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KJ Trading Systems Strategy Factory


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KJ Trading Systems Strategy Factory

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  #11 (permalink)
Raliegh, NC
 
Experience: Intermediate
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I did a bit of forensic analysis yesterday that sheds more light on the performance of the strategies--specifically which ones performed well, which ones did not, and why.

Here are the strategies in the date order they were developed with profit results up to end of Nov:

JY 60min - May-Nov - ($1,700)
PL 240min - Jun-Nov - $10,000
S 240min - Jul-Nov - $1,400
*C daily - Jul-Nov - ($2,500)
*EMD daily - Aug-Nov - ($3,200)
PL 60min - Aug-Nov - $11,300
*HG daily - Sep-Nov - ($6,700)
*W daily - Sep-Nov - ($2,300)

The JY 60min strategy was the first one I developed. It was developed following all the guidelines using Kevin's development process except one -- the "incubation period."

This is a period used to run the strategy on live *unseen* data. Thus, if I wanted to develop a strategy that I wanted to use today (12/17/2015), then I would develop that strategy only using data up to about 3/1/2015 -- a 9 month window of data that has not been included in the development process. If the strategy passes all the development hurdles and benchmarks (and there are several in Kevin's approach), then the last test is to see how it performs on that 9 months of unseen data. If it continues to perform well, it passes and can be traded. If not, then the strategy is either scrapped or reassessed. However, there is danger in reassessing at this point as you no longer have the 9 month window of unseen data to use as a final testing period, and the risk of "over optimizing" or running afoul of data mining bias runs high.

I misunderstood this when I was developing the JY strategy and used all the data -- right up to the current date.

The PL and S strategies were developed with an incubation period test at the end of the development process.

The strategies that are starred (*) are special. They were developed using algorithmic builder software. Those strategies were more difficult to fit within Kevin's development framework in terms of testing period time frames. Thus, they could not benefit from his entire benchmarking process and may have been over-fit/over-optimized to the data.

So looking at the results:

The JY strategy did not do well -- it did not benefit from being tested on unseen (incubation) data. Instead, this testing happened in real-time, showing that the strategy may not be viable because of negative performance.

The strategies built with algorithmic software ALL had negative balances in real-time. What misled me is that the ones that were developed in the Jul/Aug were doing well in sim mode testing, but then as fate would have it, they went south when I started live trading in Oct.

So the pool of strategies that strictly adhered to Kevin's guidelines were (I developed these using ideas I got from various sources on the web and in forums.):

PL 240min - Jun-Nov - $10,000
S 240min - Jul-Nov - $1,400
PL 60min - Aug-Nov - $11,300

The ones that did not (all except JY were from algorithmic builder software):

JY 60min - May-Nov - ($1,700)
C daily - Jul-Nov - ($2,500)
EMD daily - Aug-Nov - ($3,200)
HG daily - Sep-Nov - ($6,700)
W daily - Sep-Nov - ($2,300)

It doesn't take rocket science to see a pattern here.

Only time will tell if the unprofitable strategies are simply in draw down and will recover. But this is why the final hurdle of testing on unseen data is important. Depending on how poor the performance during that final testing period, it can be an indication that your strategy is not working as expected or simply needs more time to prove itself.

And had I simply traded the strategies that, in retrospect, were probably the "safest" (since they strictly adhered to the development process)? I would have shown a profit rather than loss.

Trading ES (one of Kevin's strategies), PL 240min and S 240min: Oct/Nov: $5,200 -- gain

Trading ES, PL, S, JY, C, EMD, HG, W: ($6000) -- loss

I'll continue to track the strategies that are running negative balances to see if they ever recover or ultimately fail. But I certainly won't be putting money on the table for them any time soon!

Hope this helps.

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  #12 (permalink)
ellicott city md
 
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Interesting to see if it is purely just a drawndown.
So you have only traded or tested one of Kevins strategies,,,ES?
Thx

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  #13 (permalink)
Raliegh, NC
 
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tkoutris View Post
Interesting to see if it is purely just a drawndown.
So you have only traded or tested one of Kevins strategies,,,ES?

I have only traded his ES system, but have tested other systems that he has made available. Check out his website--he has made some of his other work publicly available (such as a soybeans system, gold, etc.). Last I tested these worked well, but had more drawdown than I wanted.

