Dump it Here

Skate · 4 December 2022

Drawdowns will take you out of the game quick smart
At times you read a post that ends up being a lightbulb moment like the one @Nick Radge posted below. The level of drawdown that you believe you can handle will be tested in ways that you would not have thought possible. Faulty thinking is when you believe "profits" are more important than a 20, 30, or even a 40% drawdown.

Each line is pure gold
I've found over time no matter what you say, "people will do what they want to do".

Nick Radge said:
So in summary, what is usually seen on the surface will in reality be a lot worse, which is why I tell people to think of a maxDD they think they can handle, then halve their risk.

That said most people can't handle what they think they can anyway, so its best to halve it from the outset.

Remember the idea of successful trading is to never get taken out of the game, monetary wise or psychologically.

Skate.

martyjames · 4 December 2022

From Nicks's latest email out:

Premium Portfolio
2022 Performance
Premium Portfolio -24.80%
S&P 500 -14.57%

Not sure i could tolerate that DD. However he has an article where he indicates the best time to get into a strategy is during a DD - so now must be the time to start trading the Premium Portfolio!

When is the Best Time To Invest?

A question for the ages. When is the best time to invest? With the information we have today there is an easy answer and a hard answer.....

www.thechartist.com.au

cheers

Skate · 4 December 2022

martyjames said:
From Nicks's latest email out:

Premium Portfolio
2022 Performance
Premium Portfolio -24.80%
S&P 500 -14.57%

Backtesting
A drawdown of (-24.8%) on face value seems on par with backtest results we all tend to get every now & then. But when you read that "The Chartist" YTD P&L is underwater to the tune of -$879,032, "Holey Moley" is the two words that come to mind.

The exercise
"The Chartist" posting the ongoing dollar P&L on Twitter shows the emotional pull of Dollars is stronger than percentages. The goal of the exercise was to remove the emotional pull of dollars & focus on the process instead, which is fair enough.

martyjames said:
Not sure i could tolerate that DD. However he has an article where he indicates the best time to get into a strategy is during a DD - so now must be the time to start trading the Premium Portfolio!

Faulty thinking
I'm with you on this one @martyjames. A (-24.8%) drawdown is unacceptable as far as I'm concerned. Frankly, I don't know anyone who would find this drawdown acceptable either. If you believe a (-24.8%) drawdown is acceptable, then you'll start to fall into the trap of "faulty thinking" believing "profits" are more important than an excessive drawdown. Marty, personally I couldn't accept a -24.8% DD & when did anyone think this level of drawdown is okay when trading live?

Skate.

Skate · 4 December 2022

Skate said:
"NextLevelForex" said: "Looking back, many of the things I tried in my pre-2013 era did have an edge, but I did not stick with those systems through the drawdowns"

Converting percentages to dollars
I'm just saying, by concentrating on percentages you’ll be quickly conditioned to accept them. At first glance "The Chartist" Premium Portfolio drawdown of 24.8%, seems acceptable. Let's face it, we have all made the "same remark" at one stage or another. Converting percentages to dollars will take on a new meaning because dollars are what you can spend. Focusing on the process of trading is a given, but at the same time don't let percentages fool you into a false sense of security.

Percentages are relevant to the size of your portfolio.
(a) On a $20k portfolio, -20% DD is bearable but trading a larger portfolio can be devastating & hard to swallow.
(b) On a $100k portfolio, -20% DD takes on a new meaning.
(c) Trading a $1m portfolio, -20% DD becomes very relevant indeed. That's $200k "GONE".
(c) Trading a $2m portfolio, -20% DD is in the "Holey Moley" WTF category, that's $400k down the drain.

Skate.

ducati916 · 5 December 2022

Skate said:
Backtesting
A drawdown of (-24.8%) on face value seems on par with backtest results we all tend to get every now & then. But when you read that "The Chartist" YTD P&L is underwater to the tune of -$879,032, "Holey Moley" is the two words that come to mind.

The exercise
"The Chartist" posting the ongoing dollar P&L on Twitter shows the emotional pull of Dollars is stronger than percentages. The goal of the exercise was to remove the emotional pull of dollars & focus on the process instead, which is fair enough.

