Day Trading & Forex Forum

Mathemagician

Why is it that most traders spend nearly all of their time chasing after a better set of entries and exits? (Heck, most focus squarely on the entries!) In reality, you can use pretty much any modestly stable set of entries and exits and achieve results that would please any trader whose goals are properly aligned.

In order to illustrate this I've attached two equity curves. They both use an embarrassingly simple entry/exit methodology found in a book that was published in 1998 (just a daily breakout). It's literally a two-line system, one for long entry and one for short.

The first EC is just the plain old system applied to a portfolio of 65 global futures markets using 1 contract each. The second EC is the identical set of entries and exits on the identical set of markets but with a halfway decent position sizing method applied. (Costs applied are $115 per round-turn.)

You'll note that the testing period is 25 years long with the last 10 years having occurred after the publication date. Notice there is no degradation in performance after the publication date. With position sizing turned on, this is a 21% compound annual growth rate with a maximum daily peak-to-valley drawdown of just 25%. This result is definitely competitive with the top CTAs and money managers for this period!

Once you outgrow the B.S. presented by the make-1000%-a-month-with-95%-winning-days hypesters and work out what a 21% CAGR means to you, you quickly realize that this type of performance is more than you'll ever need and the drawdowns associated with it are quite comfortable. Why do I say this? Well, here's a VAMI table showing the results of a 21% annual return compounded over a career...



That's right, after 10 years you've got a 670% return on initial capital, and after 20 years you've got a 4500% ROIC. Best of all, during this time the worst drawdown you've endured is 25%.

Why aren't more people trading this way? Why are so many people chasing the perfect entries? It's a mystery to me, but I'd sure love to hear your reasons...

jj

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dcraig1

One reason is that it takes a fair bit of dosh to trade 65 futures markets and even more to trade all those markets with position sizing applied.

Can't do that in a 1000 quid fx account. (not that I'm advocating fx).

dbphoenix

Also because we're actually trading rather than just running numbers

Mathemagician

Fair point, but there really isn't much one can do in a 1000 quid account at all! Oh, one can try, but the reality is that nearly any sensible trading plan will be underfunded due to the size of the stops or swamped by the additional relative costs imposed by those who cater to accounts of this size.

Also, while more markets is better, it's not necessary to hyper-diversify. I've seen this type of model applied to 13 market portfolios with success. Further, this approach works about as well with individual equities and one can trade a basket of equities effectively in a small account.

jj

Mathemagician

A fair question, indeed, but this is not simply an untested theory. I make a living trading just like this on my own behalf and on behalf of clients, both retail and institutional. This is a talk that I most definitely walk.

jj

Crap Buddist

Time. Some people want that return in months, weeks, days? Whose to stop them ?

Not Magicians, alchemists. Make David Blane look like he's a thunderbird puppet when pulling his tricks.


Look into my eyes not around my eyes but into my eyes.....

Think of any even number between 50 and 100, numbers have to be greater than 5 & no two numbers can be the same.
































68.

Now think of the market like a trick.....

__________________


"You smell that? Do you smell that? Coin, son. Nothing else in the world smells like that. I love the smell of Coin in the morning."~ Colonel Coin

dcraig1

I agree with all that and it always suprises me that there is so little discussion of trading a basket of equities which can be done in a fairly small account. Grey1 is really the only poster here that does give it proper attention.

dbphoenix

I'm sure you do. Nonetheless, the various theories and models and so forth that academics come up with have nothing to do with the trading that ordinary traders engage in. Sells books and services, I suppose, but has no relevance to the bottom line.