my journal 2

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I just read the extra couple of paragraphs you adeed in your last post re your Dad - what is it they say? 'Parents ruin the 1st half of your life and kids the 2nd @ Lol.

G/L
 
Well, the answer is implicit in your post. You said the volatility is a complex thing, more complex than I've described it, so complex that we haven't yet decided what it is exactly. So how could I be able to tell you how my systems react to this thing if I don't even know what it is?

If it were just distance between daily high and daily low, I could measure it, but i haven't measured it yet, so I still cannot answer. Everything you'd ask would take a while because it has to be applied to 120 systems.

Regarding interrupting the trading, I am not convinced. If a system has traded during 2008, 2001, and similar situations, and if we're allowing it to experience a drawdown higher than 1 and a half times what it has seen throughout its history of the last 10 years, then I also expect the account to survive future situations. If we start analyzing the impact of this or that event, we're doing fundamental trading, not even technical analysis anymore, let alone automated trading, which is like saying a scientific and inflexible application of technical analysis. In other words, appraising potential future events and disabling the systems based on that appraisal, fully qualifies as "tampering", and as such, it is evil.
 
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I tend to agree with your stance, particularly because of the automated nature of the systems/portfolio of automated systems - no point having an automated startegy and then manually interfering with them. I guess I was just trying to get at where your tolerance level was if in the event of extreme volatility caused by an event such as detailed in my posts things started to move badly offside beyond the known distribution of the systems/portfolios, or even beyond 1.5 X times the largest back tested peak-valley drawdown over 10 years as you suggest.

Thanks again,

Continued G/L

BBmac.
--------------------

travis said:
Well, the answer is implicit in your post. You said the volatility is a complex thing, more complex than I've described it, so complex that we haven't yet decided what it is exactly. So how could I be able to tell you how my systems react to this thing if I don't even know what it is?

If it were just distance between daily high and daily low, I could measure it, but i haven't measured it yet, so I still cannot answer. Everything you'd ask would take a while because it has to be applied to 120 systems.

Regarding interrupting the trading, I am not convinced. If a system has traded during 2008, 2001, and similar situations, and if we're allowing it to experience a drawdown higher than 1 and a half times what it has seen throughout its history of the last 10 years, then I also expect it the account to come out alive from future situations. If we start analyzing the impact of this or that event, we're doing fundamental trading, not even technical analysis anymore, let alone automated trading, which is like saying a scientific and inflexible application of technical analysis. In other words, appraising potential future events and disabling the systems based on that appraisal, fully qualifies as "tampering", and as such, it is evil.
Click to expand...
 
Thanks for the "G/L" -- same to you.

If the drawdown went beyond 1.5 * systems collective drawdown, we would just lose the entire profit set aside and then stop trading, but we would not stop trading before that happened.

On the other hand, if the systems started failing one by one, and exceeded their individual drawdowns, then we'd disable them one by one as they fail. Given the fact that the 28 systems are all different it is unlikely that they will all fail and lose at once. They trade at different times and because of different situations. It's a pretty balanced portfolio. Of course it can be much more balanced if it went from 28 to 60 or more, because I definitely have 60 systems that are good enough to be traded.

As time will go by, we could set the expected drawdown not to just 1.5 * collective maximum drawdown, but to 2 * collective maximum drawdown. On top of this, someone could argue that the expected maximum drawdown should be set to the sum of all individual maximum drawdowns. And they have a point, too. But it's also a matter of whether you live till you're 1000 years old or not. If we lived till 1000, then it could make sense to play it even safer.
 
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Thanks for the further insight. The area of knowing one's trading edge is one that I, as you appear to, have done a lot of work on. For example, you may know that I am a discretionary trader and given my historical strike rate I know what the % probability is of any given drawdown (calculated as consecutive losing trades) so that 3 consecutive losing trades whilst possible is not probable (4.7% chance over a given sample.) Should 4 occur, again possible (0.5% very small chance, ie 1 in 200 chance) and highly improbable, it would cause me to question either;

a. The trading edge
b. Whether it was a statistical anomoly
c. Whether I had broken the entry rules somewhere

and whilst the drawdown would be up to 8% it is not the end of the world, but at that point I would have the 'post mortem' before proceeding.

So I am interested to learn whjat your thoughts were on your portfolio of automated systems given such a scenario.

In a previous answer to my post #2599 you answered in post #2600 re your portfolio that:

'...4) Here's a chart precisely showing the correlation you asked about (yes, there is some correlation, and my systems do best if the EUR/USD and SP500 either rise or a in a range -- if they both fall it is rarely a good thing for my systems...'

so in response to your thoughts outlined in your post above that the portfolio is '...nicely balanced...' are you confident that such a correlation of portfolio doing well when € & SP500 rising or ranging is not an ' LCTM correlation,' ie an un-intended consequence of their portfolio trades whereby they thought they had a nicely balanced portfolio of risk little understanding that the hidden correlations within it effectively meant that they were placing the same bet over and over - which was fine until 2 unexpected events caused such huge volatility unfavourable to their portfolio and the fund disintegrated after massive losses?

It's an interesting and crucial area, this of risk and the balance of risk. On a wider point it is clear that the little understood laws and effects of 'un-intended consequence' do for a lot of well meaning projects.

BBmac.
 
On the subject of risk and failure etc..as a very young man I used to have a boss who was always saying 'everything is alright until something goes wrong,' and barring a cursory understanding of what he meant I never truly understood the importance of it. You see, most of us are goos at managing things when they are going right but few of us are any good at managing things when they are going down the pulg hole. To do this we first need to understand what may go wrong and why and have a contingency plan in place, having recognised that this is happening.

