Dump it Here

Or the systems, backtested on multiple market phases does not sell buy yet, why would someone take a discretionary position then?
Do not let either fear or FOMO control a systematic trading

Skate said:

1. Daily fluctuations
I'm trading aggressively at the moment & my daily swings range between -$60k & +$90k so it's not for the faint hearted.

2. Some have stopped trading
Traders at the moment are torn between being scared & resentful they are missing out, some have stopped trading altogether waiting for the good times to return while others are fearful that the worst is still to come. (read some of recent posts here on ASF - it doesn't take long to form that opinion)

3. Perceived value
Good quality companies have been sold down so cheaply representing good value to “me” (if not now, they represent value well into the future). The recent sell off was panic selling without realising the markets around the world won’t be allowed to collapse. If you are interested in which sectors to have a dabble in, read @peter2 thread he lists them for you.

4. Market timing
Timing the market when volatility is extreme can be done quite easily with a few indicators. The majority of traders are happy to sit on the sideline watching the recent falls without capitalising on the recent spike doing nothing about it. They have felt or experienced value being destroyed without applying a strategy to pick up a few bargains at "basement prices". I’m just picking up perceived bargains. (Bottom feeding for a better word) The bigger the loss traders endure the more likely they are to persist doing nothing just watching from the sidelines.


Skate.

Click to expand...

1. Volatility is still higher than it was prior to the collapse, but far lower than during the collapse. There is lots of money to be made trading the expanded volatility.

2. And they probably should have stopped trading. These are not the market conditions for novice/inexperienced traders. But it is and should be an invaluable trading education going forward. They should be following the market very closely and looking at the variables that they believe have value going forward. For example: for months (even years) there has been a crescendo of pundits proclaiming the market (US) as overvalued. COVID-19 was a 'variable', but it was a variable that didn't seem important and then suddenly was. Was COVID-19 a cause, or simply a catalyst? Are the fundamentals subjected to a cyclical or secular change?

3. There are many ways to measure value. Find one that suits you and act upon it.

4. This really relates to your CAGR/MaxDD and other risk management strategies, on which I have some further thoughts. However, the current decline, much like '87, was a market downdraft as opposed to individual securities crashing. You trade predominantly individual stocks. I trade predominantly ETFs (as I cannot be bothered to analyse fundamentally individual stocks and I don't have the time either) which tend to encompass market sectors, rather than market based indices. For that reason I am more macro than micro. I assert that there is a significant difference twixt the two.

jog on
duc

Thanks Skate. Apologies for typos in my last post - wasn't proof read well at all obviously.

ASF can be so incredibly thought provoking at times. I've mentioned before how invaluable it is to be able to benchmark even roughly against other system traders. Some envy is envitable reading posts where others are doing well, but Duc noted earlier "Frustration is important" as it can force us to reconsider our goals, performance, diversification of systems and where we want to go next.

I've probably spent too much time doing so ("reconsidering") this Easter, but there has been opportunity to try and learn some things in Amibroker that had been on the "To Do List" for too long.

For some time now I've been considering diversifying into a 2nd system, and its fascinating comparing the pros/cons/goals of different trader approaches here. Duc's post on the conundrum of early versus late exits was very timely and helped crystallize the "big picture" of something I was was playing around with at the time. I'm not unhappy with my primary system - it has done what it was designed to do and I will take new trades it offers when that time comes (that is unlikely to happen until some less volatile and extended trends appear).

Two systems probably seems a major under-commitment to those here routinely running many!

ducati916 said:

1You trade predominantly individual stocks. I trade predominantly ETFs (as I cannot be bothered to analyse fundamentally individual stocks and I don't have the time either) which tend to encompass market sectors, rather than market based indices. For that reason I am more macro than micro. I assert that there is a significant difference twixt the two.

jog on
duc

Click to expand...

Lots of valuable points shared, but now understand even better why you would use your "broad market parameters" to control and override exits Duc - was wondering where your trading effort was most directed and ETFs make a lot of sense against what you've described.

Newt said:

Lots of valuable points shared, but now understand even better why you would use your "broad market parameters" to control and override exits Duc - was wondering where your trading effort was most directed and ETFs make a lot of sense against what you've described.

Click to expand...

