Greetings -- h3po wrote: "I can see one problem with modelling equity curve via Bootstrapmethod described in the thread; the draws will be *independent** *(not correlated). This will give less severe drawdowns in a simulation if the real situation is that consequtive wins/losses are autocorrelated "
------------------- You can use statistical tests to determine the degree to which a time series (either / both the raw data and the equity curve resulting from trading it) is autocorrelated. If there is a positive autocorrelation, gains (in either price or equity) tend to follow gains and losses to follow losses. If a series is positively autocorrelated, trend following systems are more profitable than mean reversion systems. If there is a negative autocorrelation, gains then to follow losses and losses to follow gains. If a series is negatively autocorrelated, mean reversion systems are more profitable than trend following systems. Thanks, Howard On Tue, Jul 27, 2010 at 5:21 AM, h3po <[email protected]> wrote: > > > I can see one problem with modelling equity curve via Bootstrapmethod > described in the thread; the draws will be *independent** *(not > correlated). This will give less severe drawdowns in a simulation if the > real situation is that consequtive wins/losses are autocorrelated > > Actully this gives idea for another interesting question: If one is able to > model *stockprices* by means of a simple model, could this (monte carlo) > simulated dataseries be valuable as additional data and be used as more OOS > data or will it not give any new information in the testing process? > (Asuming one is doing a WF test. If Yes, then this would be valuable for > end-of-day trading system development as the amount of data here is usually > limited). Has this been discussed on this forum before? > > best regards > > > --- In [email protected], "sohamdas" <soham...@...> wrote: > > > > It was such a "solid" read,that I took a lot of time to "process" > it...almost a day(kiddin, didnt know, it would attract so many high quality > replies this soon) > > > > Many thanks, folks. Especially Dr. Bandy, Matthias,Lionel, Raymond and > others.. > > > > I am a programmer myself, and have a fair bit of mathematical background > myself. In the past, I have developed a few trading systems(3 to be precise) > and traded them myself. > > > > In essence, I found when delving with works of Vince, I found he uses the > Kelly's Ratio extensively (till the pages I could crack, beyond which I lost > my patience.) > > > > My experiments with Kelly's Ratio has yielded extremely mindshattering > drawdowns, but yes, it does compound fairly quickly. So, my internet > searches, with Fixed Fractional Ratio led to something called SubOptimal > Ratio, in other words the Half-Kelly Ratio. > > > > But in some ways, I was not deeply convinced or "sold" on this. You see, > in many ways, I am a believer in the axiom > "less-crowded-it-is-the-better-it-is". And this is not only in the way, of > trading ideas, but also in methodologies. > > > > So my view is, out of an ensemble of 100 traders, 92 search for the "Hail > Mary" Indicator/Entry/Setup and 6 of the rest search for the best possible > exit. > > > > And I would say, you can have a worthless random entry, but a good exit, > its possible you might have a better expectancy than with worthless exits. > > > > My belief, the pursuit of bettering entries and exits is surely a worthy > one, but having a great rock solid position sizing and risk management > built, can literally give the real edge to a trading system. > > > > My idea, of a really creative position sizing system is, the way Turtles > built up their positions. > > > > A few of my own observations: > > > > 1. When you read it, on paper, it seems a pretty tame pyramiding, but > doing it in reality, will quickly tell you how aggressive it is. > > > > 2. The position sizing is very apt for trend following. It creates a huge > position and in such a pace as to take the maximum out of a trend(in my > language: trend following is a slow system, not a bad system, "slow" > system). > > > > 3. You can't use the same position sizing of building in 1/2 ATRs in fast > trading systems(most notably, mean reversion systems).[Again, note fast > trading system is not necessarily a good system. It just is... "fast".] The > market moves too quickly, in case of a bo failure. You need to have profit > stops at place as well. > > > > So coming back to the scenario, I was thinking, the main gold might lie > in having really unique position sizing methodology, which includes position > sizing,pyramiding(scaling in), scaling out(in my limited opinion, gives a > better and smoother equity curve when dealing with fast systems), and risk > management. > > ---------------------- > > Which drives me to a very (I cant stress it enough) important pertinent > and thought provoking point by Dr Bandy: > > > > "Treat it like a business. Know when to quit." > > > > Doctor,I have got a piece of paper, which follows a series of steps I > should take, if and when, god forbid a black swan strikes me. I shudder, but > yes its there. I call it, my BROKEN ARROW. > > Additionally, I know, when to give up on a system and return client > money. [=1.5x of my maximum drawdown] > > > > --------------------- > > For position sizing, I think Van Tharp has got some good ideas. > > For pyramiding, I think I need to check this thing out with Monte Carlo. > Need to program it,to test different systems(knowledgeable people might like > to comment if I am interpreting it wrongly, or reinventing the wheel) > > > > Risk Management: MAE scatter plots+ MC Analysis > > > > I hope, you can add something more > > > > --------------- > > It was a very long post, and thanks for read it. > > > > Soham > > > >
