Need some advice

[Oadmani]

In that case you cannot compare your real results with the backtest results. You have backtested something which is completely different from real limitations.

Yes, I would limit the max number of trades to 15 at a time and see the results. The returns will go down but I suspect so will the drawdown.

 

[HobbyTrading]

... but I suspect so will the drawdown.

I'm not so sure about that. If the wrong 15 get opened or closed you might end up with a larger drawdown. Would be interesting to compare two backtests: with and without a limit on the number of trades at any one time.

 

[bookish]

Hello,

My trading universe has 77 stocks. I am trading a derivative of the turtle system. The issue is that, because my rules are the same for each stock, I get a lot of trades in periods and then no trades in periods. There is no shorting of stocks where I trade, so I am incurring drawdowns and drawdown durations that are very long. Is my approach fundamentally incorrect?

When I backtest the system over the last 10 years, it is giving me a drawdown of 39 percent and a return of 108 percent annually if I am able to take all the trades. But, the trades are coming in clusters or are not coming at all.

I have a win ratio of 49 percent with a reward to risk of 3:1. The numbers are pretty good but there are no trades half the time and then they come in clusters, like 30 40 trades together.

Any advice would be appreciated.

Trade more systems.

Try to trade 5-10 systems at a time so you are diversified.

 

[smallfil]

You should focus first on the risk involved in trading. I trade no more than 7 positions at any one time. So, 7 x 2% = 14% maximum risk assuming I lose all 7 trades and lose all my monies each time. The Turtles also, traded everything that moved, including commodities to diversify and minimize risk.

 

[Oadmani]

You should focus first on the risk involved in trading. I trade no more than 7 positions at any one time. So, 7 x 2% = 14% maximum risk assuming I lose all 7 trades and lose all my monies each time. The Turtles also, traded everything that moved, including commodities to diversify and minimize risk.

Do you have the same rules for each stock you trade in?

I think because I have the same rules, the trades come in clusters.

 

[HobbyTrading]

Do you have the same rules for each stock you trade in?

I think because I have the same rules, the trades come in clusters.

If this is the case it implies that apparently all stocks move up and down in the same pattern. In other words: they have a high correlation to each other. If three stocks move identical you don't need to track all three of them in your system: you could choose one and ignore the other two.

 

[smallfil]

Do you have the same rules for each stock you trade in?

I think because I have the same rules, the trades come in clusters.

No. I use chart patterns to tell me which stocks to trade. There are times I do not have any trades and other times, I could have 5 trades or more. Then, I have to pick and choose which stocks to trade based on their chart patterns. I use the same criteria or filters to pick those stocks I trade in. You do not need to be trading every single day to make monies in the stockmarket. Taking quality trades vs trading 100 different stocks all at once, should be your goal. If you over trade, most of the time, most of those trades are garbage trades to begin with so, you are just wasting time and losing your monies without gaining anything.

 

[smallfil]

So, you take no more than 7 trades. And, you risk 2 percent per trade. So, in periods you are invested, assuming a reward:risk of 3:1, you target a maximum return of 42 percent provided you. Then there are periods with no trades. If, say, they are 50 percent of the time, I am presuming your target return is around more or less 20 percent?

I am targeting a higher return and willing to accept a more severe drawdown. I risk around 1-1.1 percent per trade. Hence, I think the maximum number of trades I would like is 15. However, since it is a trend following system and I may miss some good trades, if I get more than 15, I would reduce my exposure in the trades I have already taken to, say, .75 percent, and still take the other trades. What do you think of my strategy?

Besides that, I have almost a 50 percent probability of being correct, with a reward:risk of 3:1. These numbers are pretty good. It is very less likely that if I take 15-20 trades at the same time, I will incur all losses. However, losses tend to cluster as my method is very correlated.

No, I do not have a target return. I trade stock options which has leverage so, I do not worry about the returns. Returns are higher than buying individual stocks. If a stock goes up 30% my stock options could be worth 100%-200% easily. Also, my win rate is like 30% and my average win/average loss ratio is 3/1. Most times, I am just sitting on my trades and not doing anything except, checking to see if the trend on my stocks has not changed or my stop loss has been hit.

 

[Oadmani]

No. I use chart patterns to tell me which stocks to trade. There are times I do not have any trades and other times, I could have 5 trades or more. Then, I have to pick and choose which stocks to trade based on their chart patterns. I use the same criteria or filters to pick those stocks I trade in. You do not need to be trading every single day to make monies in the stockmarket. Taking quality trades vs trading 100 different stocks all at once, should be your goal. If you over trade, most of the time, most of those trades are garbage trades to begin with so, you are just wasting time and losing your monies without gaining anything.

What would be a good way of filtering stocks apart from volume, correlation, price, etc?

 

[David's faith]

Check if buying puts on indexes is profitable in periods you got no signals. If yes = problem solved