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Dump it Here

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The SHIELD Strategy.jpg

Starts Monday: 18th January 2021
Commencing Portfolio Size: $35k (7 starting positions)
Portfolio size when completed: $100k (20 X $5k position)

barney said:
given the massive amount of data you have presented over the last couple of years it may become an ASF "War and Peace":smug:
Click to expand...

War and Peace
These series of posts are informational in nature as to how I will now handle "open profits" (if there are any) moving forward. I won't be clogging up the thread posting on-going results as it's already been stated by @barney that the "Dump it here" thread is becoming too big.

Skate.
 
How do you calculate "R" (Van Tharp risk) in Trend Trading?

From time to time I've pondered what is the Risk/Reward equation for trend trading. Wonder what other people think? Van Tharp says let R be the initial risk. For a trend following system with an initial wide stop % risk of say 20% trailing stop, a win rate of 50% (therefore loss rate 50%), average win% say 48%, average loss say 12%.

Does that mean I should count typical R as the average loss of 12%, average win is 48%, so expected R multiple on average is 4?

OR, should I count R as 20%, the initial stop risk on all trades, giving an average R multple of 48/20 = 2.4?


If a tree falls in the forest, will the trader still make a profit???
 
I don't think the risk/reward is fully applicable to trend following. you can't define the reward. if you are trend trading then you are letting your wins ride. your risk is defined, but not the reward. I think profit factor would play a better metric. look at your average win vs average loss.
 

I wouldn't argue with that Warr. Most of our trend trades in the weekly timeframe would be medium or long term in the mind of day, swing or short term position traders. And our risk per trade may start off frequently with relatively wide stops, but the risk of open profit and trailing stops is variable as the trade proceeds.

Often see peter2 talking about R multiple, but usually on short daily timeframe trades (no more than week or so). Just wondering if any weekly trend traders think in terms of "R" I guess....
 
Newt said:
How do you calculate "R" (Van Tharp risk) in Trend Trading?
From time to time I've pondered what is the Risk/Reward equation for trend trading. Wonder what other people think?
Click to expand...

@Newt, as a systematic trend trader the risk/reward ratio is set by the amount of maximum loss that may occur as you stated. @Warr87 main comment was that "you can't define reward" but as you & I know the risk can be calculated. The maximum loss (risk) is dependant on a few variables such as the type of stop that coded into your strategy. I make a habit of using a few different exit conditions being a volatility stop, a stale exit or a plain vanilla two-stage trailing stop. So defining risk isn't clear cut as most would expect.

The profit is expressed in terms of R−multiples
Van Tharp prefers to express expectancy in terms of expected profit per "unit of risk". As you say @peter2 uses "R" (AFAIK) to equalise the risk with each trade - where I take a different approach entirely as I don't use "R" or " R multiples" as a metric.

Risk
The amount risked is the maximum amount of money you can lose. Every time a trade is taken the risk depends on the stop we use & the position size calculations in our trading system. Expectancy is simply the mean, or average across multiple trades a mathematical formula that tells you how much you will win on the average per dollar risked. I'm sure Peter will have an input as he is the master utilising "R" or " R multiples" in his calculations & reporting.

Skate.
 
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Thanks Skate. I finally got around to coding Expectancy into my backtest reports for a new strategy that was being messed with on the weekend (then realised what Amibroker calls "Avg. Profit/Loss %" is effectively "Expectancy", so its always been in there anyway).

In no way rational, but seeing typical weekly TF following strategies come up with expectancies in the order of $18 per $100 invested seemed a bit sad. Intuitively though it would be around double that.

Lies, damned lies and statistics. So many facets in backtest and trading KPI reports to consider than just CAR, R multiple or expectancy of course.

 
defining risk is very important for us trend traders because we know we will take a lot of small losses to get on the right side of a big win. the R:R works for p2 because he uses profit targets. using a trailing stop is just our way of managing risk. expectancy and positive skew are better definers of our R:R. think of some of the well known trend traders, they wouldnt think of defining a reward component in a set amount, rather they will see where it goes. probably best to think of things in terms of expectancy like skate suggestions. It's a good metric I think.
 
Good points. Most would agree including any regular profit target in a longer term trend stategy is detrimental. I've seen the odd example of of people doing it in rare circumstances.

Early ASF member "stevo" comes to mind as one....
Would have to go digging, but seem to recall he had some great posts worth reviewing.
 
To be fair, was only a short period (since Corona Crash).

Also noted Expectancy for an older system with much lower long term returns fairly close to new systems, even though there was a significant difference in number of trades taken. The older system was only able to take about half the trades of the more aggressive systems and thus not get a chance to express and edge as often.

Agree that Profit Factor, Payoff Ratio definitely worthwhile metrics to monitor. Don't think I'll be losing too much sleep over Expectancy for trend following.
 
Congrats Skate - outstanding performance for Happy Cat, and not sure whether to be cranky how well its doing (against other strategies of my own) or exuberant that I put some money aside for HC which has closely followed your metrics.

That profit factor is going to take a while to average down (assuming it ever does!).
 
qldfrog said:
Just watched a nice video from Nick Radge on share trade trackerhttps://www.thechartist.com.au/portfolio-management-software/
With the amount of different systems i have it might soon be a must have and i might have to bite the bullet..
Click to expand...

@qldfrog, you have given me an idea for a series of posts.

I'll do my best to keep it simple
I'll explain in a series of posts why Amibroker is so important in developing strategies. I'll combine 6 strategies into one strategy & add the "HappyCat Strategy" as a benchmark. I'll than correlate all those strategies into "Share Trade Tracker" & do reporting of those strategies for the week of trading that has just completed. Trading this week was patchy so it will be a good example.

Share Trade Tracker
STT has the ability to report collectively or individually. I'll add extra worksheets to the STT workbook displaying a combined "Equity Curve Chart" as-well-as individual self-seeking worksheets to display the "Equity Curve" for each individual strategy.

Not only that
I'll take the post a bit further by taking those Exploration Signal of the strategies & show the results of those strategies. The STT results will be one week of trading as if those strategies started trading live from last Monday.

Bear with me
The post will be as basic as possible so it's not "boring or confusing" to understand. The graphics, the explanation should be easy to follow along, giving a peek into how I do things. It will take a little coding effort & time to combine 7 strategies into one & set up a "Share Trade Tracker Portfolio" to report on those strategies.

Skate.
 
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