Interesting discussion:
The following in a weekly systemic only view:
I got an indicator quite agile and giving me great in/out signal;
I thought: what about using it on let's say an index XJO and use ETF to play both way:
BBOZ and GEAR;
so I got a good signal, I enter leveraged (x2) ETF and so can win in both market even in down trend via the GEAR ETF;
The backtest result was pretty poor;
Basically we can not capture any of the big wins you get with individual shares
But worse: you got hit by the leverage trap
to demonstrate
last close: BBOZ @ $12.05 matching XJO at 5387
In the past: BBOZ was at $12.05
on the 16/05/2019 which was matching XJO at 6300
quite a difference and all this in less than a year
My conclusion was that system trading ETF sectors etc on a weekly basis was a waste of time and money

Perhaps more ETF choice and lower margins in US market?

qldfrog said:

Interesting discussion:
The following in a weekly systemic only view:
I got an indicator quite agile and giving me great in/out signal;
I thought: what about using it on let's say an index XJO and use ETF to play both way:
BBOZ and GEAR;
so I got a good signal, I enter leveraged (x2) ETF and so can win in both market even in down trend via the GEAR ETF;
The backtest result was pretty poor;
Basically we can not capture any of the big wins you get with individual shares
But worse: you got hit by the leverage trap
to demonstrate
last close: BBOZ @ $12.05 matching XJO at 5387
In the past: BBOZ was at $12.05
on the 16/05/2019 which was matching XJO at 6300
quite a difference and all this in less than a year
My conclusion was that system trading ETF sectors etc on a weekly basis was a waste of time and money

Click to expand...

So I had a look at BBOZ



So a couple of points:

(a) Tracking the underlying: the argument seems to be that it does not track the underlying particularly well. This is probably true of all ETFs in that they may not track their underlying stocks that well (examples include CEFs that are far below NAV) and their values drift from being able to exchange 1:1. Add in leverage and (I'm sure) this problem is magnified. The question for me though is: are they reflecting their stated purpose of moving x2 when trading? Volatility should add to the number of trading opportunities available. Looking at the comparison (XJO):



Agreed. That is pretty woeful.

By comparison: XLF:FAS



Which is what (pretty much) what you want to see. I have done the straight price as opposed to percentage as you want to see the tracking of trends rather than the absolute effect of x3 leverage.

(b) The x3 leverage means that if you (or your system) is somewhat under development, substituting x3 into your holdings might give you pause (heart failure). I have been trading 20yrs and x1 leverage has me comatose. I'm waiting for the x6 leverage to be introduced!

(c) In principle, trading x3 leverage is actually no different, you just have to expand your risk tolerances (which could just mean smaller size) to trade them. However as you have probably already gleaned, my trading plan is materially different from Mr Skate's trading plan and this is no accident: this is as a direct result of x3 leverage. You cannot (or with great difficulty) implement a pure type (b) plan. Hence my type (a) plan.

jog on
duc

Newt said:

Perhaps more ETF choice and lower margins in US market?

Click to expand...

Spot on.

jog on
duc

ducati916 said:

So I had a look at BBOZ

View attachment 102192

So a couple of points:

(a) Tracking the underlying: the argument seems to be that it does not track the underlying particularly well. This is probably true of all ETFs in that they may not track their underlying stocks that well (examples include CEFs that are far below NAV) and their values drift from being able to exchange 1:1. Add in leverage and (I'm sure) this problem is magnified. The question for me though is: are they reflecting their stated purpose of moving x2 when trading? Volatility should add to the number of trading opportunities available. Looking at the comparison (XJO):

View attachment 102193

Agreed. That is pretty woeful.

By comparison: XLF:FAS

View attachment 102194

Which is what (pretty much) what you want to see. I have done the straight price as opposed to percentage as you want to see the tracking of trends rather than the absolute effect of x3 leverage.

(b) The x3 leverage means that if you (or your system) is somewhat under development, substituting x3 into your holdings might give you pause (heart failure). I have been trading 20yrs and x1 leverage has me comatose. I'm waiting for the x6 leverage to be introduced!

(c) In principle, trading x3 leverage is actually no different, you just have to expand your risk tolerances (which could just mean smaller size) to trade them. However as you have probably already gleaned, my trading plan is materially different from Mr Skate's trading plan and this is no accident: this is as a direct result of x3 leverage. You cannot (or with great difficulty) implement a pure type (b) plan. Hence my type (a) plan.

jog on
duc

Click to expand...

Thanks @ducati916
Very in depth answer
I definitely see your point.
The concept is right but unlucky for us, not with the asx available etfs and probably not for a weekly system with the current volatility

I may look like Santa but the Easter Bunny has to be right up there - more goodies for the office.








Skate.

Skate said:

@ducati916, I'm with @qldfrog - What a great post about maximising profits, linked to the timing of the exit. Yes, it's a fine line exiting a position too early compared to exiting a position too late.

