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Getting demolished this week
Started:August 7th, 2015 (02:56 PM) by ScaredyCat Views / Replies:819 / 11
Last Reply:August 25th, 2015 (01:51 PM) Attachments:0

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Getting demolished this week

Old August 25th, 2015, 04:19 AM   #11 (permalink)
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Luxembourg, Luxembourg
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ScaredyCat View Post

Thanks for the comments and thoughts on the volatility. My thinking also centers around your final comments. Like you mention, I also often find in backtesting that my efforts to filter out the bad trades tends to filter out a successful trades and can result in worse performing model. It's almost like you have to take the bad trades in order to get the better performing model.

This problem seems to manifest itself once trends are underway - my best backtest results happened when I caught the big moving trends really early on. Later on, they got more volatile but still capable of making big moves. I would then be stopped out while things were volatile and of course traded smaller when the trend resumed. Since these were long-term systems, I would be riding trends for quite a while with very small size - that does not feel very good.

ScaredyCat View Post
Trading with smaller size is one approach that I've taken up (and luckily most of the big negative trades were done with smaller size), but even at smaller size big losses still hurt. In particular I was trading the more volatile stocks (I was using 60 day MA of the average of stock price daily trading range as % of stock price) with quite a bit lower size, and that did help protect some on the downside (while also capping upside).

I found it to be very difficult to adjust trading size effectively using a system. Yes, you can use ATR to normalise volatility across stocks, but I found it to be ineffective as big movers have their size adjusted downwards too much. Nowadays, I will adjust my size based upon how well I am doing in the current month, how well my current trades are holding up, whether I have managed to at least book some profits, and how well stocks are acting in their bases. For instance, for August, the first three criteria already had me on the back foot, but last week several stocks just had complete base failures and then I knew I wanted as little exposure to the markets as possible. That is something that I probably can backtest, but right now I just don't feel the need to do so - my exposure mirrors those of some of the better stock traders so I am happy to just use judgement for that.

ScaredyCat View Post
re mkt filters: I have a slightly different mean reversion model to trade in down markets, and US market (SP500) just fell below 200MA a couple days ago - so I do have market filter in that regard - but historically the mean reversion strategies seem to do well in down markets, so I'm interested to see how things work going forward - however, I'm also interested in potentially buying some longer term positions given how much many high quality companies have fallen at this point. I've been waiting for a correction for such a long time, and all of a sudden it shows up in 3 trading days. Amazing how quickly things can move.

Can't really provide any insight on the mean-reversion strategies as I don't trade any. However, if you want to hold long-term then using options to hold through earnings seems to be your best bet. The tax benefit I get from having my gains classified as capital, will more than offset the cost of the options. Thus, in my situation it makes sense, but I am not sure what your situation looks like.

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Old August 25th, 2015, 01:51 PM   #12 (permalink)
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Nashville, TN/USA
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grausch View Post
I found it to be very difficult to adjust trading size effectively using a system. Yes, you can use ATR to normalise volatility across stocks, but I found it to be ineffective as big movers have their size adjusted downwards too much.

I agree that the sharpe ratio seems to be better if I just accept the volatility - that's why I struggle some with it - but at the same time I try to accomodate my risk averse nature and accept lower performance for lower risk. I can trade "small" with the model and the volatility doesn't hurt as bad because it's a small part of everything else going on, but if I were trading a large part of portfolio w/ high volatility I think the swings would bother me more.

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