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Some random points.:)
Although you may be personally uncomfortable with the risk, you should
know that even the "legends" who have successful long-run
(multi-decade) returns of 20%-30% annually have experienced maximum
drawdowns of 45%.
Ignoring the psychological barriers and simply focusing on the money,
a system with 20% annual returns and a max. system drawdown of less
than 50% is good. A 30% annual return with a max. system drawdown of
under 40% is ideal.
Test periods of under a decade aren't statistically meaningful, so
don't be discouraged by methods that appear better than yours if they
haven't been subjected to honest testing. Maybe they are better, or
maybe they'll regress to the mean. (Sorry...not my fault if the
necessary data isn't always available.)
If you're always trading a portfolio of stocks, a relatively-high
drawdown on any one stock (40% or 50%, for example) is unpleasant, but
isn't a trading disaster, either. A good thing, too, because losses
like that WILL be unavoidable and unforeseeable.
Your point about the terrible performance with 10% stops is
well-taken, and I've seen it, too. Too-tight stops can protect you
from big losers, but they also bounce you out of the big winners that
make a system profitable.
My advice: Look at your system stats and ask yourself what they're
telling you. Why does your system work? How does it work? What
market principle is captured by your system? If you meditate on WHY
your method works, you can safely "tweak" it to improve its performance.
Luck,
Sebastian
--- In amibroker@xxxxxxxxxxxxxxx, <professor@xxx> wrote:
>
> Phsst and Dingo and Mark,
> I have backtested using a trailing 10% stop and a 10% stop. Both
were terrible. My profits were considerably less. I had more trades
and my winning % dropped. I didn't write down the figures because they
were terrible. I guess that my formula requires that you handle the
losses to work. As I said in my last post, I will try to improve it. I
did backtest it using $100000 from 9/28/82 until 12/31/1999 to see
what happen before 2000. The results were
> Profit = 523,614 Annual return = 25.78% Winning % = 77.08
System DD = 38.52
> Basically it is the same. Therefore, it was consistant for over 20
years. The only problem is the risk. I will work on it and post the
results if and when I improve them.
>
> Thanks again,
> Tom
> Subject: [amibroker] Re: Is this a good system?
>
>
> > Dingo mentioned stops. You could try percentage loss, either fixed
> or a function of ATR....
>
> My own experience with stops on actual individual trades (and
> backtested results) over quite a long period of time has proven that
> no matter how well you engineer your stop loss system, you are going
> to experience the occasional 35% to 60% 'overnight' loss on individual
> stocks that either announce poor guidance or that have been the
> victims of targeted attacks from short sellers who have managed to
> locate a public 'mouthpiece' to publicize their 'rumors'.
>
> Back in the middle to late 80's, a fella named Dan Dorfman on CNBC
> used to regularly cost me high percentage losses on my individual
> stocks by broadcasting rumors that were fed to him by people that I
> later learned were manipulators who had channels to Dorfman in order
> to publicize the messages they wanted publicized.
>
> The smaller the number of trades in your system, the more closely the
> correlation will be between MaxTradeDD and MaxSysDD.
>
> In my systems, I seek larger number of trades so that the occasional
> 50% "Trade" drawdown is offset by the greater number of trades whose
> stability prevents a large MaxSystemDD as a result of individual Trade
> Drawdowns.
>
> Insofar as Dingos comments about 5% and 10% system drawdowns, I agree
> with him.
>
> Even when I am trading a 'system'... If I experience system drawdowns
> of a relative small percentage that correspond to overall market
> volatilitiy, I'll start downsizing my exposure (abandoning my own
> system). I did this in early 2000 and was happy to ignore my systems
> during the major market stumble during that time period.
>
> Unfortunately, I have not been able to automate a backtest system that
> would have taken me out of the market during that timeframe.
>
> I'm not offering a lesson or instruction, but am just sharing real
> experience.
>
>
>
>
>
>
>
> Please note that this group is for discussion between users only.
>
> To get support from AmiBroker please send an e-mail directly to
> SUPPORT {at} amibroker.com
>
> For other support material please check also:
> http://www.amibroker.com/support.html
>
>
>
>
>
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