Faulty thinking
I'm with you on this one @martyjames. A (-24.8%) drawdown is unacceptable as far as I'm concerned. Frankly, I don't know anyone who would find this drawdown acceptable either. If you believe a (-24.8%) drawdown is acceptable, then you'll start to fall into the trap of "faulty thinking" believing "profits" are more important than an excessive drawdown. Marty, personally I couldn't accept a -24.8% DD & when did anyone think this level of drawdown is okay when trading live?

Skate.

The purpose (obviously) in trading is to make money. The way to make money trading is to leverage. A 24% DD is not compatible with leverage. To really use leverage, you need < 5% and even that is high. Probably < 2% is the way to go.

The many ways to leverage: Margin account, CFDs, Futures, Options, Prop. Capital.

None are compatible with a 24% DD.

Assuming a < 2% DD, what sort of upside could you reasonably expect? On an annual basis, +/- 20% on total capital used. That is the sort of return that you need to provide to access Prop. capital and they are not tolerant of drawdowns. On the upside however, you can leverage x100+.

This thread is generally talking about using un-leveraged capital, ie. your own capital and possibly using a margin account, buying stocks in a vanilla strategy, again generally long only (which since 1982) has been a winning strategy. There have been a handful of brutal drawdowns, but for the most part, the market has, on secular declines in interest rates, combined with falling/low inflation, recovered to new highs.

Poof. Gone.

The market is (has) fundamentally changed.

Therefore my question would be: if you are currently in a DD, just how confident are you (as suggested adding capital to the DD) that the strategy will come back?

Increased volatility (significantly) will be the order of the day. Increased vol. will take your calculated DD and increase it. Unless of course you backtested it through the 1966-1982 period.

jog on
duc

martyjames · 5 December 2022

The other interesting idea to debate is: "is best time to get into a strategy is during a large DD"

Portfolio Capsule Summary

# Trades / Year: 16 – 40
Avg Hold Time: 96 days
CAGR: 29.8%
Max Drawdown: -31.45%
Win Rate: 59.5%
Win/Loss Ratio: 2.82
Avg Win: 28.87%
Avg Loss: -8.76%

The largest DD in past 14 yrs is -31.45%, currently -24%. Has anyone tested (using existing systems), starting trading a system near its historically max. DD?

Skate · 5 December 2022

martyjames said:
The other interesting idea to debate is: "is best time to get into a strategy is during a large DD"

Sorry @martyjames your question makes little sense when it comes to system trading
First, there is a difference between a backtest drawdown & the drawdown your portfolio is currently experiencing. Also, using the metric of a large drawdown to enter a trade, or start trading a strategy is not only silly, but it's also downright stupid.

Defining a large drawdown in real-time is nearly impossible
Your question opens a can of worms for me. I consider an -8% drawdown to be large, whereas a -24.8% drawdown to me is extreme. A drawdown of -31.45% is in the WTF category.

They go up & they go down
The markets are jumping around all the time & I've previously explained why they do. In one of your previous posts, you added a hyperlink to an article written by @Nick Radge on that very subject. I'm assuming you would either like clarification of the article or you are seeking a range of alternative views.

Skate said:
There’s No Time Like Today
“The best time to plant a tree was 20 years ago. The second best time is now.” — Chinese proverb

It's often said that "timing the market" rarely works
System traders spend an enormous amount of time & effort trying to "time the market". Timing the entry & timing the exit is hard but "with effort", it can be done.

The alternative "time in the markets"
Looking back on historical results spanning many years - parking your money in the markets & letting the magic of "time" do its thing can also be just as profitable.

It should also be noted
Most traders don't trade with their "serious money". Serious money is always allocated to "dividend-earning investments”. Meaning, most who have serious money will select an investment strategy over a "trading strategy" every day of the week. Admittedly investing can be seen as a long-term trade but that’s where the similarity ends.