1. Conundrum
The timing of the exit can be very confusing & difficult to solve & overcome. As coders, we are tasked to navigate between the two. I also like the distinction you draw between "potential profits" & "paper profits" exiting early versus exiting late, the wording used was not lost on me.



2. To add to Duc's post
Returns alone cannot be a benchmark of robustness of any system. CAR/MaxDD is as good as any metric to measure the "Risk adjusted returns"

3. For completeness
Duc's an (a)
I'm more of a (a) + (b) guy - so lets call me (c)
(c) Exiting a position quickly after confirmation that the move is over to protect profits or to limit my loses - the metric to measure this is CAR/MaxDD

4. CAR/MaxDD
In english, the Compound Annual % Return / divided by Max. system % drawdown is a good measure to use in the strategy development phase.

5. System Drawdown versus Trade Drawdown
When running a backtest some get confused how the strategy handles System Drawdown versus Trade Drawdown as both are important. In a nutshell, system drawdown is calculated on entire portfolio, while trade drawdown is calculated on a particular trade.


Skate.

Click to expand...

1. I'm sure it wasn't. Part of the issue here is separating (a) Market risk from (b) Credit risk. Simply (a) measures where the entire market is going to fall and (b) is simply the individual risk associated with individual companies (securities). So you can have (b) while a is stable and you can have (a) while (b) is stable. The difference is that if (a) is operative, (b) is also custard. If (b) is operative, there is not necessarily (a) based risk (but this can depend on the index: eg Dow Jones being $weighted).

It is very difficult to run simultaneous risk management for both (a) and (b). The GTFO exit is a market based risk exit, which is really a derivative of your credit based risk management.

My system ignores (b) as they are ETFs. My entire (GTFO) exit strategy is 100% based on (a). It is primary, rather than derivative in nature. In addition to an exit to cash, I'll go short via Puts (which are a limited loss strategy) on the index (SPY/DIA/QQQ). Depending on my exit signal, it may be a directional bet, or only a hedge. I may not exit 100% of equity positions: I may only exit 50% or 75%. But I will exit a certain % regardless.

2. I'm not overly familiar with those two measures as I do not use them: however, they appear to be consistent with risk management in system (b). Numbers (3),(4) and (5) are really addressing the issues already raised in my (1) re.: (a) and (b).

Returning to the issue of potential profits as opposed to paper profits and psychological pain.

Potential Profits: if the GTFO exit is triggered, but, it is incorrect:

(i) are not known (hence less psychic pain) at the time, trade can always be re-entered (not as easy as it sounds however);
(ii) monetises open profits, allows (pressure free thinking time) to adjust positions;


However if correct (market falls)

(iii) money in the bank, can either sit out, or go short, or hedge;
(iv) plenty of thinking time;
(v) sets you up well for the bottom/bounce/etc;
(vi) increases profits from hedges/short positions

Loss of paper profits:

(i) leaves you angry and prone to revenge trading;
(ii) lots of psychic pain, impairs decision making;
(iii) loss of trading capital (in that had trades been closed, capital that much higher);
(iv) badly positioned for any bounce recovery;
(v) hard to get short, hedge, etc as a certain level of deer-in-the-headlights mentality sets in;
(vi) slippage increases if the fall is sharp and you have size.

jog on
duc

ducati916 said:

Frustration is important. It leads to some hard thinking.

Click to expand...

Newt said:

Gold in those last 2 posts thanks Duc - Particularly like this one - nothing wrong with letting some frustration through at times to push you to look for the next tool, strategy, filter, etc....

Click to expand...

Newt said:

Duc noted earlier "Frustration is important" as it can force us to reconsider our goals, performance, diversification of systems and where we want to go next.

Click to expand...

Frustration
I been working hard to sharpen each of my strategies to pick a turn in the markets quicker than they currently do - its been an annoying process as the coding effort hasn't been rewarded. Maybe it's not that I'm annoyed with myself rather it's "frustration" that I can't find a better exit than the ones I already have.

ducati916 said:

I'm not overly familiar with those two measures as I do not use them:

Click to expand...

Metrics
I've placed arrows on the backtest report to indicate important metric "as far as I'm concerned" - where others may have a better metric to measure the "Risk adjusted returns"

The PANDA Strategy
Duc, my "PANDA Strategy" isn't too shabby "I thought" but when the pressure was applied with the recent panic selling it fell short of my expectations reacting too slowly. The GTFO filter was designed especially for such situations - I now realise the lag of the indicator let me down (the idea is still valid). As @Newt likes to compare strategies results I've posted the backtest caption for the last three calendar years of my PANDA Strategy using a $300k portfolio. Looking at the 2020 results you wouldn't guess it's the same strategy (2020 - 3 months & 12 days of trading so early days)



Yes, I'm frustrated & annoyed at the same time
I take pride in leaving no stone unturned when my dollars are on the line - 2020 is a great example "how a good strategy" can unravel so quickly.

