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Dimitri,
"you may see now the max drawdown at 28%.
Is it unaffordable ?"
/**************************************************************/
For some maybe not, for others maybe yes,.... I prefer to keep
drawdowns at 25% or less.
What is your initial maximum loss stop on trade entry ? How do you
protect your capital on the entry signal ? What if the first trade is a
loss ? How about 4 losses in a row ?
A Few Money Management Benchmarks that I consider:
Per Trade risk.............limit to 2 % [or less ] of trading capital
Total portfolio risk......limit to 20 % of trading capital [ 15 % in
uncertain periods ]
Exposure to a particular stock or sector......No more than 25% of
capital; Divest when above 33%
Drawdowns...............25% maximum
Here is an intersting Table:
It shows how much your account has to recover from various sized
Drawdowns
in order to get back to even.
Recovery after Drawdowns:
Drawdowns.................Gain to recovery
5%.................................5.3% gain
10%.............................11.1% gain
15%.............................17.6% gain
20%.............................25.0% gain
25%.............................33.0% gain
30%.............................42.9% gain
40%.............................66.7% gain
50%.............................100.% gain
60%.............................150.% gain
75%.............................300.% gain
90%.............................900.% gain
The results are that if you risk too much and lose, your chances of
full recovery are very slim.
/**********************************************************/
"Do you critisize the cross EMA40 method or the Equity itself ?"
No, next to the actual market charts, equity Charts are the most
important charts that a trader can keep. Equity represents the profit
or loss on a given trade added to the previous equity value. You should
analyze your equity very carefully to get an idea of how your trading is
fairing. If you are trading well, the equity line should be uptrending.
If the trading is poor the line will be falling of downtrending. If the
results are mixed, the line will be moving sideways. Each of thise
scenarios can be very insightful to traders who can step back and look
objectively at the results. Uptrending equity charts are what we all
strive for because this represents winning trades over time. The steeper
the slope the better because that means our money is growing rapidly.
Some techniques that I apply to the equity line are Trendlines and
Moving averages among others . The same analytical techniques applied to
markets can also be applied to equity charts. A simple moving average
taken of the equity line can provide some valuable insight. A trader can
suspend trading or lighten up on position size when equity is below the
moving average. I recommend withdrawing to the sidelines completely when
the equity line is below its moving average and simply continue tracking
the systems trades. When equity goes above the moving average, trading
should resume. This technique ensures capital preservation, in case the
system never returns to profitability.
In the case of Moving averages , we should use a moving average that is
slow enough so the equity line is not constantly crossing the moving
average , but also, make sure it is not too slow, or a series of big
losses will need to occur for the equity to fall below the moving
average. I usually use a length of 10 to 25 days.
Also, Have you experimented with different Moving averge types ?
Anthony
dtsokakis wrote:
> Anthony,
> I thought to begin this thread with a method I use for years, even
> with MSEXCEL the ...happy 99 times [I sold the whole thing when the
> portfolio equity crossed its 15-day MA, after a long extra-bullish
> period, no doubt about it]
> Do you critisize the cross EMA40 method or the Equity itself ?
> In the second case, we will loose the method [I hope to see other
> methods too].
> I would like your opinion for this EMA40 idea.
> Of course, any other criticism is always appreciated.
> The Smoothed Stochastic CCI Equity curve is another [perhaps
> interesting] subject.
> I will post later the full formula to see better.
> DT
> --- In amibroker@xxxx, Anthony Faragasso <ajf1111@xxxx> wrote:
> > Dimitri,
> >
> > Thank you for continuing this Thread, It is an important part of any
>
> > traders success or failure.
> >
> > Strategy and Money management are the two most important parts of
> any
> > trader's overall plan.
> >
> > The best entry rule is useless without proper risk control. You can
>
> > almost perfectly analyze a developing market situation, find the
> best
> > strategy to exploit that situation, and be almost perfectly correct
> in
> > your forcast of what that market will do, and yet still lose money
> if
> > you do not use proper risk control and money management.
> >
> > There are so many variables which constitute Money management , that
>
> > just pinning it to an Equity curve crossover would be dangerous for
> most
> > traders. In the 3 gifs that you have posted , the Drawdowns in the
> > equity curves appear to be excessive even though the equity curves
> are
> > above the 40 period EMA , how do you protect yourself from these
> > drawdowns ? Are you in that much cash to absorb these drawdowns ?
> >
> >
> > Anthony
> >
> >
> >
> > Dimitris Tsokakis wrote:
> >
> > > Another [interesting] example.Athens SE General Index had a nice
> > > fitting to the Stochastic CCI system from A [Aug 2000] toB [April
> > > 2001]. Take the Profits [nearly +60%] and stay in cash.The 40-day
> EMA
> > > cross at B is more than clear.The system is no good anymore for a
> > > quite long period.Slightest attempts for the Equity red curve to
> > > exceed its EMA were very dangerous until mid December 2001.A new
> > > fitting period seem to begin and give some interesting profits
> [+10%]
> > > till Feb 2002 and out of thesystem again and again.The actual
> Equity
> > > curve should point 17000, the equity without this type of
> management
> > > is at 7276.The all-season "blind backtesting" has no relation with
>
> > > real trading conditions.Any excellent system may change.You
> should be
> > > there to stop it, instead of insisting with some fanatism and
> loose
> > > the profits and a part of theinitial equity in the name of the
> holly
> > > system.Dimitris Tsokakis
> > >
> > >
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>
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