Skate.

martyjames · 5 December 2022

not sure what i was asking now

Skate · 5 December 2022

martyjames said:
not sure what i was asking now

Okay @martyjames, let me make a couple of extra comments
Doing so allows me to add more clarity to my last post. I'll ask a few rhetorical questions & then answer them in such a way as to round off why "keeping drawdowns in check" is so important to profitability.

Why is the maximum drawdown in trading important?
For the simple reason, it influences your trading behaviour, that's it in a nutshell. The question we all should be asking ourselves is what is an acceptable drawdown percentage. As traders, we all have a different tolerance to risk so there is "no definitive" answer, but preferably the drawdown should be as low as possible. If it gets too big, as "NextLevelForex" referenced in his well-written article where he explains that traders will lose hope & stop trading a perfectly good strategy.

Do large drawdowns impact anything else?
Trading a strategy that has a large drawdown impacts your "compounded liability". Other than the obvious, huge drawdowns will force you to stop trading at some stage. If you don't stop what you are doing, it can lead you to total ruin. Stopping a strategy "just in time" allows you to "re-evaluate" whether your strategy is still fit for purpose. So focus on your drawdowns, preferably before they get out of control.

Skate.

Skate · 5 December 2022

Don't be fooled
Just because the markets appear to be having a good day, don't let the numbers fool you.

I prefer a better indicator
It's not "all rosy" for a lot of traders, they will be asking "why aren't I feeling the joy"

Skate.

Gringotts Bank · 5 December 2022

martyjames said:
The other interesting idea to debate is: "is best time to get into a strategy is during a large DD"

Portfolio Capsule Summary
# Trades / Year: 16 – 40
Avg Hold Time: 96 days
CAGR: 29.8%
Max Drawdown: -31.45%
Win Rate: 59.5%
Win/Loss Ratio: 2.82
Avg Win: 28.87%
Avg Loss: -8.76%

The largest DD in past 14 yrs is -31.45%, currently -24%. Has anyone tested (using existing systems), starting trading a system near its historically max. DD?

I did something similar a while back. A simple RSI reversion system. Only bought if previous trade was a loser. If the trade wins, skip the next trade. I can't find the code now, but it didn't work too well from memory. Anyone else tried this?

Skate · 5 December 2022

Gringotts Bank said:
I did something similar a while back. A simple RSI reversion system. Only bought if previous trade was a loser. If the trade wins, skip the next trade. I can't find the code now, but it didn't work too well from memory. Anyone else tried this?

This strategy has been done to death
If you do a Google search there would be hundreds of articles spruiking how good trading this idea is. My research indicates that this trading strategy has no edge. Others may have an alternative view.

Skate.

Skate · 5 December 2022

Greynomad99 said:
Anyway I jumped back trying to buy some solid stocks that weren't speculative and seemed to have room to move higher- ALU, ALX, COL, CSL, CXO, FPH, PLS.

What about this strategy
Buying at support & selling at the resistance level. Now at face value, this strategy looks like a rip-snorter. But alas not so, "as far as I'm concerned". Let's look at the weekly chart of (ASX:ALU).

How could this strategy possibly fail?
Looking at the chart below you would start to believe this idea has legs. But unfortunately, not so.

Here is another (ASX:ALX)
Looking at the chart below you would start to believe this idea for a strategy has legs. But unfortunately, not so.

Skate.

Gringotts Bank · 5 December 2022

Skate said:
This strategy has been done to death
If you do a Google search there would be hundreds of articles spruiking how good trading this idea is. My research indicates that this trading strategy has no edge. Others may have an alternative view.

Skate.

I've never seen it online. What search term would you use?

Skate · 5 December 2022

Gringotts Bank said:
I've never seen it online. What search term would you use?

Well, if you read enough articles online you will find this idea thrown about with similar variations. I'm saying your idea is nothing new as I've read & tested many variations. My results were "all for naught", by the way.

Skate.

Gringotts Bank · 5 December 2022

Skate said:
Well, if you read enough articles online you will find this idea thrown about with similar variations. I'm saying your idea is nothing new as I've read & tested many variations. My results were "all for naught", by the way. DYOR.

Skate.

DYOR! lol.

Skate · 5 December 2022

Gringotts Bank said:
DYOR! lol.