On the specific subject and trading related, When Genius Failed is Roger Lowenstein's excellent account of the LCTM failure, Why most things Fail is a decent essay by Paul Ormerod on the theory of failure and how to prevent it, and The Count Of Monte Christo is Dumas' excellent novel and a must read for any trader - the reasons for which will become clear on reading.

The Lesson in trading is: Know what can go wrong and it's chances, know when it is going wrong, and what you are going to about it. The heat of the market is no place to make such decisions, they need to be made before hand.

BBmac.
 
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I am sorry if I don't answer in as much detail as your posts and questions were, but in the future if you want to make sure I don't miss a question, please number them ("1)", "2)", "3)"...).

I would summarize my point of view, by saying that probably I know my edge but I don't know my drawdown as much, and that, unlike those few good ones, I am one of those who can only deal with things going right.

But that is why I don't have a capital anymore, and why I am trading other people's capital, people who make sure I don't tamper with my systems and who monitor those things that could go wrong.

In fact, it's not just a matter of not being my money, but it's an attitude problem. I have a problem with second-guessing and double-checking my work. To me worrying about the drawdowns of my systems and worrying about unforeseen scenarios is very similar to being skeptical about my intelligence, my work, and so on.

Those few wise things I said about drawdown were all forced in my brain by those backers. If it were up to me, I would have kept feeling blessed by the gods, and would have kept acting accordingly, by investing all the capital available on the next signal triggered by the systems.

Since I started trading in 1997, I've always felt that I was going to be successful. It didn't happen in any way for at least 11 years, but I kept trying. And now things are finally working out only because there's other people double-checking my work, and protecting the account from my wishful thinking.

So I may not have answered your questions, but I might have written something interesting, related to your posts.
 
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Thanks for the further reply above. I have a good understanding of what you are saying and think I understand what leads you to the overall automated strategy and some of the tactics you employ.

BBmac.
 
no one's going to understand this...

I am going to write this one very quickly, just to vent out.

Once again, sleepless. I don't know if it was someone who woke me up, but probably yes, except this time I can't identify the source of noise, so I am not mad at anyone.

Hot and humid here in rome, so it made it much harder to fall asleep.

Tomorrow I might actually skip work and call in sick. Insomnia is sickness. If I take a day off and use my vacation days, they'll complain that I didn't warn them early on. If I call in sick, the boss will blame me for making up excuses. Yeah, because I have never been blamed for anything, but a week ago, the boss started his new sport "find any faults by travis". He's decided that I've criticized him enough for messing up my work for 5 months, and now he's going to counter-attack by looking for anything to blame me for. The difference is that he's an idiot, while I am not. So being blamed for things I am not responsible for enrages me even further.

On the other hand, he's the boss and so I cannot reply much back, except when he gets me mad and then I tell him anything on my mind, and since he got me mad for months, I already told him pretty much anything on my mind, which is that he makes a lot of mistakes.

So anyway, it's war with the boss, and he's going to blame me whatever I do, so tomorrow I'll probably call in sick, and spare myself a day of vacation. Since I am going to be blamed anyway, I'll keep my days of vacation.

After all, I must admit that never before in my life have I criticized a boss as much as i have criticized this one. The causes are:

1) he's quite an idiot, but not the only idiot boss I've had
2) I've been put under pressure by the ace-kaizen-continuous improvement team which for the past 5 months destroyed my work, thanks to the accommodating boss, and caused me to lose my temper

That explains everything. Now the boss felt disrespected and he's getting back at me. Pretty depressing sight, too. I am not afraid. It's a pathetic situation. It's not like I am being punished for anything worthwhile -- just for saying the truth out loud. He's not coming out of this situation with a good image at all. I am getting hurt, too, of course. They're going to say that I am not easy to deal with, at the very least. But all I care about is that no one says that I don't work hard, because that is one thing no one can deny. And it is the only thing that should matter. I don't care if they say that I am dislikable, pretentious, arrogant. Those are all qualities to me, because i consider them slackers, superficial, and clowns. They value friendliness more than quality work, so I don't care what these idiots have to say about me, except I will get very hurt if anyone dares to say that I don't do my job.

No... but tomorrow I'll go late, but I need to go, because we're all moving to another building so I need to take my stuff and put it in a box.
 
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I made it, miraculously

Yeah, I am tired, because I didn't sleep between 1 am and 4 am, and because the freaking child started screaming at 9 am, and I wanted to sleep longer, then the mother started singing a goddamn song to him, by Adriano Celentano, Azzurro. She sang pretty well, I have to admit. So I found out that she has one quality.

Then I got up and came to work, only 33 minutes late, having slept only... from 23 to 1, 2 hours, then from 4 to 9, five hours... I barely slept 7 hours.
 
stress is lower

I was woken up several times during tonight and each time I went back to sleep, whether I thought it was a good idea or not. That's right: i was there thinking "hmm, I think I should get up maybe..." and instead I fell back asleep. Usually I do the opposite, and try to fall back asleep and instead I can't.

I was hearing the freaking baby or may be it was just the air conditioning from the neighbours.

It woke me up several times.

So I am saying my stress level is pretty low, and has been pretty low lately.

So I am satisfied.

Yes, of course I'd still like the bitch to disappear and the child to be killed by his mom in a moment of madness.

Writing a post to me is like playing a tune, and like singing a song. So I will play my tune a little longer, because there's some more time before I have to go to work.

That's right -- my fingers play the keyboard, without having to look, like a pianist plays the piano. I just know precisely where each key is. My typing has the same pace as this song:


My going to work instead has this pace and this tone:


No enthusiasm in going to work, no speed... always wondering whether I should go or not, like when I had to go to class and occasionally skipped class.

But, after 4333 posts, we can say that I haven't been skipping this journal.


Not bad for a live performance in a setting like that. She knows how to sing.
 
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