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  #14 (permalink)
Legendary Market Wizard
Houston, TX
 
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@risingfire and @ilkan10 do you have any further updates on your Strategy Factory attempts?

I must admit to have taken his course this week and was both impressed with KJ & the courses content, and thoroughly enjoyed attending it.

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  #15 (permalink)
Izmir Turkey
 
 
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SMCJB View Post
@risingfire and @ilkan10 do you have any further updates on your Strategy Factory attempts?

I must admit to have taken his course this week and was both impressed with KJ & the courses content, and thoroughly enjoyed attending it.


After taking the course, my goal was to submit a strategy to Strategy Factory Club every month. And I did...

Incubation period is completed for 6 of my strategies. 3 of them failed and 3 of them passed. None of the failing strategies are straight failures. What I mean is, the drawdown isn't near their historical max drawdown. Looking back again, I definitely wouldn't submit one of the strategies. I don't know your experience as a system trader but as time passed, I got a better feeling of what's optimized or not.

I strongly recommend you to retake the course after a couple of months. There're lots of valuable information. If you attend again, it will definitely help. (I don't mean to watch the recording again.) Just tell Kevin 2 weeks before. And of course he won't charge you. After attending again, I realized that I was over optimizing a bit here and there unintentionally. Also, I try to use less inputs compared to Kevin so I again don't over optimize unintentionally.

Good luck!

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  #16 (permalink)
Raliegh, NC
 
Experience: Intermediate
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SMCJB View Post
@risingfire and @ilkan10 do you have any further updates on your Strategy Factory attempts?

I have dropped back to sim/paper trading at the moment. I turned the system back on in January with my strategies plus Kevin's ES strategy from the webinar, only to suffer an extreme drawdown that forced me to turn the system off since I was very close to my own personal loss thresholds. Kevin's ES strategy suffered one of the worst drawdowns in its history (consecutive repeated losses totaling $10.5k over 2 1/2 months) and my strategies did not compensate, but rather experienced drawdown also, magnifying the effect and resulting in a $20k drawdown. Not good with a $55k account.

But here's the thing. I had developed strategies last year in June, July, August and Sep and started running these with real money in Oct. (I had also, unfortunately, turned on a couple of untested strategies that were created using automated strategy-builder software (see my previous posts) that all performed poorly.)

However, had I simply traded the strategies I developed plus Kevin's ES strategy, I would be showing a profit today, despite the huge drawdown. But since I did not run the system continuously during that time and dealt with losses from the auto-built strategies, I experience loss rather than profit.

So I am having a mixed bag experience. On the one hand I can see where the combined multi-strategy system has a huge amount of merit. In theory the diversification should even out the equity curve. But in practice, with a small account, there is some measure of luck involved. Starting the system back up in Jan was just bad luck as it just happened to hit a period of large drawdown and took my account down to critical levels in March. I suppose at $35k I could have continued to keep the account trading, but it was enough to shake my confidence in the system. And, of course, the irony is that despite the large loss, the trading system did recover by early May. That is a painful pill to swallow.

So I am honestly not sure what to do at this point. I am experiencing "loss aversion" and am afraid that if I turn them back on, it may simply hit another drawdown period that could wipe the account out. So I have stepped back to reevaluate.

Recently my son sent me some "tidbits of wisdom" that seems pretty appropriate at this stage of the game and seems to sum up my experience:

1. Every mistake is a successful step the learning process.
2. Finding the cause of the error is the next step.
3. Next, develop a potential solution.
4. Apply the solution and observe the results.
5. Review and reevaluate
6. Repeat this process for any new or returning mistakes.
7. Never repeat a method that resulted in an error for the same scenario in the same circumstances.
8. Stupidity is doing the same thing and expecting different results.
9. Be open-minded to the potential of relevant variables outside of your awareness or comprehension.

So I am in step #5. I removed untested/unprofitable strategies. I recognize that I made the classic mistakes of reacting emotionally and turned the system off when I should have kept it on (and vice versa). I have sim-traded the tested strategies (in their original form) since Oct 2015. There was a $20k drawdown that was too severe for me. Was that just bad luck or inherent in the system?

So now what? Am I falling prey to step #8 if I just turn the system back on?

