Waiting to Blow up...

[JSOP]

@JSOP As for blowing up, it could be as simple as a string of the large stops. Since they are so large, a string of 5 would be pretty damaging. But that would be pretty bad and I just have not had it happen, but it could. Hence the waiting. I agree on the "cut the losses". Implementing them is a bit more nuanced, imo. My current thinking is to proceed with developing a reversal mechanism next. The main problem I encounter is the nature of ES. As you probably know, there are a lot of "flush outs" that occur and price then reverts back to a "mean" short term. In fact, they really need to be expected as the normal, imo. Frankly, it is a bit harder to figure out on ES so I did this method first. Also I can limit the trades to reduce the marginal losers, but one of the premises of the system is getting a higher number of trades. So it is a trade off.

Then it's an issue of the signals generated by the system. If it's not good enough to identify the false signals from the good ones, then the system is just not good enough unless you can design it in a way that its profit potential when the signal does turn out to be right is significantly higher than the losses that could be incurred from the bad signals. Limiting the number of trades is not a good option because if you limit the number of trades then you are also eliminating the potentially profitable trades. Seeing your system is anchored on higher number of trades then you have only two options:

1) Maximize the win/lose ratio or

2) Maximize the potential profit/loss ratio for EACH trade

Maximize both of course would be the best. If you can't maximize either one of them, then ES is just not a good instrument to trade. IMO.

 

[Bad_Badness]

Then it's an issue of the signals generated by the system. If it's not good enough to identify the false signals from the good ones, then the system is just not good enough unless you can design it in a way that its profit potential when the signal does turn out to be right is significantly higher than the losses that could be incurred from the bad signals. Limiting the number of trades is not a good option because if you limit the number of trades then you are also eliminating the potentially profitable trades. Seeing your system is anchored on higher number of trades then you have only two options:

1) Maximize the win/lose ratio or

2) Maximize the potential profit/loss ratio for EACH trade

Maximize both of course would be the best. If you can't maximize either one of them, then ES is just not a good instrument to trade. IMO.

Agree, I know I can improve both within the system. Without hard data, I estimate W/L ratio can go up proportionally, about 15% over all market conditions that are specified. And I can see profits/loss going up to more like 1.75 to 2 points. Of course 1 helps 2. The reason I have not is I was following the system as spec'ed to get a good baseline. Now I will start the optimization phase with incremental changes. Fortunately, ES behavior as targeted, is not going anywhere. Thanks.

 

[JSOP]

Agree, I know I can improve both within the system. Without hard data, I estimate W/L ratio can go up proportionally, about 15% over all market conditions that are specified. And I can see profits/loss going up to more like 1.75 to 2 points. Of course 1 helps 2. The reason I have not is I was following the system as spec'ed to get a good baseline. Now I will start the optimization phase with incremental changes. Fortunately, ES behavior as targeted, is not going anywhere. Thanks.

To me, an increase in win/lose ratio does not necessarily improve the profit/loss ratio. I find they are quite independent. You can have a system that allows you to win quite a high number of times but your profit each time is not large vs the loss that can happen. So comparing to a system that does not have as high of a win/lose ratio but when you win, your profit vs loss is much higher, you can still end up with higher overall profit but you need to have higher trading capital and with sound capital management rules to ensure that you would have enough capital on hand to allow you to trade that one finally tremenously profitable trade that makes all your losses back and then some.

 

[SunTrader]

Your just giddy cause of Biden’s APPARENT win and Mr T’s APPARENT loss. Watch out for those reversals ROFL

There ya go like a true Trumper you are.

Only now it is Make America Hallucinate Again. No thanks four years is enough.

 

[volpri]

There ya go like a true Trumper you are.

Only now it is Make America Hallucinate Again. No thanks four years is enough.

Lol

 

[tradeking007yahoo]

waiting to blow up sounds like a very dramatic documentary about a human suicide bomber. maybe thats the parallel. traders waiting to blow up are actually similar to a suicide bomber.

 

[guowei58]

All constructive comments welcome. Here is an generalized summary.

A discretionary ES trading system, 70 days for 5 points a day. Just finished it last Tuesday. I wanted to see how long before it blew up, because I knew it would. Why?

• Because average win was 1.35 points and a 64% win rate, 3% loss rate, and the rest where "scratch", i.e. under 0.5 point P/L.
• 5.4 trades a day, Min 2, Max 12, Mode 5.
• Averaged down on unrealized looser up to 3x, to get a loss into a scratch.
• Of course, that will not always work, so the stop got triggered at -25.0 TOTAL points.
• Stop Triggered twice, or 1-35 days.
• 12 days (17%) an unrealized loss came within 3 points of the 25 point stop but recovered to scratch. Happened 15 times.

The "never mind" details:

• Never went negative.
• Order size was never an issue. Under 12 contracts.
• The losses where well distributed in the 70 days.

To me this seems very suspect to bother coding up. I don't think back testing is that great a determinate of future performance in general. And in this case, the system relies on real time data that is not available in historical data.

I know this system goes against a lot of dogma, but....

Only way you blow up is if you size it too big. 12 contracts is what portion of your overall portfolio?

 

[Bad_Badness]

This is an isolated system. One of many. 12 contracts is with range of the systems designed parameters. "blowup" was loosely used wrt to W/L frequencies relative to W/L size. Sorry for the confusion.

 

[guowei58]

This is an isolated system. One of many. 12 contracts is with range of the systems designed parameters. "blowup" was loosely used wrt to W/L frequencies relative to W/L size. Sorry for the confusion.

mean reversion systems all blow up at some point if you don't have stops