Quote from ctrlbrk:
How long have you been trading this strategy (before posting here)? What kind of results?
You mentioned trading multiple contracts. Since it often seems the position moves against you a good amount (ie: Friday) have you considered scaling in/out to average down, instead of an all at once approach?
Mike,
The model was created at the end of August, and since then has gained 752 points, or 12 points per bar (trading day). I haven't traded it all that time, because I didn't start until a few weeks ago. (I wanted to see how it was going to perform)
I don't believe this level of performance is sustainable for two reasons: 1) a
lot of it is due to the high levels of volatility we have had since then. When those return to normal, the gains will drop. Of course, with lower levels of volatility you can trade more contracts, and should be able to counter that, but that's a separate discussion.
The second reason is that this level of performance works out to be about 29% of perfect, while in position. That means that if you disregard the days when the model signaled out-of-the-market, it has achieved 29% of what is theoretically possible if you were long every day the market went up and short every day the market declined. My experience tells me that that level is too high to be sustained, otherwise you eventually own the world. I don't think there's any danger of that happening, which means that performance has to come down sometime.
A more technical explanation is that the model has been developed and tested with a fairly short amount of data (slightly over a year). It's relatively easy to produce good-performing systems just using a short time period like that. The problem is, of course, that they don't perform well in the long run. The market changes, and they quit working. They're kind of fun to trade while they're hot, but you continually have be on the alert to see if they're still working.
Of course, all of the above is not unique to Profit 8, but is common to most all mechanical trading systems. Conversely, there are some nice Profit 8 systems out there that have been developed using a decade or more of market data, which I would feel much more comfortable trading over a longer term. (and in fact, I am trading one of those, but that's not included in the results for this thread)
As to scaling in/out, I have done a little research in that area, but not enough to be comfortable doing it yet. But you're right, it could help ameliorate the impact of market moves like the current one. Being short during the largest two-day upwards move in a couple of decades is certainly a character-building experience. I'm now ready to trade some character for some $$.