DYOR
Removed, so as not to offend.

Here is a crazy idea
Trend following has more losers than winners. So, what if we reversed the signals? What this means is, if we buy the "sell signals" & sell the "buy signals" our profitability will soar, won't it?

Buy the "sell signals" & sell the "buy signals"
Reversing your thinking can't hurt, can it? Talk about "faulty thinking", now I'm being silly. I've been there & done that experiment & the results are worse than you can imagine by a country mile. Switching the strategy approach leads to worse performance making any strategy very unprofitable. As with any new ideas, they are all worthy of testing.

Skate.

Sir Burr · 5 December 2022

martyjames said:
not sure what i was asking now

Maybe you are thinking of equity curve trading.

Trading the Equity Curve - Amibroker

Hi Howard, In regards to your code below (thank you for sharing this). Do I run my normal system to produce the equity curve, then run your code below? OR do I add normal Buy and Sell signals to your code below and then backtest the lot? I think maybe the first one as you wrote "This...

www.aussiestockforums.com

It's been a long time but remember playing with ideas using this software.
Gives quick results to see if ideas might be worth perusing. I didn't find equity curve trading was a brilliant idea

Skate · 5 December 2022

40-year track record of David Druz
"The Chartist" on Twitter posted David Druz "trading results" for the last 40 years. There were a lot of negative months & a few negative years showing that the best traders have good & bad months, even the odd few bad years - but that is all part of the trading game.

I have a story about David Druz
Back in 2012, I attended a trading seminar with Andrew Abraham as the guest speaker. During the seminar, Andy put it out there that whoever contacted him would be privy to his trading method. As it turned out I was the only one that reached out to him. Over a series of emails, he was true to his word & gave me the indicator that he uses "trading" for some of the biggest investors in the U.S.

On his website, he had two books for sale
I was interested in his book "The Bible of Trend Following", not only did he give me that book he also gave me "The Bible of Compounding Money". All I can say is that you can never underestimate the kindness of others.

My library now has both books
1. The Bible of Compounding Money- The Complete Guide to Investing with World-Class Money Manager
2. The Bible of Trend Following - How Professional Traders Compound Money & Manage the Risks.

Well blow me down
The Bible of Trend Following Foreword was written by none other than David Druz from Tactical Investment Management a CTA / CPO since 1981. The powerful & glowing forewords, by David Druz a well-respected trader, made the books even more enjoyable to read. These two books pointed me in the direction of "Trend Trading", the method I've been trading since 2015.

I remember this one passage from a series of email
"Here you go. Please bare in mind...indicators and systems are just the beginning of building your trading plan. It is all about risk management and trading psychology. If I can assist you please let me know..Thank you. Andy.

Skate.

Skate · 5 December 2022

Sir Burr said:
Maybe you are thinking of equity curve trading.

Trading the Equity Curve - Amibroker

Hi Howard, In regards to your code below (thank you for sharing this). Do I run my normal system to produce the equity curve, then run your code below? OR do I add normal Buy and Sell signals to your code below and then backtest the lot? I think maybe the first one as you wrote "This...

www.aussiestockforums.com

It's been a long time but remember playing with ideas using this software.
Gives quick results to see if ideas might be worth perusing. I didn't find equity curve trading was a brilliant idea

@Sir Burr what a great find, not for the "software" of course but the words used in their spiel. (that are worthy of a re-post)

Adaptrade Software: Market System Analyzer (MSA)

Improve your trading results with a position sizing and money management application for traders.

www.adaptrade.com

Position Sizing and Money Management Software for Trading
"Once you've found an "edge" in the markets – a profitable trading system or method – the greatest opportunity for profit lies with methods for trading your system or method more successfully. These so-called money management methods, such as position sizing, are the core of Market System Analyzer (MSA), a money management software application from Adaptrade Software".

"MSA is designed to help maximize the performance of trading systems and discretionary trading methods. MSA can uncover tradable profit/loss patterns, optimize trade sizes, and avoid trades and strategies that have a low likelihood of success. The result is a higher percentage of winning trades, lower drawdowns, more consistent returns, and greater profitability."

Skate.

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