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Emily291

Would You Leverage This Strategy?

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If you had a strategy that had tested well and then performed in live trading as predicted by your testing, and it had a maximum historical drawdown of 20% with no leverage, would you leverage it? If so, by how much?

 

Em

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Em,

 

You’ve provided tmi. NOT! :)

What is the characteristic slope of the equity curve when system is not in drawdown?

What is the system’s variability of returns? ... what’s its variability of risk per trade ?

What percentage of the time is the system in drawdown?

Is that 20% max drawdown on Total Equity Max Drawdown or Closed Equity Max Drawdown?

Have you run optimal - f for this system (using > than max loss in the max loss parameter) ?

... and used that in running Holding Period Return ?

 

btw

the max drawdown factor (of live trades or of historical testing) for a system to this date is not very useful info

bcse in the real world

The next systemic drawdown is 100% +

Or not.:roll eyes:

Maybe. :)

 

This leveraging decision depends greatly on how much heat and drawdown you are willing to accept. ie

How aggressive are you? Like

Where on the [it’s ‘gunslinger’ money] <-> [it’s ‘I have commitments’ money] continuum are these funds?

Etc ? etc. ?

 

Hth

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If you had a strategy that had tested well and then performed in live trading as predicted by your testing, and it had a maximum historical drawdown of 20% with no leverage, would you leverage it? If so, by how much?

 

Em

 

A lot of ifs.

 

Find a period of time that it didn't perform as tested. Then, when found, decide whether you want to leverage or trade the strategy at all.

 

If you can't find a period of time that doesn't perform as tested, you do not know how to rigorously test data. In this case, get it over with. Max leverage and get rich or go home broke in the shortest amount of time possible.

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Just guess, if you can not control other people lost or input money. In a simple interactive system, just between you and the system. In an 20% drawdown, if you a smarter trader, you can cut the lost at 1/3(-7%), which means system can go up 20% if lost -20%, then you probably can leverage 3x, since once you cash out you winning money, system might go down if there no people contritube money into system. But in an continute game, others might have a chance to get a higher reward after you cash out your profit early for capital rebalancing. This is my observation, I am not sure it's right or wrong. Have a fun.:crap:

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“if you a smarter trader, you can cut the lost at 1/3(-7%)” wmck6167

If you’re saying kill the system at 7%, I don’t agree necessarily, but I do understand... but if you’re saying temporarily turn it off at 7 % , that is system trading heresy. With system trading, missing ANY signals is big no no...

Like -when would you start it back up? ie If you’re great or even just good enough at timing to know when to turn a system on and off, then you likely don’t need a system at all - unless you want automation. At the very least, that is the perfect way to get no where near the results testing revealed bcse you’re really no longer trading the same system... and

usually 'skipping signals' is a ticket for much worse consequences...

To illustrate in the extreme - if you turned the system off after every loss and turned it back after every what would have been a winning signal, you would be actually trading a whole different system from the original design... ie skipping any signal is changing to a different system on the fly...

 

 

"Find a period of time that it didn't perform as tested. Then,..." MM

OR

(btw This is system dependent - ie it’s not optimal for all systems ... but,)

For most systems you can find another system that is negatively correlated and size it up, relative to the main system, when/as main system goes into drawdown

... with correctly paired systems, this works in the long run whether the neg corr’d system is profitable on its own or not !!!

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Thanks for your feedback. It's a great comment. Just I have some other thoughts about this.

"...With system trading, missing ANY signals is big no no..." If all of traders follow the rules, will system stop draw down process when enough lost occurred at -1/3 position since eveyone are so smart?

Here I think you meant in trading system. What if trading system is conflicted with value system? will you still follow the trading signal? (I assume "time frame" is not considered in this argument) I meant in under value situation, the draw down process induces trading signal, will you still follow the trading signal to cut the lost? Trading and value sometime, I think, maybe it like a double edge of sword? Just curious of some thoughts.

 

When system is against you, defensive strangety is working well, but when system is in the favor of cooperated with you, will you still following this rule? "missing ANY signals is big no no." Thanks and you have a great day.:missy:

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" If all of traders follow the rules, will system stop draw down process when enough lost occurred at -1/3 position since eveyone are so smart?"

eveyone here are not so smart enough to understand what you just said :?:

applying pure honey technologies in sugar land yet? ;)

 

Generally -

Rule trading is not system trading.

True system trading and discretionary trading - mutually exclusive. Period.

Ie if any discretion is applied, it’s no longer system trading

Ie The only important value in system trading is to do everything you can to avoid missing signals... in good system trading you will still inevitably miss signals, but never because you 'decided' to...

So to answer your question - yes, in system trading, I will “still follow the trading signal” even when it conflicts with my ‘values’

 

When the system is working for you is THE time when you for sure do not want to be missing signals...

bcse for some systems - especially ‘truer’ trend systems - missing just one trade (that murphy happens to be an outlier) can ‘ruin’ a whole year of the system’s life. Been there, done that. It's not so stark for other types of systems, but missing signals / temporarily discretionarily turning it off still inevitably degrades the bottom line...

 

Good system design does strictly control risk per trade. However drawdowns and risk per trade are ‘difernt parts of the aminal’.

 

hope this clarifies. Have a good one

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Thanks for your comments. However I may not completely agree with you.

"The only important value in system trading is to do everything you can to avoid missing signals... " I just wonder if system is again you, it might put you under more risk if you just purely follow the signal, in an interactive system.:missy:

It might be riskier that you were cooperated to "lost" more if you just follow the signal rules if market were against you. Our eyes and feelling are always eay be trapped...Maybe. Just for fun.

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Thanks for your comments. However I may not completely agree with you.

"The only important value in system trading is to do everything you can to avoid missing signals... " I just wonder if system is again you, it might put you under more risk if you just purely follow the signal, in an interactive system.:missy:

It might be riskier that you were cooperated to "lost" more if you just follow the signal rules if market were against you. Our eyes and feelling are always eay be trapped...Maybe. Just for fun.

 

Rule trading is not system trading.

Discretionary trading is not system trading.

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Hi, still have question to ask. Is System trading using rules to trade? The other is "time". Sometime signals appeared at low time frame, but it disapperred on anther time frame. For example, the signal showed up in 5 minutes but dissappeared in 1hr time frme. If you have set up at price, then you might interact with this signal. But afterward, in 1Hr, you found you are one of the contributers for the lost. How do you deal with time issue on system trading regarding to the singal issue you just mentioned. Thanks.

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You are not providing enough information for a response. A 20% DD for a strategy that provides 100% per year vs 8% per year would be very different. Also, is that DD for one day, one month or one year. What is the asset class you are trading?

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