Dump it Here

[qldfrog]

I think this is only an issue if we look at drawdowns as something we must try and limit or avoid. I prefer to reframe drawdowns as a combination of actual closed trade equity drawdown and open trade equity fluctuations. The open trade equity profits aren't mine as I haven't closed the position and the only way to catch large outliers, which will increase my CAGR over time, is to let those open trade profits fluctuate.

As trend followers we might look at a chart of a stock and accept that the stock won't go up in a straight line and therefore, we need to accept some profit giveback in order to catch the overall larger trend. I remember listening to a CWT podcast with Nick where he talks about a dymanic trailing stop - 40% when regime filter is up, ratcheting up to 10% when the regime filter turns down. Well, I see my equity curve as the same type of thing. My equity curve isn't going to go up in a straight line, it will zig and zag, it will pull back, it will consolidate and go sideways, however if I stick to my system and take the trades my system tells me to, I can expect that I will create the longer term up trend of my equity curve, albiet with short to medium term return volatility.

I need to give my equity curve room to move in order to create the long term trend of my equity curve.

It's so interesting to me that the focus is on reducing drawdowns and not maximising returns. I know everybody has different risk tolerances and capital preservation definitely becomes an issue the closer we get to retirement, however I am sceptical of these short term backtests showing incredible returns with minimum to minuscule drawdowns. @Skate the monthly systems are not run on monthly data as shown in your backtest results.

So, I ran the system I will be using in my SMSF, which is a modified version of Nick's 'Large Cap Momentum' strategy on the XAO with a maximum of 10 portfolio positions and we get the following results:

Backtest period: 01/01/1993 - 21/11/2021
CAGR: 37.13%
MaxDD: -62.84%

This is the most interesting bit for me and one of the reasons I stuck with the ASX100.

View attachment 133185

In April of 2000 you had to put up with a -51.9% month. I know people are going to say it doesn't matter because that was over 20 years ago - but it does matter because it is a result that the system has produced before which means it is now within your systems expected results.


Actually, my testing shows that for this strategy, the thing that strangles returns the most is the using a regime filter.


I am trading the ASX100 for my SMSF system.


Once again, I think if you're taking the view that open trade profits are yours and you're trying to defend every equity high, then you're going to have to problems living with drawdowns.

Here is a question for everyone concerned about defending equity highs. When you position size, do you do it off original equity plus/minus closed trade profits and loses only or do you position size off your open trade profits as well?

I use open trade profits as well , but with high churnout, probably not as different as it would be if i was rarely selling buying

 

[Skate]

When you position size, do you do it off original equity plus/minus closed trade profits and loses only or do you position size off your open trade profits as well?

@Cam019 thank you for a detailed explanation. As far as your question goes, position size to me is a simple re-balancing of your next bet size. Meaning, the bet will either increase or decrease according to the trading funds (cash) available.

Let me explain how I re-balance my position size
Re-balancing allows bets sizes to vary in accordance with the ongoing trading results of your strategy (positive & negative). It's a direct correlation to the current cash in your trading account due to closed profits & losses. The size of the bet or "next series of bets" depends on the cash available so all funds are deployed in the markets. The next bet size "Position Size" is a simple re-balancing technique to reinvest closed profits & losses ensuring every trading dollar is put into the markets "to fight the good fight".

How?
Position-sizing uses the cash balance in your trading account. This cash balance is used to calculate the "size" of the next bet or series of bets. It's simply a way of putting every dollar to work.

What is the Re-Balancing Formula?
Cash Trading Balance/outstanding positions required = the new bet size ("PositionSize"). This will now be the new bet for each & every pending trade (the new PositionSize also calculates the number of shares to buy in the pre-auction)

Re-balancing works both ways
Re-balancing position sizing works for me as all available funds are constantly in the markets. Re-balancing works both ways. When trading isn't going well, the bet size decreases because of closed losses. But hey, when times are good why shouldn't I take advantage of these conditions & increase my bet sizes. It's the "make hay while the sun shines" theory.

Re-balancing has been hard-coded in
I've explained in a previous post that re-balancing can be done on the fly as it's one of the parameters settings.

To select the parameter setting "open" the slider icon
The portfolio size of $100k with 10 positions = $10k initial bet size. (Each bet is 10k)


The setting above displays these calculations (number of shares to buy & the buy offer)



How to change the parameters?
"Left-click" on the parameter settings, the "slider" icon circled above. A drop-down list will appear so you can alter "the bet size" allowing you to make these adjustments on the fly. Changing your bet size is done by changing the "Trading Funds" dollar size (CBA Funds in my case). The strategy will automatically re-calculate the new number of shares to buy for that bet size.

