Sorry saunders, I can't relate to wasting a whole year of my life digging myself deeper into a hole. Obviously you can.
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- Thread starter mickson
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Yes but clearly writing rude things to people, under the safety of anonymity, on public forums, is worthy time spent out of your busy life, "SeventhCereal".
This thread has been useful at times. Hopefully, the heat from the most recent exchange has dissipated enough that we can get back to a thoughtful discussion.
With the possible exception of some arbitrage strategies, most workable trading approaches/systems have drawdowns. Unfortunately, a drawdown looks and feels like a system that has lost (or never had) its edge. At what point does the trader change his system? As we all know, chasing the hot system (or for investors, the hot fund/trader) is a very likely way to achieve unsatisfactory returns.
I had an automated system that I traded for just over eight years. I pulled the plug in 11/2011 after about 4 years of near break-even trading. I would have preferred to tweak the system to make it more profitable. As it turns out, shelving the system created what psychologists call "pattern interrupt", which for me was a fresh perspective on the markets. It worked well, and now a I am profitable again. But I have done a fair amount of tweaking over the past year, and that will likely continue.
"Style drift" occurs when the trader tweaks his approach. The more style drift that takes place, the less meaningful the performance numbers are. One way traders can compensate is to divide their capital into two or more funds so that at least one is free of style drift. That is often not an option for emerging traders such as myself because of the lack of sufficient capital. Then the challenge becomes how to decide how much style drift to allow, because we need to be able to tell what works and what doesn't.
How have others dealt with this dilemma?
RWK, you make a very interesting and thoughtful post, I am not sure I have any good answers for you but I have a few points to make. Thank you for your positive contribution to this thread.
I have been trading my discretionary strategy for 10yrs which on balance has been profitable, I am typically negatively correlated to the markets which has served me well on one level over this turbulent market period, but my consistency of profitability has been a little too variable. I have certain action plans to implement going forward that will hopefully cause "style drift" in a positive sense.
I am not sure if you are aware but "style drift" is one factor that is calculated in our RAPA scoring algorithm. Our model doesn't like style drift as it makes it harder for us to assess the consistency and reproducibility of the strategy returns. What I am getting at is this makes it difficult for an emerging manager to move around with his strategy. I am not saying this is right or wrong but in terms of our performance modelling approach this is something that hurts managers under our spotlight. However, for managers tweaking and improving, our algo gives enough room for these managers to remain in contention.
I for one believe in the evolution of any strategy or model so there is always likely to be a degree of drift present. No strategy or model works forever untouched, there is always a need for refinement, improvement, calibration, etc.
We have a lot of new initiatives we are about to release on the RAPA platform which I am very sure will get some tongues wagging on this thread. Looking forward to some healthy thoughtful debate.
Stay tuned!
I have been trading my discretionary strategy for 10yrs which on balance has been profitable, I am typically negatively correlated to the markets which has served me well on one level over this turbulent market period, but my consistency of profitability has been a little too variable. I have certain action plans to implement going forward that will hopefully cause "style drift" in a positive sense.
I am not sure if you are aware but "style drift" is one factor that is calculated in our RAPA scoring algorithm. Our model doesn't like style drift as it makes it harder for us to assess the consistency and reproducibility of the strategy returns. What I am getting at is this makes it difficult for an emerging manager to move around with his strategy. I am not saying this is right or wrong but in terms of our performance modelling approach this is something that hurts managers under our spotlight. However, for managers tweaking and improving, our algo gives enough room for these managers to remain in contention.
I for one believe in the evolution of any strategy or model so there is always likely to be a degree of drift present. No strategy or model works forever untouched, there is always a need for refinement, improvement, calibration, etc.
We have a lot of new initiatives we are about to release on the RAPA platform which I am very sure will get some tongues wagging on this thread. Looking forward to some healthy thoughtful debate.
Stay tuned!
ZzzzZzz you are obviously willing to write a book on talking about what you are going to do. why not just show some concrete results if you actually have anything? you talk too much.
We have just released a new version of our RAPA Ranking Algorithm.
In our first iteration we relied heavily on the Sharpe Ratio (SR), we have now moved on and adopted the Probabilistic Sharpe Ratio (PSR) invented by Dr Marcos M. Lopez de Prado. Marcos is the Head of Global Quantitative Research - Tudor Investment Corp and a highly respected academic.
Click here to read our algo release note.
I have also attached a copy of the technical paper in which Marcos describes PSR in greater detail.
In our first iteration we relied heavily on the Sharpe Ratio (SR), we have now moved on and adopted the Probabilistic Sharpe Ratio (PSR) invented by Dr Marcos M. Lopez de Prado. Marcos is the Head of Global Quantitative Research - Tudor Investment Corp and a highly respected academic.
Click here to read our algo release note.
I have also attached a copy of the technical paper in which Marcos describes PSR in greater detail.
It is not rational to assume there is a dilemma.
I wanted to check out a coding system so I gave my rules to a firm that had a neat coding system (user friendly).
They could not produce a Universe for the test so the NAZ100 was substituted. An annualized test of the coding ystem produced an anualized run in a bout 10 minutes. the Sharpe was 60 plus.
The firm immediately threw out their results and did the test again.
They got the same answer. There was no dilemma n the first place. The situation was normal for code system producers and for coding with a system. The results were out of bounds in their experience which they used as a reality.
I do not use Sharpe Ratios.
In place of this I use criteria, filters, formulae, rules and strategies all in the correct mathematics as dictated by the markets.
As a result, I notice that for a system to be complete, it has to not exhibit noise. flaws, nor anomalies. If such appear, then the design, development and testing have not been completed.
I find that markets have a finite set of elements. 10 for price, 11 for volume and 35 for trend End Effects. There is no noise, no flaws nor any anomalies. I feel it turned out this way because all market variables have granularity. All variables move in steps.
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