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Taking a Trading System Live


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Taking a Trading System Live

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  #41 (permalink)
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Koepisch View Post
Excellent and fast analysis, great @kevinkdog! Due to the similarity of the results i would trust even more in the system. Furthermore you can trust your monte carlo analysis related money managment decisions - because it's BACKED with practical "What-if" "Start Trade Drawdown" analysis.

@Koepisch - I certainly appreciate you bringing this topic up! It is a worthwhile issue to discuss and understand.

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  #42 (permalink)
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Hello kevinkdog

I really love your thread and the way you determine your optimal position size. I am following a similar approach using Monte Carlo simulations and the maximum drawdown found via those simulations.

The 38% drawdown is something i would not want to see myself. Of course i am not suggesting that it is not right for you, i am merely curious as to why it is acceptable for you.

From your posts i assume you plan on rerunning the analysis with new data periodically to avoid "deviation from reality" in your position sizing. Is that correct?

Do you have a system stop loss over periods of time? Personally i am currently thinking about stopping the system when it is down a given amount (or % value) in X amount of time (1 week for example). I would the analyse the cause for this - maybe the system stopped to work, the markets changed fundamentally, flash crash, or maybe just some unprobable string of losses. If i find that i should trade the system despite this massive drawdown, i would start it again - with a system stop loss found by analysis including the new data.

Lastly, i recently read Van Tharp's book, and it really is a must read. Nassim Taleb's Fooled by Randomness is also good, although more on the philosophical side of things (but it nevertheless changed my approach to things).

What are your thoughts?

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  #43 (permalink)
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ahwii View Post
Hello kevinkdog

I really love your thread and the way you determine your optimal position size. I am following a similar approach using Monte Carlo simulations and the maximum drawdown found via those simulations.

The 38% drawdown is something i would not want to see myself. Of course i am not suggesting that it is not right for you, i am merely curious as to why it is acceptable for you.

From your posts i assume you plan on rerunning the analysis with new data periodically to avoid "deviation from reality" in your position sizing. Is that correct?

Do you have a system stop loss over periods of time? Personally i am currently thinking about stopping the system when it is down a given amount (or % value) in X amount of time (1 week for example). I would the analyse the cause for this - maybe the system stopped to work, the markets changed fundamentally, flash crash, or maybe just some unprobable string of losses. If i find that i should trade the system despite this massive drawdown, i would start it again - with a system stop loss found by analysis including the new data.

Lastly, i recently read Van Tharp's book, and it really is a must read. Nassim Taleb's Fooled by Randomness is also good, although more on the philosophical side of things (but it nevertheless changed my approach to things).

What are your thoughts?

Thanks for the kind comments, @ahwii. Here are some answers:

1. The 38% drawdown is OK to me, mainly because I trade a bunch of different strategies, and diversification will help mitigate this large drawdown. I agree it is big, though - maybe I should be taking less risk.

2. I might change my position sizing ONLY if the system does really well. In that (hopeful) case, I would scale back the risk I am taking. If it happens, I will detail it here.

3. My "system stop" point is a $5,000 drawdown, based on trading a single contract. The will be the maximum. I may cut it shorter, probably not, but if I do I'll detail my reasoning in this thread.

4. I like most of what Tharp and Taleb have to say. I don't agree with everything, but their works stimulate (and sometimes change) my thinking on things.

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  #44 (permalink)
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Here is summary info after the first week of trading...





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kevinkdog View Post
NOTE: This post scratches the surface of a complicated issue...proceed at your own risk...


OK, I ran the analysis. For everyone reading this, the issue is that, depending on your trade data, Monte Carlo analysis is not always a correct tool to use.

So, to first test this (is Monte Carlo OK to use?), I run something called the Durvin-Watson statistic. It checks for positive and negative autocorrelation. I think you can google search to find this for an Excel spreadsheet, what it means, etc. I'm no mathematician, so I will defer from getting into detail on this calculation.


Suffice it to say, for my NGEC system, the analysis says there is no autocorrelation issue, so I can use Monte Carlo analysis.


So to answer Koepisch's excellent question - how does Monte Carlo analysis compare with the "Start Trade Drawdown" analysis he mentions a couple of posts ago?


Again, without getting into too much detail, here are the results:




With the uncertainty of this whole analysis, it says that the 2 methods give very similar values for drawdown. The Monte Carlo gives more "worst case" scenarios - higher drawdowns than the Start Trade method, and this shows up as a greater standard deviation.


Thanks, Koepisch, for helping me add to the analysis here. The "Start Trade Drawdown" approach is verty interesting and useful.

New to me.

I am always trying to look at correlation across a portfolio. Can you briefly tell me what inputs you are using and if you are generating this data yourself and piping it to Excel, or some other tool?

My hurdle has been trying to feed a dozen strategies (trade output) into Excel, having to do it manually is less than ideal.

Mike

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  #46 (permalink)
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Big Mike View Post
New to me.

I am always trying to look at correlation across a portfolio. Can you briefly tell me what inputs you are using and if you are generating this data yourself and piping it to Excel, or some other tool?

My hurdle has been trying to feed a dozen strategies (trade output) into Excel, having to do it manually is less than ideal.

Mike

I basically just input the trade by trade P/Ls. I do it manually.

When I do a portfolio of strategies, I'll copy/paste the daily P/L to Excel.

Once in Excel, I'd do a correlation test over the time period of interest.

You are right, doing it manually many times would be cumbersome.

Doesn't Ninja have some sort of porting to Excel feature, or DDE link? That might make it more automated for you.

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kevinkdog View Post
Doesn't Ninja have some sort of porting to Excel feature, or DDE link? That might make it more automated for you.

I have threads on this, somewhere... basically I found it easier to write my own output. Unfortunately, still terrible. I want actual portfolio management, backtesting and reporting built-in to the platform, but there is no demand for it apparently.

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Big Mike View Post
I have threads on this, somewhere... basically I found it easier to write my own output. Unfortunately, still terrible. I want actual portfolio management, backtesting and reporting built-in to the platform, but there is no demand for it apparently.

Mike


I could guess at why there is no demand for it...the funny thing is, once you start trading multiple strategies, it takes on huge significance.

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kevinkdog View Post
Here is summary info after the first week of trading...

Is that the summary for the week or for today.

It would be nice if you could present it in the same format s the daily combine report or at least on a trade by trade basis. It makes it easier for us novices to follow.

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kevinkdog View Post
Thanks for the kind comments, @ahwii. Here are some answers:

1. The 38% drawdown is OK to me, mainly because I trade a bunch of different strategies, and diversification will help mitigate this large drawdown. I agree it is big, though - maybe I should be taking less risk.

2. I might change my position sizing ONLY if the system does really well. In that (hopeful) case, I would scale back the risk I am taking. If it happens, I will detail it here.

3. My "system stop" point is a $5,000 drawdown, based on trading a single contract. The will be the maximum. I may cut it shorter, probably not, but if I do I'll detail my reasoning in this thread.

4. I like most of what Tharp and Taleb have to say. I don't agree with everything, but their works stimulate (and sometimes change) my thinking on things.

Thanks for the response!
So the drawdown number is for one strategy, which makes the overall max drawdown smaller because the strategies are uncorrelated. Seems i have misunderstood your posts as i thought it was for the whole portfolio. Makes sense now, thanks for clearing that up.

Thanks for addressing the other points as well, now i better understand what you are doing. Looking forward to you posting here!

Have a nice weekend

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