Need help on position sizing/risk - 86% win rate - .5% per trade

Scataphagos said:
Curious minds want to know. :)
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This strategy was designed to replace the "buy and hold" portion of my portfolio, so it trades index ETFs. The strategy will scale into the position and will utilize some leverage in certain circumstances. So, it's pretty easy to imagine if one was to buy and hold SPY for example, you would experience a 50% drawdown during this period. Sprinkle in some leverage and the fact the strategy holds a few more volatile ETFs in addition to SPY and its easy to see how a 60% drawdown could happen if timing lined up poorly - which it did. However, with a similar drawdown to buy and hold, the strategy returns significantly more annually. Which satisfies the goal of replacing the buy and hold portion of my portfolio.
 
frostengine said:
I have a new automated strategy I am planning to go fully live with soon. I have been running it live with minimal capital since Feb. Stats are holding up well to historical, so now I am looking for some feedback on the best position sizing to utilize as I allocate a portion of my portfolio towards it.

Here are the stats:
86.44% winning trades
+.5% per trade expectancy
Returns 154% per year on average
Largest drawdown 62.6%.. reached 40% drawdown 11 times over past 15 years
Never had a losing year in the past 15...
Only 18 losing months over that time period.

I am not a big fan of stomaching a 62% drawdown on capital allocated to this strategy.

My initial reaction is to allocate 3x the capital changing the returns as follows:
- 51% annual returns (on allocated capital) on a 20% max drawdown and a high probability of seeing 13% drawdown in any given year

I can live with those returns, however, I am looking for other thoughts. How would you recommend allocating capital to this strategy?
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Just invest the money and let it go. Study long, study wrong.
 
deaddog said:
Especially with a 154% annualized gain?

to recover from a 62% drawdown you have to gain 163% to break even.
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OP wrote:"Returns 154% per year on average"
So ON AVERAGE makes the difference. He can have a 154% average over the years and have a 62% drawdown while making that year 250%.
If you have year one 0% and year two 308%, you have average 154%.
 
Scataphagos said:
That's not the part we are curious about.

The question is about how there can be a 62% drawdown with 86% win rate.
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The drawdown I cited is intratrade - while the trades are still open. The win % is on closed trades. On closed trades the drawdown is significantly lower.

If I only look at drawdowns when the trade is actually closed vs looking at it open, the largest drawdown was only 21%
 
virtusa said:
OP wrote:"Returns 154% per year on average"
So ON AVERAGE makes the difference. He can have a 154% average over the years and have a 62% drawdown while making that year 250%.
If you have year one 0% and year two 308%, you have average 154%.
More...

As stated, the strategy never had a losing year. The bottom 5 years had the following returns:
+39%
+71%
+78%
+94%
+101%
 
frostengine said:
The drawdown I cited is intratrade - while the trades are still open. The win % is on closed trades. On closed trades the drawdown is significantly lower.

If I only look at drawdowns when the trade is actually closed vs looking at it open, the largest drawdown was only 21%
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How do you control risk?
 
Scataphagos said:
That's not the part we are curious about.

The question is about how there can be a 62% drawdown with 86% win rate.
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That is very easy to explain.

Here...

https://www.elitetrader.com/et/threads/and-they-have-a-plan-live.306838/page-35#post-5406738

So what was my percentage drawdown? Well, that would be telling. But who cares? It could have been 90 percent, or 0.9 percent. Win rates do not matter. Drawdowns "kinda" matter, but what really matters is what your cash balance/NAV will be when you close your open trades.
 
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