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Taking a Trading System Live


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Taking a Trading System Live

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  #441 (permalink)
Legendary Market Wizard
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coccigelus View Post
Did you think to put the same weights to each trading system to keep your portfolio balanced ?


I typically put all the systems I am running live together in one Monte Carlo simulation, and try to have it tell me approximate weights for each system. For example, it might tell me I should trade 4 contracts of system X, 3 contracts of System Y and 1 contract of system Z.

When I do that analysis, I try to maximize return/drawdown, within certain constraints (like no max drawdown abouve XX%).

The answer turns out to be more involved than that, but I think that explains the general idea.

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  #442 (permalink)
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kevinkdog View Post
Thanks for the comment.

It is nice having a civilized conversation here, as opposed to the drama at another forum, right @coccigelus ?

Stopping when the max historical dd is hit is a pretty good stopping point, even though many people say "your worst drawdown is always in the future." So, I sometimes use 1.5 * max dd.

Just for reference, based on 1 contract, the historical max dd is $3,265. Since I started trading live, the max dd on one contract has been about $1,800.

I was shocked for some comments I read there around and I felt bad for those that have experienced personal attacks with such intensity .

You are sitting at half of your maxdd so I will not be worried about. But I will try to do some test regarding the volatility and see how it can affect the yield. Few years ago I had a strategy on the wheat and I noticed that the volatility played an important role on that symbol. Maybe because the wheat behaviour is affected in some way by seasons?

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  #443 (permalink)
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coccigelus View Post
I was shocked for some comments I read there around and I felt bad for those that have experienced personal attacks with such intensity .

You are sitting at half of your maxdd so I will not be worried about. But I will try to do some test regarding the volatility and see how it can affect the yield. Few years ago I had a strategy on the wheat and I noticed that the volatility played an important role on that symbol. Maybe because the wheat behaviour is affected in some way by seasons?

Yes, volatility plays a big role, and that is probably true for any system. Somewhere in this thread I looked at volatility, and it was down since I went live. That could explain some of the underperformance.

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  #444 (permalink)
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coccigelus View Post
I was shocked for some comments I read there around and I felt bad for those that have experienced personal attacks with such intensity .

That is what makes Big Mike's such a great place. @Big Mike would have taken care of that other forum's issue immediately, before it spun out of control.

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  #445 (permalink)
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kevinkdog View Post
That is what makes Big Mike's such a great place. @Big Mike would have taken care of that other forum's issue immediately, before it spun out of control.

Anyway I Think there are responsabilities for both factions. It should be not allowed to talk in that way and at the same time stop the conversation with off topic comments widely used by some members. Than with the new guest it turned out to be an asylum instead of a forum. BTW I felt a bit sorry for Tim that had not the chance to continuing his conversation.

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  #446 (permalink)
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Some great comments and questions so far...

Put yourself in my shoes: continue trading this system, quit trading it, or "it depends?"

I think it is a good exercise, because this situation is sort of a gray area...

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  #447 (permalink)
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Depends.

You have mentioned if volatility returns then you would expect some bigger winners. Not sure where that falls within your curve fitting parameters, but I'd test that in the historical data, and perhaps only trade those periods if the result was significant. The system depends on the big winners, and if they mostly occur during higher volatility, then....

It is a matter of luck when first sizing up so I'd want to have a better idea of the likely outcomes. As mentioned in a prior post - your chart doesn't accurately reflect the expected paths as its all based on 1 contract. I'd be surprised if you were actually below the lower band if you monte-carloed an increase in size. And this knowledge would give you a little more confidence.

Given the position sizing is so important I'd also spend a ton of time running different scenarios. Such as thresholds for going up, at what point to drop down again etc. The biggest hump is obviously going from 1 to 2. Given the size of your losers compared to the average smaller winner I'd say your doomed to be stuck between 1 and 2 until that lucky streak of 2 big winners comes along.

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  #448 (permalink)
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kevinkdog View Post
Some great comments and questions so far...

Put yourself in my shoes: continue trading this system, quit trading it, or "it depends?"

I think it is a good exercise, because this situation is sort of a gray area...

@kevinkdog would you be asking the same question if you were up 17%?

You seem to be questioning the system solely because you flipped a coin (increased exposure by 100%) and got burned. Had you been trading 10 contracts would you have jumped to 20? Probably not.

My suggestion is to either trade more contracts as a base to minimize in the increase in volatility when you increase size (how would you pnl look if you started with 2 contracts and only increased 50%, or 10 contracts and only increased 10%?), or spend significantly more trades at 1 contract to effectively earn the equity you need to hit a reasonable account volatility the next time you double your exposure.

Don't take it out on the poor system, it was only doing what you told it to do.

.
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  #449 (permalink)
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sixtyseven View Post
Depends.

You have mentioned if volatility returns then you would expect some bigger winners. Not sure where that falls within your curve fitting parameters, but I'd test that in the historical data, and perhaps only trade those periods if the result was significant. The system depends on the big winners, and if they mostly occur during higher volatility, then....

It is a matter of luck when first sizing up so I'd want to have a better idea of the likely outcomes. As mentioned in a prior post - your chart doesn't accurately reflect the expected paths as its all based on 1 contract. I'd be surprised if you were actually below the lower band if you monte-carloed an increase in size. And this knowledge would give you a little more confidence.

Given the position sizing is so important I'd also spend a ton of time running different scenarios. Such as thresholds for going up, at what point to drop down again etc. The biggest hump is obviously going from 1 to 2. Given the size of your losers compared to the average smaller winner I'd say your doomed to be stuck between 1 and 2 until that lucky streak of 2 big winners comes along.


Thanks. You make some good points.

Re: volatility, you suggestion is a good idea for a study of past history. I'll have to look at what I've already done in this regard.

Re: position sizing, one thing I did not do is run a ton of different position sizing techniques. You are right, a different technique may have been a better choice. As it has turned out, both times I have scaled up have been met with a bunch of losses, pushing me back down.

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  #450 (permalink)
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addchild View Post
@kevinkdog would you be asking the same question if you were up 17%?

You seem to be questioning the system solely because you flipped a coin (increased exposure by 100%) and got burned. Had you been trading 10 contracts would you have jumped to 20? Probably not.

My suggestion is to either trade more contracts as a base to minimize in the increase in volatility when you increase size (how would you pnl look if you started with 2 contracts and only increased 50%, or 10 contracts and only increased 10%?), or spend significantly more trades at 1 contract to effectively earn the equity you need to hit a reasonable account volatility the next time you double your exposure.

Don't take it out on the poor system, it was only doing what you told it to do.


Thanks, good points. You are 100% right, that the position sizing technique I used is more to blame than the system itself, even with the system underperforming.

Many people tend to think that position sizing is much less important than the system itself. Ralph Vince (of optimal f fame) claims positions sizing accounts for 90% of performance (the system being the other 10%). In this case, so far the position sizing technique has been the big determinant in the overall performance.

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