The 5th place trader in the contest is at 45%, so I am quite far from catching these guys anytime soon. So, I'll just stay the course, and follow the plan.
6 open trades currently: 1 big loser, 1 small loser, 2 right around breakeven, 1 good profit, and 1 really good profit.
If you have any questions about trading, just post them in the comments section. I promise to answer in a future blog post.
Thanks for reading!
In backtesting the trading system that you are using now, what is the maximum drawdown? Like 40-50%? Are the drawdowns different for the different markets?
ReplyDeleteThanks for the question.
ReplyDeleteBased on Monte Carlo simulation I have done, my max drawdown should be around 36%, and the yearly return should be around 200%. Of course, these are median values, and the actual results could be a lot different. The simulation also predicts around 10% chance of blowing out the acct (ie, losing over 80% of initial value).
Since there are so many different markets I am looking at (over 20), and only about 100 trades in any year, I don't have enough data to get meaningful drawdowns per market. There is also correlation or non-correlation between various mkts, which may increase or decrease the overall acct drawdown.
Thanks for the question!
P.S. Anyone who wants to try Monte Carlo Simulation can get a free spreadsheet that I created at my website: http://www.kjtradingsystems.com
From actual results shown above, the estimated drawdown (my eyeballing) is 51%, which is 36 + 15%, almost a 15% deviation!
ReplyDeleteI would be downloading the Monte Carlo Simulation spreadsheet to learn more about Monte Carlo. Thanks!
You are right. The difference is due to the extra "add to winners" position sizing I am using." That made the drawdown a lot bigger than it would have been earlier. In my simulations, I never accounted for the "add to winners" factor. I probably should have...
ReplyDeleteIn developing a trading system, how would you know if it is a winning system?
DeleteFor example, let's say I have come up with a system with a profit factor of 1.16-1.33, and a drawdown of 17.31%-28.74%, backtested on 5 markets with past 10 years of historical data, would this be something that you would trade?
Congrats on getting a positive system! Many people don't even get that far.
ReplyDeleteThe factors that go into "would you trade it?" are as varied as the person trading it. What might be good for you, might not be good for me. Also, without knowing how the system was developed, it is hard to say whether it is a good system.
So, let's say you finished development yesterday, Feb 29. What I recommend is that you put this system aside for 3-6 months, and look at how it is doing only once a month. In the meantime, look at other systems or development projects.
If after 3-6 months of new performance data, you'll be able to see if the system still holds up. If it does, and the performance meets your goals, then it might be time to commit real money to it.
The key is not to jump into trading with real money until the system has proven itself in real time. Backtests can be useful, but most times they are useless when done the wrong way.
Thanks for the question!
Thanks for your tips! I have made reading this blog part of my morning routine!
ReplyDelete