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At 08:34 AM 3/16/98 -0600, Tim Morge wrote:
> And yet, over time, the thing makes the most difference in my
>trading is money management. Pure and simple. Boring. Easy to describe.
Monte then wrote:
> Tim I have sometimes reached the point where I almost believe random walk
>with good money management can achieve profitable trading. By all means,
post away.
**********
Here's a demo on the use of *basic money management* to outperform the
market. Used a simple periodic pattern to trigger a mechanical entry into
the S&P 500. Not a totally random entry, but a very basic brain dead
periodic time related pattern. Put a fixed money management stop under the
pattern and ran the system backtest. It consistently outperformed the market
when measured against an equivalent period of 'buy and hold'.
There are two periods shown below due to the limitation on the number of 15
minute bars in the test. BTW, there is no TS bouncing tick or trailing stop
bug at work here. It's an ordinary money management stop only, no profit
targets, no trailing stops, exiting only by the money management stop.
The periodic pattern is 'buried in the noise' of the stock futures and not
directly tradeable mechanically, or easily extracted. But it's buried there
nonetheless. Without the use of the money management stop on the cash index,
the periodic pattern is basically useless.
Unfortunately, the built-in stop capabilities of TS provide limited and
sometimes unreliable money management backtesting capabilities. Hopefully
that'll be fixed in TS 5.
To me, even on the question of systems vs. discretion in trading, the
concept of *money management* is still the key to trading, no matter how you
slice it.
Here are the TS generated test results of the periodic pattern with MM stop
vs. Buy and Hold.
Periodic $SPX-15 min 04/08/96 - 02/20/98
Performance Summary: All Trades
Total net profit $ 347365.00 Open position P/L $ 4930.00
Gross profit $ 732285.00 Gross loss $-384920.00
Total # of trades 491 Percent profitable 43%
Number winning trades 211 Number losing trades 280
Largest winning trade $ 17080.00 Largest losing trade $ -2100.00
Average winning trade $ 3470.55 Average losing trade $ -1374.71
Ratio avg win/avg loss 2.52 Avg trade(win & loss) $ 707.46
Max consec. winners 6 Max consec. losers 7
Avg # bars in winners 32 Avg # bars in losers 10
Max intraday drawdown $ -19020.00
Profit factor 1.90 Max # contracts held 1
Account size required $ 28020.00 Return on account 1240%
____________________________________________________________________
Buy & Hold $SPX-15 min 04/08/96 - 02/20/98
Performance Summary: All Trades
Total net profit $ 157555.00 Open position P/L $ 37635.00
Gross profit $ 168050.00 Gross loss $ -10495.00
Total # of trades 7 Percent profitable 86%
Number winning trades 6 Number losing trades 1
Largest winning trade $ 54700.00 Largest losing trade $ -10495.00
Average winning trade $ 28008.33 Average losing trade $ -10495.00
Ratio avg win/avg loss 2.67 Avg trade(win & loss) $ 22507.86
Max consec. winners 5 Max consec. losers 1
Avg # bars in winners 1517 Avg # bars in losers 1653
Max intraday drawdown $ -29695.00
Profit factor 16.01 Max # contracts held 1
Account size required $ 38695.00 Return on account 407%
______________________________________________________________________
Periodic $SPX-15 min 05/11/94 - 04/09/96
Performance Summary: All Trades
Total net profit $ 129335.00 Open position P/L $ 0.00
Gross profit $ 243400.00 Gross loss $-114065.00
Total # of trades 160 Percent profitable 49%
Number winning trades 78 Number losing trades 82
Largest winning trade $ 11330.00 Largest losing trade $ -2100.00
Average winning trade $ 3120.51 Average losing trade $ -1391.04
Ratio avg win/avg loss 2.24 Avg trade(win & loss) $ 808.34
Max consec. winners 7 Max consec. losers 7
Avg # bars in winners 121 Avg # bars in losers 26
Max intraday drawdown $ -11025.00
Profit factor 2.13 Max # contracts held 1
Account size required $ 20025.00 Return on account 646%
_________________________________________________________________
Buy & Hold $SPX-15 min 05/11/94 - 04/09/96
Performance Summary: All Trades
Total net profit $ 99135.00 Open position P/L $ -375.00
Gross profit $ 109005.00 Gross loss $ -9870.00
Total # of trades 8 Percent profitable 88%
Number winning trades 7 Number losing trades 1
Largest winning trade $ 23280.00 Largest losing trade $ -9870.00
Average winning trade $ 15572.14 Average losing trade $ -9870.00
Ratio avg win/avg loss 1.58 Avg trade(win & loss) $ 12391.88
Max consec. winners 5 Max consec. losers 1
Avg # bars in winners 1440 Avg # bars in losers 1626
Max intraday drawdown $ -15090.00
Profit factor 11.04 Max # contracts held 1
Account size required $ 24090.00 Return on account 412%
Michael Paauwe
mpaauwe@xxxxxxxxxx
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