When to Stop a Trading System

[Q.E.D.]

Hello Q.E.D.

Thanks for responding.

A few comments and questions below:
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?

REPLY:


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?

 

[TrAndy2022]

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.

Large losing streakes does not go hand in hand with <50% win rate trading systems. This is a myth. This is built on monte carlo statistics, but that does not mean anything in real world. I know a <50% strategy that has less than 3 losses in a row for years now and that is live traded and not any backtests or just forward looking from preoptimized tests. If anyone think that you need to take into account large streaks of losses you are on the wrong way, I would say. You only need to take care of RRR >2 or better >3 in average per trade when having a strategy around ~50% win rate.

 

[TrAndy2022]

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

As another ruke of thumb you could look at your full trading statistics over time and how the individual statistical figure develops. Then on its extremes you can compare this to live traded statistics. If you get much worse new extremes here over a certain time that may be a sign of warning that something can go wrong here. It does not mean it does stop working tomorrow or now but watch out carefully here and take notice of the full set of your statistical figures (because you have them as systematic trader, which is a plus).

 

[Xenomorph]

When you write throwaway responses you deserve to be attacked or better still be ignored.
quote from xenomorph. I'm used to being attacked.
https://www.elitetrader.com/et/thre...iced-when-scalping.371071/page-2#post-5715760

I guess you didn't notice the disparaging way he spoke to me.

 

[Q.E.D.]

As another ruke of thumb you could look at your full trading statistics over time and how the individual statistical figure develops. Then on its extremes you can compare this to live traded statistics. If you get much worse new extremes here over a certain time that may be a sign of warning that something can go wrong here. It does not mean it does stop working tomorrow or now but watch out carefully here and take notice of the full set of your statistical figures (because you have them as systematic trader, which is a plus).

One truism in system trading: Your greatest drawdown is always ahead of you.

 

[SimpleMeLike]

REPLY:


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?

Good Morning Q.E.D.,

Thanks for your experience response.

So, from your experience and recommendation it is best or wise to invest capital in a portfolio of diversified systems, rather than trying to invest capital in 1-3 systems?

For example, my case, it wise to invest capital in systems A through C, rather than invest all capital in System C?

Thank you,

 

[syswizard]

So, from your experience and recommendation it is best or wise to invest capital in a portfolio of diversified systems, rather than trying to invest capital in 1-3 systems?
For example, my case, it wise to invest capital in systems A through C, rather than invest all capital in System C?

3 systems is inadequate diversification. Gotta be 8-12 systems.

 

[SimpleMeLike]

3 systems is inadequate diversification. Gotta be 8-12 systems.

Hello syswizard,

Thanks for responding.

1. Why is 3 systems is inadequate diversification?
2. Why is 8-12 systems adequate diversification?
3. Why not risk all trading capital on 1 or 3 systems?

 

[rb7]

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

This is a very good question.
But.
In order to determine when to stop trading a particular system, you need first to start trading it and make sure you can make money out of it.
And then, you can ask yourself when should you stop trading it.
The hardest part is to find that profitable system. I would suggest you to focus on that part first (although you might already be there, but the fact that you provide backtesting results as opposed to real results lead me to think that this is not the case...)

The backtesting results that you provided have no relation with your question (if the real goal of this thread is to get answers to your question and not to brag about backtesting results of your systems).

And if you want my opinion on your question, using x times the backtest results drawdown is not a good solution. I'd say to stop trading your system once your minimum profit expectations are not met anymore over an X period of time (usually expressed in term of months). The details depends on your system and your trading style.

 

[TrAndy2022]

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

What systems did you buy or lease now ? I can remember you asking about sources and you were very happy about my mentioned websites. Are they only on ES and NQ or ?