Below are the results through Week 49 of live trading. Very boring, nothing to speak of.
So, what exactly is going on with this system? Is it broken? Obviously, it is not doing what it should - can this be explained?
In my mind, this breakeven performance the past few months comes down to this - lack of trades, and smaller moves on trades.
The "day" strategy in this system - the strategy that produces most of the big profits - historically averaged 8.6 trades per month.
In 2014, this system has averaged 4.2 trades per month about half of its historical average.
Plus, the last few months have really been dead. July has yielded only 1 of the "day" strategy signals.
But, you say, if it is taking half of the trades, the profit should be half of normal, not breakeven. Why is that?
Good question. It all comes down to volatility. The system (and really, most systems), needs volatility to 1) produce signals and 2) produce good price movement when those signals are generated. So, low volatility is creating fewer opportunities, and the opportunities it does create are only small ones.
If, and when, the volatility picks up, I'd expect performance to pick up too. In the meantime, I'll just keep being bored while trading this system.
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This system is a good reason why you want to trade multiple systems.
If I was only trading this system, I'd probably have switched to another system.
By trading multiple systems, I can afford to have a couple underperform for a time, since there will usually be a couple that overperform. But, I never know which ones will do what.
In general, if I was trading 6 systems, in any given year this is what I'd expect.
1-2 would underperform to expectation
1-2 would be right at what I expect
1-2 would be above my expectations
Overall, they'd add up to be right around my expectations. Obviously, it doesn;t always happen that way, but I think you can see the idea.
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I really have enjoyed reading your posts, they have drastically enriched my entire understanding on what backtesting is.
I also read all 15 Steps of how to backtest in your blog.
I do not have access to Tradestation (I'm on a tight budget), so my question to you is it absolutely mandatory to have backtesting software? Especially, since there are so many flaws and restrictions in backtesting software (some models can not even be backtested; such as ACD setups).
Could I perhaps simply visually go through 50-100 trades and record them manually in Excel based on my set entry and exit rules? ( I am aware it is more laborius than using a backtesting program and hitting the button).
I am also a 'mechanical' trader, still doggedly determined to becoming a successful trader.
Looking forward to seeing the awesome new products rolling out of your factory!
I'm not sure if they still do, but Ninja used to be free, with free end of day data, if you are just testing, not actually trading. So, maybe that is an option?
I would not say that exploits/tricks/restrictions in trading software is a good reason to avoid it. The good point seriously outweigh the bad.
You can test by hand, but be very careful. It is VERY easy to make mistakes, either intentionally or unintentionally. And for some reasons, the mistakes usually make a strategy look better than it really is.
Kevin
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As you can see, the trading results have been flat for a couple of months. What has caused this? Is the system "broken?"
The bottom chart - Weekly Average True Range - tells the story well. Basically volatility is down. In fact, it is down to levels unseen in the past 10 years. My Euro systems, like most trading systems, thrive on volatility. When there is no volatility there is no opportunity.
In my Euro Day strategy, I got only 1 signal the WHOLE month of July. And the gross profit of that trade was +1 tick ($12.50). HOW CRAZY IS THAT?!?!
If this was the only system I was trading, or the only market, I'd be screwed. That is why you'll hear me say over and over "diversification is key." I can afford to carry a flatlining strategy like this one, in the eventual event volatility picks up.
Of course, the system still might hit the "system quit" drawdown, in which case I'll put the system on hiatus.
I expect once volatility picks up, as it eventually will, the Euro strategies in the book will start to perform better. At the very least, they will start taking trades again!
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I just read your book cover-to-cover and will definitely be re-reading parts, as it is one of the better books I've come across for developing a trading system. Thanks for writing it. It is puzzling that the returns for Euro Day & Night are flat. During the backtesting & walk-forward, there must have been times when the market was flat...can you isolate these times and figure what your expected returns should be for flat markets or is it not worth it? I just wonder if market volatility is the issue or maybe something else.
If you do, it would be interesting to reflect on them, such as what you would do differently compared to two years ago, which things didn't change, and whether you perhaps learned new steps along the way.
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Not many good things to say about the Euro day and night system performance this past quarter. Only 2 trades in the day strategy for the month of September, which is a lot less than normal.
Not a very good quarter for the combined system, as shown by the purple line. Performance like this is why I advocate having many strategies to trade. Some will underperform (like this one), and hopefully some better performers will make up for it.
Going forward this will be the only graph I'll show. It tells almost the whole story, in my opinion...
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Way back when, I had stated that I would be stopping when the single contract drawdown of $5000 was hit. It looks like that that will happen soon, since I am only a losing trade or 2 away from that mark.
So, barring some miracle, it looks like this system will be put back into incubation. I'll still track it, and if/when Euro volatility picks up, maybe the performance will pick up and I'll trade it again.
I see this lot. A trader in a trade will say that he is expecting the trade to go against him yet he stays with the trade.
I do it myself at times out of fear of being wrong. The what if I give up now and the market turns. It is why I’m a rules based trader but when you think about it the market is offering an opportunity that we as traders are not taking advantage of.
"The days when I keep my gratitude higher than my expectations, I have really good days" RW Hubbard
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I see your point, but I have found that in the long run it is better to stick to my rules, and not change my mind later on (typically when my emotions might be running a bit higher).
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Sorry for not posting an end of November update. Instead, here are 2 months of results (and the first week in January mixed in). Performance is still weak, at best. I could give you some convoluted explanations about the poor performance, but the chart below says it all: the system is just not performing to expectations. All the hand waving in the world can't sugarcoat that fact!
I've said it before, but it bears repeating: if you only trade one or two strategies, you are at the mercy of the performance of that system or systems. That can be precarious. But, let's say this system is part of a much bigger portfolio of 10-30 strategies (as is the case for me). In such a case, I actually expect a few strategies to underperform like this. I don't like it at all when a strategy behaves badly, but it happens. The key is that there a few other strategies that do really well, and make up for this poor performance.
I'll continue to monitor this system, and we'll see what happens.
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I don't trade these live any longer - the performance was just not as good as some other EC strategies I had. So, they were retired from active duty, although I still track and update them monthly. They have not reached my criteria for being "broken," but they certainly are sickly. If they ever start performing well again, I'd probably add them back to the active mix.
The daytime strat lost about $3K in 2015, and overall since development is up around $1K
The nighttime strat lost less than $1K in 2015, and overall since development is down around $2K.
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