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Hi Kevin, thanks for your response. Yes, in hindsight, you can make anything work. I will be doing some testing with out of sample data / live simulation to see how things go.
Some investors who buy into trend following strategies / managers actually do wait for decent drawdown prior to investing check Google should be some detail of it.
Now the big issue is timing this which is harder for u to do because you do not have enough unseen data.
I don't have them on this computer. But the main factors I looked at to gain confidence in the robustness of the strategy / and avoidance of curve-fitting are:
Consistency of results
Monte Carlo Simulation
Changing the paramaters/rules of the strategy (I only have 1 or 2 parameters and no indicators) slightly to see if the results were still similar
Testing on multiple markets (Most markets showed similar results after changing the parameters to adjust for price/time opportunities. e.g CL has a much larger average range over 1 hour than ES)
The forward testing results in REAL TIME have predictably not been as good as the Market Replay results due to fills, but that is the only difference. I could also note that the strategy is based on my view of the market, what makes sense to me. It's based on an idea I can relate to and not just a black box random number algorithm that seems to work. I know why every trade is taken.
You can also add another arrow to the quiver.You can use your failed entries while on sim, for the profit target levels in live trading,as the price is on the way back.Works 99% of the time.
Maybe look into the underlying cause of the system drawdown. Is there a repeating pattern associated with the system drawdown ?
For example we can look at two common types of trading methods or systems, that being trend following and reversion to the mean. In this case, one trades against the other, where the trend follower enters the trade expecting the trend to continue, and the reversion trader takes the opposite side of that trade expecting the trend to end or fail and price to revert to it's mean.
The big problem trend trading systems have is false start's, this is where the market is stuck in some sort of price range or congestion and is having trouble getting free of that price range. Within the range conditions, every time the price looks like it might be starting a trend, the initiating move fails and price reverts to the mean resulting in a loss.
So if the trading system is a trend following system, then obviously many of the signficant drawdown episodes can be correlated back to these trading range conditions. Under this hypothesis the drawdown would be correlated to the lack of a sustained price trend, and thus the system would need to see two things to begin taking trades again. First price would need to break free of the bounded price range area / zone, and secondly the system would need to record at least one winning trade event once outside that area demonstrating the capacity of the market to continue or sustain the directional price move. The winning trade(s) would trigger the signal Kevin mentioned about using a moving average of the equity curve to turn on the system.
Conversely, reversion systems fail (get run over) when there is a sustained trend. So in this case, the system would allow the trend to create the drawdown streak (on paper), then once the trend ends and a trading range becomes established, the equity curve would turn up initiating the trigger for the system to become active.