Skate.

Fantastic post Skate. I do like comparisons and benchmarks. Seeing that PANDA and Skate aren't perfect let's us know you're still a mortal with the rest of us then!

We all know as traders we have to be good losers, and that includes accepting risk and drawdowns. Totally agree there is also frustration in system development that we can never cater for ever market regime, and you have to make compromises about accept average % loss, system DD, CAR, CAR/MDD etc etc.

Pardon the graphics explosion, but here are some graphs from the system I've been developing of late. I couldn't help but use the now famous "GTFO" acronym for how the system tightens a trailing % stop in market downturns. Technically of course its not really "GTFO" if you're tigthening at stop rather than exiting, but what the heck....


So, over the last 6 years All Ords universe..........

Normal % stop is the trailing stop, GTFO % stop is the tightened stop during XAO downturns. We know we usually need a very wide trailing stop, but can value be added with GTFO tighened stop?




Yay - 40% trailing and about 20-25% GTFO tightened stop look promising.

So far I haven't spent a lot of time on the exit parameter,s so a bit soon to be locking anything in. One thing I don't like is the Av. % loss. Does GTFO tightened stop help with that?



You bet, but from the first graph it affects profits. What about CAR/MDD?





Far enough - many might prefer to forgo returns (CAR) to stay on the left side of the graph.
What about total system drawdown? No prize for guessing over this period (2014 to 2020) the recent crash is the largest DD, and this is the effect of both stops on total DD:



Mmmm - so without some more clever logic in the system, there's no avoiding a 25% toll trading through that recent hell'ish period. In fact optimal CAR/returns is even a bit worse than all other parameter options.

Finally, what are returns distributions like in terms of Sharpe ratio?




Conclusions: I don't have a neat way of graphing Risk of Ruin in Amibroker, but running this system at optimal number of positions, trailing % stop and optimal GTFO % stop would probably be "courageous" in the current market environment. I'll keep working on this, but it could be that for the first 12 months (or however long it takes to get say 30% open profits) it would make more sense to:
- run tighter stops (left side of all these graphs)
- more than optimal number of positions
- with smaller than normal total capital pool

Its not like you have to work out optimal settings then leave them there forever. It'd be interesting to know if people have a hands off approach to their system parameters, or consider "dialling them back" to something more conservative when starting out with the new system? Expect this will be a very personal thing again depending on risk tolerance and available funds.

I need some chocolate now.......

Hey @Newt , whilst you probably don't a reminder....red wine goes well with chocolate.

That last comment @rnr is the top value ASF post of this Easter weekend, by far

Of course - what was I thinking? - all backtests run better with red wine too.....

Newt said:

Seeing that PANDA and Skate aren't perfect let's us know you're still a mortal with the rest of us then!
We all know as traders we have to be good losers, and that includes accepting risk and drawdowns. Totally agree there is also frustration in system development that we can never cater for ever market regime, and you have to make compromises about accept average % loss, system DD, CAR, CAR/MDD etc etc. Its not like you have to work out optimal settings then leave them there forever. It'd be interesting to know if people have a hands off approach to their system parameters, or consider "dialling them back" to something more conservative when starting out with the new system? Expect this will be a very personal thing again depending on risk tolerance and available funds.

Click to expand...

Newt, what a fantastic post. I always appreciate as much detail as possible to better understand the point of view that others are trying to make. Duc, has the very same approach detailing his responses so others can understand. One liners are not normally helpful for others to understand the point of view clearly.

Facts
The backtest results I post are always 100% accurate but that's where reality ends. I don't trade any $330k portfolios that have 20 positions. The backtest displayed is so others can get a general idea without being specific. I know we don't agree on position sizing but all my systems hover between 35 & 65 positions each, my bets are between $15k & $25k & I trade multiple strategies (all systematic trend trading strategies) Each strategy is tasked to do different things at different times with each strategy having their position sizing re-balanced weekly. Both you & Duc have made me aware that "in your opinion" my trading is not diversified, where as my investment strategy is.

Truths
The recent drop in my portfolio has been horrendous to say the least & the value in dollar terms was quite high - which brings me to a few different observations & points of view.
1. My wife said "you have just given back some of their money"
2. I say no, it was my money & "I want it back"

I'm lucky but also feel sorry
I'm lucky I was in large profits & gave back a percentage - I'm sorry for others who were not in the same position & lost some of their stake money. I'm with @peter2 on this one, the "time" you start to trade can be crucial to the luck you enjoy. It's the luck of the draw.

