Here is a good definition of irony:
I am showing the whole world my real money contest account. To date, I am down about 21%, and that includes a whopping 49% drawdown. Whole lot of stinking going on.
Yet, I don't show you the net aggregate performance of all my accounts. THAT is ironic, since overall I am on a pace to outdo my 2011 performance, which was a near triple digit percentage return year.
I suppose it is just as well. If I showed my overall performance, and hid the contest results, I'd probably be winning the contest, but losing money overall!
Please keep the comments and questions coming. Thanks for reading.
With the wild equity swings, up and down, I got a general question on trading systems.
ReplyDeleteAll trading systems have their strengths and weaknesses.
If you are trading a system,
1. How would you discover its weaknesses?
2. Once the weaknesses are identified, would you accept them for the strengths of the system, or would you overcome them?
Great question!
ReplyDeleteI used to think that when I developed a system, and saw weakness (bad performance) in part of an otherwise favorable equity curve, it was my responsibility as a diligent trader and system developer to engineer that weakness out. That is, do whatever was necessary (new rules, filters, additional optimizations, etc) to improve the equity curve.
For the most part, I don't think that way anymore.
I've come to accept that all systems have weaknesses. If the weakness is too severe, I won't trade it. But trying to "fix" a weakness, especially a major weakness, usually leads to curve fitting or overfitting. Something that makes the past look better, but doesn't help (or worse yet, even hurts) future performance.
One example is a trend following system. This type of system has 2 major weaknesses: low winning percentage (psychologically tough), and extended periods of drawdown. I've found it is better to leave the weaknesses in and trade it, rather than try to remove them.
So, how do you overcome these weaknesses? One way I found is by trading multiple systems, with different markets, different styles, etc. Imagine trading a trend follower at the same time as a counter trend system. They might lessen each other's weaknesses!
Thanks for the question.
Thank you for your answer. If a person wants to trade multiple systems, does he need many different trading accounts?
ReplyDeleteIt really depends on the brokerage, and your personal circumstances. If you trade multiple systems, tracking everything in one account can be tough. Some brokerages let you have sub accounts, where the margin is shared. That is key - if you can share margin between systems, it is much easier to avoid margin calls.
ReplyDeleteAnother thing to consider is the MFG crisis. People who had all trading capital with them were effectively locked out of trading for a while, and may not even get all their money back. If you have accounts with a few brokers, your risk will be spread out a little.
Yes, trading using multiple accounts can be a hassle, but it does reduces the financial risk!
ReplyDelete