Monthly profit target and drawdown

[meanreversion]

If testing shows this improves performance of the strategy, why not? It's difficult to foresee the same parameters being effective year in, year out ad infinitum.

 

[Adamus]

I'd say the strategy performance has to show a marked decline before I'd change it.

 

[meanreversion]

Without wishing to labour the point, when it comes to systematic trading, you need to define absolutely everything. In this instance, define "marked decline". If the system was losing money, how are you able to differentiate between simple drawdown or the more serious "system death"?

This is the advantage of being able to backtest, and for long periods.. you can experiment with modifying the parameters and also re-optimization.

 

[DionysusToast]

LOL it is not underemployed 90% that's your capital, that's still going to be there when you have losing periods.
I actually risk less than you do at anyone time but my goal is to get a position on, get it into profit and protect that position (you could move your stop, I prefer to take some profit off to pay for my stops) and then add to that base position or add other trades. That way you are making more of your capital work but you are not risking any more at any one time.

Maybe, maybe not.

First of all - let's ensure we are comparing apples with apples. If you risk 2% of your capital on a trade, then that trade will more than likely utilize more than 2% of your capital (margin aside for a minute).

In day trading, I can have a trade with a risk of $100 but trade 1000 shares at anywhere from $20-$100 a share (any higher and I personally use the options). Last week I brought MGA at around $72 - that's $72,000 capital employed without dipping into margin.The risk was less than 1% of my capital though because under no circumstances would I sit there and watch it go to zero. Of course, I guess you could day trade a stock that got frozen and did go to zero - but that's why we check out the stocks news before we add them to our lists for the day :whistling

So - in my opinion, a risk of 2% requires you to use much more than 2% of your capital.

Now - in longer term trading, the picture is different. As I have stated on other threads, I closed out all my longs mid-April. It is true that there's a lot of underutilised capital there waiting for an opportunity. But there is a problem. The value of cash is not static.I am not at all comfortable with this. One alternative is an inflation linked money market account which should alleviate the problems inherent in cash. This is not something I currently use but it is something I really should get round to looking at in detail...

So - I think the comment on what to do with the remaining 90% is valid depending on the type of trading you do.

 

[Adamus]

Without wishing to labour the point, when it comes to systematic trading, you need to define absolutely everything. In this instance, define "marked decline". If the system was losing money, how are you able to differentiate between simple drawdown or the more serious "system death"?

This is the advantage of being able to backtest, and for long periods.. you can experiment with modifying the parameters and also re-optimization.

Totally agree. Ideally I'd have a complete set of backtest and forward test results that showed the variability inherent in the results of my strategy and any drawdown that lay within 125% of my worst drawdown in forward testing would not count as system death.

I just optimise over as much of the data as I can while leaving a little to forward test on. The results are rubbish compared to a short backtest window, but are much more likely to be robust when I come to forward test and eventually trade it.

Never found anything better than that although naturally I've heard about better strategies - it's just the strategy developers never let me into their secrets, of course. I tell myself they're only winding me up :jester:

 

[kimo'sabby]

i don't have monthly or weekly drawdowns, i have drawdowns within the day but that's about it. I need around 2% per day, a bad daily drawdown would be about 4-5%, but in general i'm up at eod.

I don't trade every day, the market isn't open every day, i have holidays etc etc. Take away what the taxman wants, and my living expenses house, cars, etc etc and there isn't much of the 2% per day left at the end of the year.

 

[Black Swan]

6.85% drawdown for me yesterday (including trades rolled over today)...not good...no smack ar5e emoticon so this'll have to do...

Got very complacent on light crude, and v.careless/complacent on everything else. You need big stops to swing crude...and....ahem...it took my big cojanas stop out... Didn't trade the fundas on it, stuck to the usual signals etc. but ffs, it dropped close on ten dollars a barrel last week, you'd have thought it'd be a slam dunk yesterday to go long from 8am onwards...doh...I blame Nick Clegg...

 

[meanreversion]

My equity is all over the shop right now. The only consistent one seems to be gold. I'm going to get taken out in nat gas, I can feel it.