Newt, my HYBRID Strategy backtest for comparison



# Newt, I'm expecting more posts as your research progresses.

Side note
When drinking, eating is cheating

Skate.

This thread has seen another interesting twist. One that both surprises and disappoints me. The major reason for advocating a fully systematic trading approach is to minimise the emotional interference that plagues discretionary traders.

Currently the emotions are in control of the systematic trader(s). They're doubting the effectiveness of their systems. They're looking for better exits strategies. The recent market behaviour was so unexpected that they're reacting purely on emotions. May I shout, "STOP IT, GET A GRIP".

Respectfully @Skate I was disappointed to read of your doubts regarding this system.

Skate said:

The PANDA Strategy
Duc, my "PANDA Strategy" isn't too shabby "I thought" but when the pressure was applied with the recent panic selling it fell short of my expectations reacting too slowly. The GTFO filter was designed especially for such situations - I now realise the lag of the indicator let me down (the idea is still valid). As @Newt likes to compare strategies results I've posted the backtest caption for the last three calendar years of my PANDA Strategy using a $300k portfolio. Looking at the 2020 results you wouldn't guess it's the same strategy (2020 - 3 months & 12 days of trading so early days)

Click to expand...

IMO the PANDA system is one of the best I've seen. It works brilliantly in mildly bullish markets and kills it in fully bullish markets. It's a seriously good system. So is your Hybrid system. How can you now be in any doubt?

"it fell short of my expectations" : I'd suggest that your expectations were wrong then. Didn't you back test this system to your satisfaction? Didn't you try to break it? Didn't you test it to see what would happen if the market suddenly tanked?

Looking at the 2020 test results shows me exactly what I'd expect to see when the underlying market falls 35% suddenly. A 17% DD is within the normal range for a trend following DD. I remember remarking on some back test results posted her earlier that the DD shown was too low. It was suggested that it was a timing issue. Portfolios started earlier wouldn't have such a large DD. Now we're seeing the larger DDs.

All long only equity systems have been thumped by this sudden selloff. Trend following systems require wide trailing stops (large downside exposure) for maximum reward. The market price action triggered the GTFO exit and we followed our plan.

In the third week of Feb 2020 the XAO hit an all time high. The next week of Feb 2020 the XAO fell 10%. Could this be the GTFO rule? If the market falls 10% in a week in a bullish market, GTFO.

The previous time the XAO fell 10% or more in a week was Oct 2008. That could have been another GTFO event except at that time the market was already bearish and most trend following systems would have been exiting trades well before this down week.

A GTFO exit alert doesn't have to be complicated because it doesn't trigger very often.

peter2 said:

This thread has seen another interesting twist. One that both surprises and disappoints me. The major reason for advocating a fully systematic trading approach is to minimise the emotional interference that plagues discretionary traders.

Currently the emotions are in control of the systematic trader(s). They're doubting the effectiveness of their systems. They're looking for better exits strategies. The recent market behaviour was so unexpected that they're reacting purely on emotions. May I shout, "STOP IT, GET A GRIP".

Respectfully @Skate I was disappointed to read of your doubts regarding this system.



IMO the PANDA system is one of the best I've seen. It works brilliantly in mildly bullish markets and kills it in fully bullish markets. It's a seriously good system. So is your Hybrid system. How can you now be in any doubt?

"it fell short of my expectations" : I'd suggest that your expectations were wrong then. Didn't you back test this system to your satisfaction? Didn't you try to break it? Didn't you test it to see what would happen if the market suddenly tanked?

Looking at the 2020 test results shows me exactly what I'd expect to see when the underlying market falls 35% suddenly. A 17% DD is within the normal range for a trend following DD. I remember remarking on some back test results posted her earlier that the DD shown was too low. It was suggested that it was a timing issue. Portfolios started earlier wouldn't have such a large DD. Now we're seeing the larger DDs.

All long only equity systems have been thumped by this sudden selloff. Trend following systems require wide trailing stops (large downside exposure) for maximum reward. The market price action triggered the GTFO exit and we followed our plan.

Click to expand...

Peter, now that’s a powerful post with great educational value.

I was disappointed with myself not the strategy
Peter, admittedly I’ve been extremely hard on myself - I vigorously test all my systems to weather the harshest trading conditions but obviously not enough as I’ve fallen well short of my expectations. Frankly I expected my coding to handle a brutal sell off much better then it did.

Better was expected
The HYBRID & PANDA strategies are good, but good is not good enough when better is expected. The frustration comes from not finding a better exit strategy going forward.

Skate.