Quote from Piffle:
As requested, here are some comments on some of your conclusions that I disagree with. Some of my disagreements are because in many cases how you frame the problem determines the answer. For example, most of my research is futures focused and I rarely exit a trade before the close unless I am stopped out. Just so you know where I am coming from. I think if you were either looking at shorter timeframes or looking at stocks, you might come up with different answers (or more likely different degrees of the same answers).
Thanks for taking the time to share your insights - much appreciated.
I currently bot-trade stocks intraday, but am currently backtesting strategies on NQ. Since I don't really want to go prop, the extra leverage of futures, along with the preferred tax treatment is very attractive to me. But regardless of the instrument, I prefer to be flat at the close and hold no overnights.
Quote from Piffle:
I can pretty much guarantee you that this isn't true. All it takes is one example for that logic to end up on very shaky ground, and I have come across multiple examples of money management schemes that have turned a winning system into a losing system.
I actually agree with you on this - I should have phrased that more clearly. I meant any of the *tested* exits (and subject to the market model I was using), rather than all possible exit techniques. There's certainly countless ways to screw up a perfectly good edge.
Quote from Piffle:
This is something that I think depends on the system.
Agreed - I can imagine there are systems where bracket orders make sense (ie: scalping systems). But in my experience at least, I've never come across a system that was enhanced by adding bracket orders.
But the test I ran did seem to indicate that if you must use a stop, its generally best to not use a target and let your winners run. This makes sense intuitively as well.
Quote from Piffle:
I think your best bet is to compile a library of money management schemes and try them out on all your systems. Study the results when compared to each other and really understand why one works better than the others for this particular system. I can tell you right now that out of the many, many ideas I have tested, I have never seen scaling out have a better expectation than exiting everything at once. I agree with Buy1Sell2 in that your goal in developing a single system isn't to smooth returns, it is to maximize expectation. Trade multiple systems concurrently to smooth your returns.
Just to make sure our terminology is in sync, when I think money management, I think position sizing, rather than stop losses based on % equity risk - is this what you're referring to? I've played around with position sizing a bit, but have always found that fixed fractional position sizing seems to work well. I currently don't martingale or average down, but I'm open to the idea (no doubt I'll get flamed by someone for THAT disclosure, lol).
Anytime I've backtested stops, I've always found that getting rid of them improved my results. But there is obviously a very large universe of possible systems out there that I've yet to test.
Can you share any examples of the MM techniques you're referring to (without disclosing anything proprietary, of course)?
But I agree that if there is any free lunch, its in trading multiple uncorrelated instruments/systems and dialing in as much leverage as you can (subject to the amount of pain you're willing to take).
The trick of course is finding two or more instruments that aren't correlated these days. Everyone seems to be hedging everything against everything else...
Makes you wonder if someone should just create a world ETF that has everything in it. Hedge to your heart's content...