Here is a snapshot of what *would* have happened if I ran the system correctly and continuously starting Oct 2015. This is a spreadsheet I wrote to test the combining of multiple strategies.



The red line displays the equity drawdown. Notice I turned the system back on at the worst possible time -- Jan declining into March. The medium colored blue line is the equity balance (hits $20k end of Dec 2015). I could only trade one PL strategy, so chose PL-60min, the better performer. As of May 15, the equity profit would have been ~ $11.5k. But monte carlo return/drawdown is 1.59 at 6% risk of ruin for combined strategy results. The analysis only included Oct 2015 to May 2016, about 7 1/2 months.

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  #17 (permalink)
Legendary Market Wizard
Houston, TX
 
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I thank you both @risingfire and @ilkan10 for your detailed responses. Good luck to you both.

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  #18 (permalink)
Raliegh, NC
 
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SMCJB View Post
I thank you both @risingfire and @ilkan10 for your detailed responses. Good luck to you both.

@SMCJB, some further reflections I wanted to share. As with @ilkan10, I had some strategies pass Kevin's Strategy Factory Club, and some fail. But as with ilkan10, they were not complete failures (just not profitable enough to pass the 6-month requirement) and Kevin encouraged that I continue to incubate them. Two of them that "failed" took off and would pass by club standards today (my JY 60min and S 240min).

The club has a lot of benefits, one of which is to receive strategies that can be added to your own "cache". I chose two that I have been tracking and have added them to the portfolio spreadsheet to see how they would have combined with trading starting Oct 2015. All the strategies I've included in the spreadsheet have been "live" for at least 9-11 months. The results are much better!

Just adding ONE club strategy (KC Daily) more than doubled the profit, reduced drawdown and took the overall MC return/dd from 1.59 to 5.53. Plus, the required capital reduced to ~ $30k to run all 5 stategies.

Here are those results:


Another combination of strategies... one of the club strategies I received was created by Kevin--a JY 360min strategy. His JY strategy did better than mine, so I'll swap mine out for his. One of the daily ES club strategies performed better than his ES, so I'll swap his out for that one. The following are the results:


The results improve more. Drawdown is about the same, but profit rises to $42k and return/dd soars to 14.58.

Now, one last test. I turned the clock back to Oct 2015, when I started live trading to see what the system was telling me about the original strategies -- 3 that I developed at that time and Kevin's ES.



The analysis was saying that I could expect a $19k drawdown and needed approx $31k to run the system. And that is almost exactly what happened over the past 7 1/2 months. I turned the system off when I hit a $20k loss. But that was just about when the strategies recovered and made over 1/2 that back over the next couple of months.

So all this tells me several things. Kevin's system approach *does* work for small accounts. I have learned to write strategies that do succeed. I need stronger emotional discipline to weather the drawdown -- my own analysis was telling me what to expect! And if I felt that the drawdown was too much for my emotional makeup, then I needed to be patient and wait for a better mix of strategies that had a better chance at less risk. And, lastly, Kevin has said time after time that strategy incubation (running sim real-time) has saved him thousands of dollars... it's time to take that to heart and listen up!

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  #19 (permalink)
Monterey, CA
 
Experience: Intermediate
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I just wanted to weigh-in briefly and say that while I have not taken his course, in my dealings with Kevin over the years I can vouch for him as a skilled and competent trader, and even more than that, a skilled teacher, and one that seems to share freely and not hold back the 'secret sauce', as it were. . . this is an extreme rarity, and more than I can say for myself.

As if he even NEEDS more praise, at this point. . ! I just wanted to toss my two cents in for character reference.

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  #20 (permalink)
Legendary Market Wizard
Cleveland Ohio/United States
 
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Dionysus View Post
I just wanted to weigh-in briefly and say that while I have not taken his course, in my dealings with Kevin over the years I can vouch for him as a skilled and competent trader, and even more than that, a skilled teacher, and one that seems to share freely and not hold back the 'secret sauce', as it were. . . this is an extreme rarity, and more than I can say for myself.

As if he even NEEDS more praise, at this point. . ! I just wanted to toss my two cents in for character reference.

I appreciate the kind words! I have enjoyed our e-mail discussions about trading!

Kevin

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