Parameter Changes
Let's assume we have sold 5 positions (a combination of wins & losses) & now have a total of $63,254 "cash" in our trading account. After entering the new cash balance (CBA Funds) & the number of positions required (5) the Exploration Analysis is ready to proceed. The initial bet size started at $10k but now with open profits, the next series of bets increased from $10k to $12,634. (after re-balancing). By doing it this way ensures every dollar (soldier) is put into the markets "to fight the good fight".

To select the parameter setting "open" the slider icon
All that is required is to change the Trading Funds (CBA Funds) to the cash amount available being $63,254. Now change the "Positions Required" to (5). Hit [OK] to close the parameter settings drop-down box then hit [Explore].



The setting above re-calculations the number of shares to buy



Summary
Re-balancing my next bet size is a powerful strategy I employ that adds to my profitability. Well, doing it "this way" works for me.

Skate.

 

[rnr]

Here is a question for everyone concerned about defending equity highs. When you position size, do you do it off original equity plus/minus closed trade profits and loses only or do you position size off your open trade profits as well?

Hi @Cam019,

I must be missing the point of this question as open trade profits are not available for use to in taking a new position.

Cheers, Rob

 

[Joe90]

"The Ducati blue bar strategy" & the "Duc Indicator" are both brilliant ideas
Since Duc has dropped those gems I've been hard at work trying to develop them further. We have all been given the same information but I'll bet you pounds-to-peanuts not one reader is running with the idea.

Hello Skate, please provide a link to the grail referenced above, I've spent a lot of time fishing for these.....

 

[Newt]

Hello Skate, please provide a link to the grail referenced above, I've spent a lot of time fishing for these.....

Dump it Here is going to need an index post at the start at this rate.....

 

[Skate]

Hello Skate, please provide a link to the grail referenced above, I've spent a lot of time fishing for these.....

Hi @Joe90, have a read of this post that also contains the hyperlinks below.

Dump it Here

So for $300k, no slippage, All Ords universe, 20 positions on this strategy - on the left below. On the right for comparison is my older stragey, Full ASX universe, 15 positions trading from mid 2019 (this strategy is so slow to accumulate positions it didn't make sense starting from 1/1/2020...

www.aussiestockforums.com

This is the series of posts - the timeline that gave rise to the "Ducati Blue Bar Strategy"
https://www.aussiestockforums.com/posts/1065849/
https://www.aussiestockforums.com/posts/1065921/
https://www.aussiestockforums.com/posts/1066161/
https://www.aussiestockforums.com/posts/1066911/
https://www.aussiestockforums.com/posts/1066996/
https://www.aussiestockforums.com/posts/1067016/
https://www.aussiestockforums.com/posts/1067059/
https://www.aussiestockforums.com/posts/1067241/
https://www.aussiestockforums.com/posts/1067303/

All the information has been disclosed to make a profitable strategy
I've made over 70 posts about the "Ducati Blue Bar Strategy" & if you use the search feature you will find them all.

Knowledge, "leads to action"
@ducati916 posted some helpful hints (passing on some of his knowledge) in the "Dump it here" thread has resulted in 3 new afl's for me. (1) "The Ducati Blue Bar Strategy" (2) "The Ducati Stop & Go Indicator" & (3) "The Ducati Acceleration Indicator" all respectable in their own right. I'm now a firm believer that we don't need a fancy strategy to make money in this game. Using "The Ducati Blue Bar Strategy" with prudent "Money management" with a sharp "PositionScore" code brings this strategy to life. (parameter settings are also important - being part of the mix)

"The Ducati Blue Bar Strategy"
This strategy just keeps giving by picking the turning pivot with ease (in real-time). The signals are generated by using two commonly found indicators. Reverse the entry condition & you have yourself a handy exit strategy. When the position doesn't follow through "The Ducati Blue Bar Strategy" exits very quickly without any other inputs, simple & clever.

Skate.

 

[Skate]

A simple explanation
Put four traders in a room together & they will all have their reason why they "enter & exit" a position. Put four "system traders" in another room & their reasoning behind why they enter a trade can be just as dramatic & diverse.

Trading is a basic process
We all tend to overthink trading but when you strip back trading to the bare basics it's all about trading the price differential, catching trends, knowing when to get in & more importantly when to get out. Money management takes care of the rest.

Price differential
I'm not a fancy trader, I jump on confirmed trends & hop off in a timely manner looking for the next ride. Trends are happening in all timeframes & market conditions. Picking the strong movers is the secret. Knowing when to hop-on & hop-off is the tricky part & the purchase "needs to be timed". Timing is everything in this game.

Skate.

 

[Skate]

Re-balancing ensures every dollar (soldier) is put into the markets "to fight the good fight".

