I think when someone (like yourself) is prepared to take the time to share their knowledge then it should be acknowledged.

 There are a handful of regular contributors on the Amibroker Yahoo group such as Howard who have shared a lot of code that's now publically available. One of Amibroker's limitations is that the manual is to a certain degree not all that friendly for newbies. Being able to search online for solutions to coding problems often brings up answers in the Amibroker FAQ thread here, the Amibroker Yahoo group and also quite a few documents such as Howard's that help fill in the gaps. 

I notice more and more now that a couple of the Indian based forums have quite an active Amibroker user base as well and a lot of searches are leading there. They like producing some very colourful charts but underneath it all there is some great work going on by some very talented individuals.

But at the end of the day it means nothing if were not making money, which I'd better get back to


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## howardbandy (28 April 2012)

Gringotts Bank said:


> Howard, on your website you link to a guy called Chris White who sells "EFT Bandit" system.  Do you know him?  Is he legit?




Greetings --

I have not met Chris White in person, but I have had many email and telephone conversations with him.  Chris publishes two trading products -- ETF Bandit and Edge Rater.  Edge Rater is more powerful, more general, and allows the trader / developer to do trading system design and testing.  ETF Bandit is more focused.  It implements the rules published by Larry Connors and Cesar Alvarez in their book "High Probability ETF Trading."

As you will have gathered from my speeches, postings, and books, I am an advocate of formula-based trading systems.  Further, those systems must have trading characteristics such that they can be subjected to statistical validation.  Mean reversion systems which trade frequently and have short holding periods, such as the Connors Alvarez systems, applied to liquid tradables fit this profile nicely.  

Traders who want to investigate alternatives within the Connors Alvarez framework can read the rules in the book, program them into a platform (almost any platform is capable of handling the basic rules), and test various modifications.  Traders who are satisfied with the rules as published and want to trade rather than develop can use the ETF Bandit program to give signals.  

Based on everything I know about this (and I hope I will not need to issue a retraction in the future):  The Connors Alvarez research published in the High Probability book is solid.  The implementation of those rules in ETF Bandit is accurate.  Chris White is a reputable businessman who has produced and is supporting a valuable and reasonably priced product in ETF Bandit.  

I have enough confidence in what I have just described that I invited people on my mailing list to attend a free webinar hosted by Larry Connors in which he described some the research he has done.  The webinar was quite informative, and feedback I received from people I know was positive.  To be certain, Connors would like customers for his products, but there was essentially zero sales pressure during that webinar.  I have enough confidence in Chris White's ETF Bandit that I plan to invite people on my mailing list to a free series of webinars describing how to use ETF Bandit to trade the Connors Alvarez systems.

I do have a business interest in all this -- I make a profit from books I sell and seminars I present.  But my agenda is broader than profit.  There is so much advice that is based on ignorance, on faulty logic, on subjective observation, or is intentionally misleading that I believe clearly stated alternatives based on sound mathematical and statistical foundations are needed.  Everything I say is open and fully disclosed, so readers can replicate my results and determine for themselves whether the techniques I recommend are appropriate for their personal trading style.  If that results in book sales, thank you.

Thanks for listening,
Howard


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## tech/a (28 April 2012)

> I do have a business interest in all this -- I make a profit from books I sell and seminars I present. But my agenda is broader than profit. There is so much advice that is based on ignorance, on faulty logic, on subjective observation, or is intentionally misleading that I believe clearly stated alternatives based on sound mathematical and statistical foundations are needed. Everything I say is open and fully disclosed, so readers can replicate my results and determine for themselves whether the techniques I recommend are appropriate for their personal trading style. If that results in book sales, thank you.




No arguement here-----should be more of you!


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## notting (28 April 2012)

It's weird how people are always trying to come up with some new whiz bang sharpest edge trading system.
It's kind  of old technology.
Has been done, can be tweaked fractionally here and there but basically, *so much time* reinventing what's invented for probably no more return.

It seems to be based on the premise that there is some secret system waiting to be discovered that will surely take advantage of all those gyrations.

I guess if your into that, great, play with your Lego, the point is lost on me.

Then again I find trying to pick the market entertaining!!!


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## wayneL (28 April 2012)

tech/a said:


> No arguement here-----should be more of you!




+1

Hence the difference in respect levels of someone genuine like Howard compared to others like Kertcher, Aussie Rob, and the like, who deservedly get worked over by us.


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## tech/a (28 April 2012)

notting said:


> It's weird how people are always trying to come up with some new whiz bang sharpest edge trading system.
> It's kind  of old technology.
> Has been done, can be tweaked fractionally here and there but basically, *so much time* reinventing what's invented for probably no more return.




Well I've seen systems that make spectacular losses through to My best at 48%
to over 100% 
Far from just a tweak or two.



> It seems to be based on the premise that there is some secret system waiting to be discovered that will surely take advantage of all those gyrations.




You'll find that your ability to design trading methods that are profitable will put you way way ahead of the field who are discretionary trading.if you find trying to pick the market entertaining just imagine how much fun it will be when you can do it with regular monotony.



