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Dingo,
Take this on your walk with you …
Let’s take our nice simple trading system that comes w/AB … KST … and use it to trade CSCO over the past 10 or 12 years.
KST = (MA(ROC(Close,10),10) * 1) +
(MA(ROC(Close,15),10) * 2) +
(MA(ROC(Close,20),10) * 3) +
(MA(ROC(Close,30),15) * 4);
Buy = Cross(KST , MA(KST, 109));
Sell = Cross(MA(KST , 120) , KST);
Nothing fancy there …
Now if I set InitialEquity to $10K and PositionSize to $10K I get the results in the first attachment i.e. max dd = 20% Not wonderful, but maybe tolerable by some.
If I eliminate the PositionSize statement I get the results in the second attachment i.e. max dd = 64%. I suspect not tolerable by anyone.
If I decide I liked this system based on the statistics related to the PositionSize test and start trading it tomorrow what max dd can I expect before I’m sure the system has blown up ? 20% ? or 64% ?
Worse yet is the belief IMHO that the whole initial process of building, testing and optimization of the system when done based on fixed dollar amounts is erroneous for the reasons I’ve stated and that are verified by the attachments, as if you went back and took what could be optimized on in this system and did so you would come to two totally different parameter settings based on using fixed dollar amounts .vs. using full compounding.
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