Would you trade this system?

You will notice that position size limit is set to 100% and portfolio heat is also set to 100%.

I have tried position size limit as 15% and portfolio heat set to 20% and there is no difference to the results.

Anything less than this and the results are affected (not significantly).

But nevertheless, i am happy with these values.

I have removed the best 3 and the worst 3 trades from the trade database -- virtually no difference in the results.

As usual, im looking for comments.

As you can see, Iv already made a great deal of progress so far

THANK YOU

For a longterm system the Curve looks smooth.
All the numbers look within the "expected" parameters.
Wins over 50% unusual.

You can turbo charge it with a 50% margin--just have a look at D/D.
ANZ will probably allow most of your stocks to be traded margin.They have a massive list.

Good work Nizar I know how long and at times difficult this can be.

Hi Nizar

Have a look at the portfolio heat section in theTradeSim manual. I would suggest setting it to a lower level than 100%....much lower.

Cheers

Shane

Shane Baker said:

Hi Nizar

Have a look at the portfolio heat section in theTradeSim manual. I would suggest setting it to a lower level than 100%....much lower.

Cheers

Shane

Click to expand...

Shane.
See post #141 of this thread.

tech/a said:

For a longterm system the Curve looks smooth.

Click to expand...

Its because the stop is relatively tight, if you notice average holding time for a winner is quite short for a long term system (if that makes sense!) at about 200 days.

Smoother equity curve is something I always look for.

Something else i taught myself is how important trade frequency is!
Look at these two systems.

System 1:
*42% winners
*Average win/Average loss = 5.4

System 2:
*48% winners
*Average win/Average loss = 3.00


I always thought those were the ONLY 2 important parameters to know to work out expectancy.

But what I realise now is that TRADE FREQUENCY determines how often you can exploit that positive expectancy.

So while it may seem that system 1 is more profitable, in actual fact the annualised compounded annual return for system 1 was 26%, for system 2 it was 32%.

Why?

Because in the test period, system 2 took 247 trades, while system 1 took 109 trades.

Shane.

In reality I doubt that Nizars or most longterm systems would have much over 20% Portfolio heat at the one time.

Hi Guys,

20% portfolio heat means you 20% of capital everytime you re-enter the market, after being fully exited. For example if you run the system and twelve trades come up as per Nizar's 1.5% risk...... and you take them then you immediately have 18% risk in the market. The next day the US invades Iran, oil spikes and the markets tank 20%. Immediately your account is down a minimum of 18%. That is the effect of portfolio heat. It is the amount of equity you are willing to risk at any one single point in time, that you can control. I personally suggest 15% as a max (although the system will show you where the max is in TradeSim on the portfolio heat chart) as it takes nearly 20% to gain that amount back.

I just wanted to make a point regarding risk management in designing the system and understanding what the terms may mean in real time trading experience. I think Nizar has come a long way in a short time and should be congratulated for his efforts. I just wanted to temper enthusiasm with some real time risk control. I have had two periods of losing a full amount of heat and so I believe it can happen to all of us.

Cheers

Shane

Shane Baker said:

Hi Guys,

20% portfolio heat means you 20% of capital everytime you re-enter the market, after being fully exited. For example if you run the system and twelve trades come up as per Nizar's 1.5% risk...... and you take them then you immediately have 18% risk in the market. The next day the US invades Iran, oil spikes and the markets tank 20%. Immediately your account is down a minimum of 18%. That is the effect of portfolio heat. It is the amount of equity you are willing to risk at any one single point in time, that you can control. I personally suggest 15% as a max (although the system will show you where the max is in TradeSim on the portfolio heat chart) as it takes nearly 20% to gain that amount back.

I just wanted to make a point regarding risk management in designing the system and understanding what the terms may mean in real time trading experience.

Cheers

Shane

Click to expand...

Hi Shane.

Thanks for your thoughts.
You do make a good point.
Throughout the testing period the maximum number of positions held in the portfolio was 12.
And Portfolio Heat at its maximum was 17%.

Nizar.