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DStan34930 wrote:
>
> In a message dated 98-05-15 02:49:03 EDT, you write:
>
> << Thanks to Michael Paauwe for reminding us that we should compare system
> results to buy and hold. However, we need to be aware that TS does not
> consider a drawdown from an equity peak as long as the trade is still
> profitable. This can give us a misleading picture of the risk. From
> Michael's stats: >>
>
> Excellent unselfish, experienced, and extensive criticism from Michael and
> good follow-up by you Dennis.
> The art of developing entries that hold up and repeat over much longer time
> periods than reported here is difficult and essential.
>
> Michael. Although all else holds up as being invaluable information, I
> disagree
> that day performance need be compared to buy and hold as far as bottom-line
> profit. I have a distinct drawdown tolerance and a preference to go to bed
> with no
> open positions. if I can clear sufficient profits daytrading and meet my above
> needs, I could care less what I miss with buy and hold.
>
> Dennis. I either disagree or don't understand your point on the risk issue.
> As a daytrader of my own mechanical system, (the only standard I have to go
> by) there is a
> distinct difference in drawdown while in the red and drawdown while in the
> black.
> The two must be weighed against each other before incorporating an entry
> into a system if you have a known tolerance level as I do.
> TS reports results while drawdown is in the red. There is nothing misleading
> about it. It reports distinct drawdown albeit a single trade or
> series of trades.
> My tolerance level while in the red is completely different from that when
> in the black. And I know my tolerance level. When system backtesting, I have a
> distinct cutoff for in-the-red drawdown and regardless of whether or not an
> entry
> is profitable or not, I will not employ it in my system if in-the-red
> drawdowns
> exceed my known tolerance levels.
> When exiting or reversing a trade, the decision is seldom weighted upon
> profit
> or loss but market conditions instead.
> I understand the value of knowing what latitude to give a trade to let
> profits run.
> Is this the risk you are referring to? If so, that risk is likely less than or
> equal to
> the risk reported in the TS drawdown figures if the system has been tested
> over sufficient amounts of data. Yes? No? Maybe?
>
> Note:Because of the TS bouncing tick deficiency and the advantage of
> developing
> a system over static historical data, I always double the reported
> drawdown
> and halve the reported profits. If those figures hold up as tolerable,
> I'll try it
> on the realtime market. Even this is no guarantee, but at least, it
> invokes
> the next step in confidence to employ it.
>
> Dave StanleyDave:
The point you make about tolerance levels is probably the most valid in
relationship to any trading. Especially when it comes to style of
trading. I for one could never be a buy and hold trader, for that matter
a long term trader. I don't have the patience and therefore have to
daytrade. My system, with its built-in filters etc. give me what I need
in relationship to the tolerance you speak of. And yes, those tolerances
are different when it comes to in-the-red or in-the-black.
As for building and testing any system the proof is not in just will it
hold up for long periods of time, but does it hold up to your own
personality (style) of trading? You can buy any system from many
vendors, but do they give you the ability (code) to understand the logic
and does it fit you style of trading. If both of these factors are true
then maybe the system is worth purchasing. The same holds true for
system that you develop for yourself.
Lamont Cranston
"who knows what evil lurks"
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