When to Stop a Trading System

[Q.E.D.]

Hello All,

Here are some example 16 year back test systems performance metrics for :

View attachment 299426

Questions:

1. When do you recommend to stop the system due to system losing too much money? I am thinking somewhere between 2-2.5 times drawdown

Thank you

About 20 years ago I managed money using my own computerized trading systems. We traded futures, with good returns. More impt, I tested tens of thousands of systems, & traded a multi-system strategy, using 20 - 30 different systems, real-time.

Anytime I found a system testing with > 65% profitable trades, I immediately discarded it. The best traders in the world, other than for short time periods, and/or fast profit objectives, do not achieve more than about 20 - 40% win ratio. That is how the world works.

Also, all my systems traded the same logic from long side & the short side. Too many "genius" system developers have great systems that only work from the long side, & they get wiped out, during bear markets. Remember, I'm talking futures, financial, but also commodities. Indiv stocks might be slightly different, not to avoid short side, but possibly have slightly different entry / exit rules for short indiv stocks.

However, with computers, it is possible to do millions of iterations, & one will always find a system that was "perfect," -- but over back time periods. They invariable fall shortly after real-world trading.

 

[Businessman]

Just because I can't achieve this win rates and results, does it means it does not exist.

Good luck in your quest for the Holy Grail!

Many before you have searched for this, the system that wins more often that it losses and also makes a large net profit over the long run.

How are those Holy Grail, high win rate Collective2 systems you posted links to about six months back doing?, are they still going strong?

 

[Collagen]

If It hold backtested metrics into the future it is a quite great system; Main risk is You and your confidence to hold it when inevitable dd will appear and the way You have developed;(confidence in the methodology used during design and development ). My take is that till we have high volatility You should be fine.. (and expect 2-3 x that DD in real time at some point). Good luck!

 

[SunTrader]

Markets drop faster than they rise and trend longer in bullish phase than bearish, so it is not wise to use same logic, in reverse, for long and short trades.

 

[SimpleMeLike]

Good luck in your quest for the Holy Grail!

Many before you have searched for this, the system that wins more often that it losses and also makes a large net profit over the long run.

How are those Holy Grail, high win rate Collective2 systems you posted links to about six months back doing?, are they still going strong?

Hello Businessman,

Please do not mistake. I am not looking for the Holy Grail. I have no clue what Holy Grail even means. I was just saying, maybe there are high win rates systems out there performing well. I do not know. I am unable to find that in trading systems that I researched and built. That does not mean they do not exist. I do not know.

I personally like the swing systems per my examples I posted. That is the best I can do system wise, for now.

 

[SimpleMeLike]

If It hold backtested metrics into the future it is a quite great system; Main risk is You and your confidence to hold it when inevitable dd will appear and the way You have developed;(confidence in the methodology used during design and development ). My take is that till we have high volatility You should be fine.. (and expect 2-3 x that DD in real time at some point). Good luck!

Hello Collagen,

Thanks for the response. Yes, the high volatility the past 4 years have been helpful.

Thank you,

 

[smallfil]

About 20 years ago I managed money using my own computerized trading systems. We traded futures, with good returns. More impt, I tested tens of thousands of systems, & traded a multi-system strategy, using 20 - 30 different systems, real-time.

Anytime I found a system testing with > 65% profitable trades, I immediately discarded it. The best traders in the world, other than for short time periods, and/or fast profit objectives, do not achieve more than about 20 - 40% win ratio. That is how the world works.

Also, all my systems traded the same logic from long side & the short side. Too many "genius" system developers have great systems that only work from the long side, & they get wiped out, during bear markets. Remember, I'm talking futures, financial, but also commodities. Indiv stocks might be slightly different, not to avoid short side, but possibly have slightly different entry / exit rules for short indiv stocks.

However, with computers, it is possible to do millions of iterations, & one will always find a system that was "perfect," -- but over back time periods. They invariable fall shortly after real-world trading.

Positive expectation is more important because if it is negative expectation, it is a guaranteed loser. The win rate does not matter if it has no edge. I use a trading system now that is only 30-40% winners but, is positive expectation.

 

[SimpleMeLike]

About 20 years ago I managed money using my own computerized trading systems. We traded futures, with good returns. More impt, I tested tens of thousands of systems, & traded a multi-system strategy, using 20 - 30 different systems, real-time.

Anytime I found a system testing with > 65% profitable trades, I immediately discarded it. The best traders in the world, other than for short time periods, and/or fast profit objectives, do not achieve more than about 20 - 40% win ratio. That is how the world works.

Also, all my systems traded the same logic from long side & the short side. Too many "genius" system developers have great systems that only work from the long side, & they get wiped out, during bear markets. Remember, I'm talking futures, financial, but also commodities. Indiv stocks might be slightly different, not to avoid short side, but possibly have slightly different entry / exit rules for short indiv stocks.

However, with computers, it is possible to do millions of iterations, & one will always find a system that was "perfect," -- but over back time periods. They invariable fall shortly after real-world trading.

Hello Q.E.D.

Thanks for responding.

A few comments and questions below:

About 20 years ago I managed money using my own computerized trading systems. We traded futures, with good returns. More impt, I tested tens of thousands of systems, & traded a multi-system strategy, using 20 - 30 different systems, real-time.

Question:
1. Why not at the time 20 years ago, you not trade about 1-3 systems in the future markets and scale those systems up over time vs managing 20-30 systems?
2. Why the need for 20-30 systems?

 

[Businessman]

Beginners want systems that win well over 50% of the time.

Reason is beginners hate losing streaks, with a >50% system losing streaks are shorter than the winning streaks.

With a less than 50% system, losing streaks are longer. Something beginners don't like.

Experienced traders are happy to trade systems that win less than 50% of the time. They know winning 50%+ while also maintaining a R:R of more than 1:1 is very hard/ almost impossible to maintain at least with mechanical rules.

 

[Q.E.D.]

Hello Q.E.D.

Thanks for responding.

A few comments and questions below:

The concept was each system, which may have had 10-20 entry criteria, & 5-10 exit rules, was like one (hopefully) top-notch discretionary trader. Thus, with 20 systems, it was like having 20 individual traders. Sometimes, several would be long; several short. In times where strong/weak mkts, likely more would have the same position, although particular entry times/prices would be different.

In addition to the 10-20 complete systems, there would also some separate systems that added to basic positions. Generally those rules were simpler. Thus, if system 1, went long, having x number of conditions satisfied, a pyr position would be added when profit on that pos was X+%.

Most people -- myself at start of my research -- was looking for just a few systems, but I quickly learned that is not optimal, nor the way the trading world functions.
Question:
1. Why not at the time 20 years ago, you not trade about 1-3 systems in the future markets and scale those systems up over time vs managing 20-30 systems?
2. Why the need for 20-30 systems?