> I guess if your into that, great, play with your Lego, the point is lost on me.
> 
> Then again I find trying to pick the market entertaining!!!




Take a second to run some figures
$100k at 15% compounded over 7 yrs
Then do
$100k at 50% compounded over 7 yrs
Then do
100k at 100% compounded over 7 yrs

Most traders make a loss.
If the figures you return don't have you questioning what your doing
Then Lego is certainly best for you.


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## notting (28 April 2012)

Yeah but I don't think there is a system that has ever returned better than 18 to 20% compounded on a rolling year basis over many years. That same system may have a 100% year on  a leveraged account however if will give back and even out to around that 18 to 20 compounded over time. 
Nothing wrong with it at all just  never seen any beat it with proven consistency. 
So don't see a point in trying to.
Unless its to make your own and sell it or something.


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## tech/a (28 April 2012)

notting said:


> Yeah but I don't think there is a system that has ever returned better than 18 to 20% compounded on a rolling year basis over many years. That same system may have a 100% year on  a leveraged account however if will give back and even out to around that 18 to 20 compounded over time.
> Nothing wrong with it at all just  never seen any beat it with proven consistency.
> So don't see a point in trying to.
> Unless its to make your own and sell it or something.




Well there is
RADGE in his book Un Holy Grails shows many
His is 96% and it's not compounded and it's over many years.
I have one that's 48% Techtrader in the book is 28%

It's worth the effort


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## notting (28 April 2012)

Are you talking about the Radge Growth measured from 1 Jan 1997 - 6 Dec 2011 Averaging 30.99%?


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## tech/a (28 April 2012)

Pg 132
06-11 
Only 5 yrs --- but.


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## notting (28 April 2012)

Better make the effort to download the book!!


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## CanOz (28 April 2012)

notting said:


> Yeah but I don't think there is a system that has ever returned better than 18 to 20% compounded on a rolling year basis over many years. That same system may have a 100% year on  a leveraged account however if will give back and even out to around that 18 to 20 compounded over time.
> Nothing wrong with it at all just  never seen any beat it with proven consistency.
> So don't see a point in trying to.
> Unless its to make your own and sell it or something.




This utter nonsense. Spend an hour on Google and you can find plenty of trading systems that returned well over 50% annually. The turtles traded probably the most famous systematic approach.

Most successful henge funds are trading systematically. You don't seriously think there are traders that trade that well for that long using their instinct do you?

This is about using mathematics, its QUANTITATIVE, can you say QUANTITATIVE?

Here is the modified _20%Flipper_ on the Russell 3000. 2001 - 2012

CAGR anyone?

CanOz


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## craft (28 April 2012)

I can’t stand this without correction.

Howard’s paper discusses how to determine possible system robustness through Monte Carlo testing and out of sample simulation and then how to limit draw down in the face of a failing system in real life. Good work, seems a shame to derail his thread with ego driven crap.




tech/a said:


> Well I've seen systems that make spectacular losses through to My best at 48%
> to over 100%
> Far from just a tweak or two.
> 
> ...




Show me a system that returns 100% that is not data mined to within an inch of its life, one that you would be prepared to invest your entire wealth in – and why wouldn’t you bet the house if it objectively returns 100% p.a.  

100K at 100% means Just 20 years away from catching the best empirical evidence that discretionary value investing works. 



tech/a said:


> Well there is
> RADGE in his book Un Holy Grails shows many
> His is 96% and it's not compounded and it's over many years.
> I have one that's 48% Techtrader in the book is 28%
> ...




Radge's actual figures that Tech is quoting is 96.46% over a period of time. For an *Annual Rate of Return of  13.12%*. Tech Trader in the book is a simulated 21.33%
But why let facts get in the road of a good FIGJAM moment.


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## notting (28 April 2012)

Aware of most of that, turtles and all.


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## notting (28 April 2012)

CanOz said:


> You don't seriously think there are traders that trade that well for that long using their instinct do you?



Not sure who said that but burn the scare crow if it turns you on.


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## CanOz (28 April 2012)

craft said:


> I can’t stand this without correction.
> 
> Howard’s paper discusses how to determine possible system robustness through Monte Carlo testing and out of sample simulation and then how to limit draw down in the face of a failing system in real life. Good work, seems a shame to derail his thread with ego driven crap.
> 
> ...




You can't compare any system to the index over one year. Whats the point?

If you are going to do that then you may as well be intra-day!

Intra-day systems can double an account in one year, especially with futures.

CanOz


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## tech/a (28 April 2012)

> Radge's actual figures that Tech is quoting is 96.46% over a period of time. For an Annual Rate of Return of 13.12%. Tech Trader in the book is a simulated 21.33%




Techtrader was trade live for 7 years
It's all in " The Chartist Site" where there are many posts and threads.
Return was way way over 30 %
30k to 350k in 7 years. 

What's with the FIGJAM
comment?


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## Ves (28 April 2012)

tech/a said:


> What's with the FIGJAM
> comment?



F*** I'm good just ask me.