The advantages of staying fully invested
I personally preferred to stay fully invested & therefore sacrifice “buying bargains”. Not being fully invested will cost you. Having idol money lying around is a wasted opportunity. Not being fully invested would be to bet "against" the tide of history, which has continued to push markets higher. If you’re waiting to buy on a ‘dip’, you might end up missing a 20% gain while you wait for a 5%, 10%, or 15% ‘dip’ to come along!

Selling during a crash
No one knows whether the market is at the top, bottom, or otherwise anyway. It’s hard enough to know what the "mood of the market" is during a trading day, let alone tomorrow, or next week. As for selling during a crash, aside from the obvious loss of money, it has a devastating psychological effect. If you’re only thinking in the short term, it’s easy to get caught up in the volatility of the market pulling out before you give it time to recover. Doing so makes you much more prone to lose as @Cam019 has recently explained. Remember “Trading is a marathon, not a sprint”. I'm sure trading a monthly strategy will put everything into perspective.

Skate.

 

[Skate]

What am I not seeing?
"The Ducati Blue Bar Daily Strategy", "The Ducati Stop & Go Indicator" & "The Ducati Acceleration Indicator" sprung into life from reading & understanding a few posts. Posting about them in various threads was to encourage others to think "what did Skate see that I didn't". I'm just saying others (not all) rarely put knowledge into action.

As the saying goes
"If what you learn leads to knowledge, you become a fool - but if what you learn "leads to action", you can become wealthy.

As traders, we are all different
The difference between a successful trader is not a lack of knowledge, but rather a "lack of will to action that knowledge".

Skate.

 

[Skate]

No surprises here
I'm surprised that there are some who don't understand how a trend really works, & how it impacts all strategies, both for trading & for development, so I thought I would share my opinion as this is as basic as it gets.

So here we go
Beginners are very concerned about finding a system that works all the time. They are especially concerned about entries. They want to hit the entry as close to the turning point of a trend as possible. (read my posts on the "Ducati Blue Bar Strategy"). The reality is when a market is trending up, it really doesn't matter what you are using for entries as long as you are entering in the direction of the trend.

A few simple trend indicators are all you need to enter a trade
Selecting entries during trends requires almost no brain cells. Once we are in a position, the problem becomes when do we exit.

Skate.

 

[Skate]

Volatility & Volume
"Volatility & Volume" (momentum) is the real driver of a trend. Meaning we enter a trend on "volatility & volume" & get off the ride when momentum slows, stalls, or heaven forbid it turns down. There are so many indicators that measure both of these, the trick was getting two indicators to work in unison. It pays to do your own research to find indicators that will work for you. Getting into a trend is not that difficult using a range of indicators, using two is sometimes better. Getting out of a trend & timing the exit is a little more complex.

Mental toughness
Giving a good strategy to someone else is not the measure of a strategy. It's rather the "mental toughness" of the trader that is the real decider.

A trading system is usually most effective when "implemented consistently"
One problem frequently encountered by individual traders is the "difficulty" in following a system. Sticking to a system requires discipline & discipline is often difficult when trading on "emotions". Don't let emotions "rule the day". Traders tempted to second-guess their strategy is a recipe for disaster.

Skate.

 

[Skate]

I'll bring it to a close
I'm starting to ramble & I've found others are turned off when they have so much to read or catch up on. But before I do I want to make an observation.

The ASF has new members visiting every day
I know they all have the urge to make money. Most get involved in trading because they see all their friends making money out of it, but themselves. The newspapers are spruiking Cryptos at the moment generating interest in trading. So, they think to themselves, "Hey this looks easy, I'll have a go!". Trading can be exciting in a bull market, markets that are rising & unfortunately, the good times don't last forever.

Education is required
New traders start trading without learning the rules of the game - a recipe for disaster! This phenomenon always occurs at top of the market because that is when the most excitement is generated. Exactly the time when the professionals are selling!

I'm hopping down off my soapbox now.

Skate.

 

[qldfrog]

Hi @Cam019,

I must be missing the point of this question as open trade profits are not available for use to in taking a new position.

Cheers, Rob

Yes they are not available to use but you can have a cash reserve to smooth the results..imagine a 10 positions system 100k startthen one share falls 20pc and is sold you got 8k cash but your other 9 positions went up 10pc
You portfolio overall is 9x11+8 or 107k
You can either buy your next position for 8k..your cash or as i do:say 107k among 10 positions is 10.7k and i do next position buy for 10.7k.
Remember as well as your buys are overvalued aka last close plus roughly3 to 5pc; in most cases, you will buy below
normally you will spend a bit less than your intended max and i am happy with that method.
To each his own

 

[Skate]

@ducati916 often posts the quote of the day
This is worthy of I repost, I hope Duc doesn't mind as I haven't sort permission.



Skate.