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## wayneL (28 April 2012)

Small cap - big cap - big difference.

Even The Oracle concedes that one can easily outperform BH if playing with less than a million.

I don't know whether that is relevant to the discussion, but IMNTBCHO, for us lowly retail traders, it is well worth the effort.

As for FIGJAM... we're all a bit of that aren't we?

BTW, the older I get, the better I was. :


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## CanOz (28 April 2012)

Since we want a good one year return, i guess i should be able to pick the year.

This is the _Double 7s_ system on the Russell 3000.

CanOz


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## CanOz (28 April 2012)

Don't try this at home, a levered up version of my SPI system.

CanOz


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## CanOz (29 April 2012)

Regarding Nick Radge's growth portfolio:

the official return is 13.23% *non-compounded* since 2006...

Cheers,


CanOz


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## craft (29 April 2012)

CanOz said:


> Regarding Nick Radge's growth portfolio:
> 
> the official return is 13.23% *non-compounded* since 2006...
> 
> ...




Can Oz

That’s exactly right. 13.23% compounded over the 5 and bit years gives the 96%. 

Tech was clearly inferring that Nick had a 96% CAGR system and people should compound 100k over 7 years at 100% to see the potential of such results.

Those sorts of claims are totally misleading to anybody that does not know better. I think Radge’s approach and results can stand on their own two feet without having to misrepresent them.




tech/a said:


> Techtrader was trade live for 7 years
> It's all in " The Chartist Site" where there are many posts and threads.
> Return was way way over 30 %
> 30k to 350k in 7 years.




Tech

What would you think of people sprouting leveraged results without declaring the leverage involved?

What's good for the Goose is good for the Duck.


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## CanOz (29 April 2012)

I think its important for people to realize there is a difference between leveraged and compounded as well.

They had this discussion on the other forum, compounded results are not often realized either. For various reasons the trader/investor does not leave the funds to compounded.

CanOz


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## Lone Wolf (29 April 2012)

CanOz said:


> They had this discussion on the other forum, compounded results are not often realized either. For various reasons the trader/investor does not leave the funds to compounded.




On that note - Compounded returns don't normally take tax into consideration. Which is to be expected since each person's tax situation is different. But the equity curve in reality never looks as nice as in theory since a big chunk of the profits get taken away every year. CAR is a good way to measure the performance of a system, but people should understand that the real result won't be the same in most cases.


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## Gringotts Bank (29 April 2012)

notting said:


> Yeah but I don't think there is a system that has ever returned better than 18 to 20% compounded on a rolling year basis over many years. That same system may have a 100% year on  a leveraged account however if will give back and even out to around that 18 to 20 compounded over time.
> Nothing wrong with it at all just  never seen any beat it with proven consistency.
> So don't see a point in trying to.
> Unless its to make your own and sell it or something.




You may want to have a read of Market Wizards too.  A number of hedge fund managers are profiled, many of whom have averaged well over 50%pa over many years.  And I know with all this discussion (above) you might ask if the returns described are compounded or not.  The answer is: I'm don't know, but it's definitely worth a read.


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## aarbee (30 April 2012)

Lone Wolf said:


> On that note - Compounded returns don't normally take tax into consideration. Which is to be expected since each person's tax situation is different. But the equity curve in reality never looks as nice as in theory since a big chunk of the profits get taken away every year.




This is one of the reasons, why the compounded results never appealed to me. I do all the backtesting on the basis of original float with the presumption that all profits are skimmed away. Sure the results don't look as sexy as the compounded ones but the equity curve tells the full story and is easy to interpret. Even with a 30% system, the position sizes in the compounded backtesting become ridiculous over time, so what is the point of presenting results that way apart from just making them look impressive. 

Cheers


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## tech/a (30 April 2012)

craft said:


> Can Oz
> 
> Tech
> 
> ...




It was designed to trade using the BT margin list and if you wanted to you could use margin.
We always used some but not all.
We did and I do use compounding.

I dont know I was happy with the results and so were/are quite a few who use it.
Anyway if you want to believe what you believe then Im not going to attempt (any further) to alter your belief.


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## sinner (30 April 2012)

Hey Howard,

Good paper. Thanks very much for sharing!

Is it just me or did blueowlpress only recently appear on the blogroll at cssanalytics? Nice one!


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## howardbandy (1 May 2012)

CSSAnalytics -- David Varadi and staff -- do high quality work that is well worth following.
http://cssanalytics.wordpress.com/

Other blogs I find valuable are listed on my blogroll.
http://www.blueowlpress.com/WordPress/
Scroll down and look for "Blogs worth exploring" in the right sidebar.

Let me, and all of us, know of others that might be included.

Best regards,
Howard


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## drarthur (16 February 2014)

Having finished reading unholy grail  I'm wanting to have a play with the 20% flipper. Google is of no use in helping me find metastock coding for it. Has anyone here coded it for metastock and willing to share it?

Tech/a, last time I saw you was at the arkaba with Daryl, hope you're doing well. Have you switched on tech trader again?


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