 

[Cam019]

Yes they are not available to use but you can have a cash reserve to smooth the results..imagine a 10 positions system 100k startthen one share falls 20pc and is sold you got 8k cash but your other 9 positions went up 10pc
You portfolio overall is 9x11+8 or 107k
You can either buy your next position for 8k..your cash or as i do:say 107k among 10 positions is 10.7k and i do next position buy for 10.7k.
Remember as well as your buys are overvalued aka last close plus roughly3 to 5pc; in most cases, you will buy below
normally you will spend a bit less than your intended max and i am happy with that method.
To each his own

@rnr

Rob, this is where @qldfrog and I do things slightly differently. In this method of using fixed percentage allocation my new position size would be $9,800 not $10,700. I would be using the 9 original positions at $10,000 original position size, and then the $8,000 sale proceeds - $98,000 / 10 = $9,800 OR if I only had the $8,000 cash, I would buy the next position smaller with the $8,000.

I don't use open trade profits to calculate position sizing.

The same thing would apply to fixed fractional position sizing. If we were using 1% risk per trade @qldfrog would probably be using $1,070 risk per trade and I would be using $980.

Same process, slightly different calculation.

 

[Cam019]

@Skate bringing up beginners made me think of something I wanted to share with everyone. Something that I surely would have appreciated reading when I joined this forum 5-6 years ago. It will be quick.

Below are some 5+ year backtest results of the system I will be trading in my SMSF. On the right is my actual system results over the last 5 years and on the left is the exact same system, over the exact same backtest timeframe with a very quick click of a button change - I have turned off the historical constituent database testing.

So, whatever you read on this thread or forum from me or anyone else, hear from another person, read on twitter, whatever it is - make sure you test the idea correctly and get the correct answers.

 

[Warr87]

Actually, my testing shows that for this strategy, the thing that strangles returns the most is the using a regime filter.

I found this too. The filter does help with keeping MDD down, but you sacrifice some nice gains. This is one of the reasons why my particular iteration of the large cap strategy is riskier. And as I've mentioned in other posts, I understand why Nick has it in there as not everyone is going to want to take on the same amount of risk as myself (or you Cam for that matter).

In other testing, I've also found that a filter can also reducing returns on daily systems. Weekly seems to be a good place to employee a filter. But not every system is the same, just as a filter doesn't always make sense.

 

[rnr]

Yes they are not available to use but you can have a cash reserve to smooth the results..imagine a 10 positions system 100k startthen one share falls 20pc and is sold you got 8k cash but your other 9 positions went up 10pc
You portfolio overall is 9x11+8 or 107k
You can either buy your next position for 8k..your cash or as i do:say 107k among 10 positions is 10.7k and i do next position buy for 10.7k.
Remember as well as your buys are overvalued aka last close plus roughly3 to 5pc; in most cases, you will buy below
normally you will spend a bit less than your intended max and i am happy with that method.
To each his own

Hi @qldfrog,

So, in reality your starting capital $100,000 plus the amount of your cash reserve and not the $100,000 as used in the example posted by @Cam019.

Cheers, Rob

 

[qldfrog]

Hi @qldfrog,

So, in reality your starting capital $100,000 plus the amount of your cash reserve and not the $100,000 as used in the example posted by @Cam019.

Cheers, Rob

True, basically a small buffer, in reality, i seldom need it as i am rarely fully invested andi alsosell winners from time to time.add the average lower purchase price on open vs max price entered and the buffer is there already

 

[DaveTrade]

Without giving away your secret sauce it would be great to hear a little more about how you envisage NTW operating. Also, are you planning to use AB or something else for system evaluation?

I’ve completed the initial backtest on my NTW system. The backtest was done on only one market, the SPY, for the 15Y period from July 2006 through to July 2021.



I selected this period for my initial test because it includes the 2008 crash, the 2020 covid flash crash and the 2015 year of sideways market. This period also included some long trending periods which would be favourable for any trending system. The main reason for choosing this period for my initial test was to see how the system performed when trading through these different market environments.

Even though I’ve changed the system from up to six markets down to only one market, I haven’t increased the setting for market risk from 5% for this test. This means that the results of this test were achieved with a maximum account risk of 5% as well. In this initial test the system had a 6% account drawdown with the maximum consecutive losses of three. These two metrics are most important to me and I’m pleased with this result. The system had 35 trades achieving a 345% profit over the period. The backtest does not include fees or trade slippage but it was done without using options. The use of options should more than compensate for fees and slippage so I’m regarding the backtest results as valid feedback.

I’ve used three different trades in the backtest which I’ve called Green, Purple and Blue. The Green trades had 9 winners and 7 losses, the Purple had 5 winners and 8 losses and the Blue had 6 winners and 0 losses.

My next step is to backtest the ten year period prior to 2006 using the same trades and compare the results from both backtests. The difference in the metrics between the two backtests should give the feedback I need to decide if modifications will be needed before the system goes live.