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Let me give you a sample of a system I am playing with...I want to show a certain type of pyramidding and if it is mathematically safe.
These are the results of my simple syustem testing on CORN from 1983 to 1998
Total net profit $ 36107.00 Open position P/L $ 1187.50
Gross profit $ 56481.00 Gross loss $ -20374.00
Total # of trades 123 Percent profitable 47%
Number winning trades 58 Number losing trades 65
Largest winning trade $ 4737.50 Largest losing trade $ -1100.00
Average winning trade $ 973.81 Average losing trade $ -313.45
Ratio avg win/avg loss 3.11 Avg trade(win & loss) $ 293.55
Max consec. winners 5 Max consec. losers 8
Avg # bars in winners 37 Avg # bars in losers 15
Max intraday drawdown $ -2800.00
Profit factor 2.77 Max # contracts held 1
Account size required $ 2800.00 Return on account 1290%
So an account of $2,800 would of turned into $36,107 (I know we would have a larger account than MaxDD in real life)
I then add the following line into the trading system
if netprofit <= 12000 then value1=1;
if netprofit > 12000 then value1 = (netprofit/6000);
If bla bla bla then buy value1 contracts tomorrow at open;
If bla bla bla then sell value1 contracts tomorrow at open;
Now here are the NEW results
Total net profit $ 249419.50 Open position P/L $ 49875.00
Gross profit $ 524593.50 Gross loss $-275174.00
Total # of trades 123 Percent profitable 47%
Number winning trades 58 Number losing trades 65
Largest winning trade $ 108962.50 Largest losing trade $ -59475.00
Average winning trade $ 9044.72 Average losing trade $ -4233.45
Ratio avg win/avg loss 2.14 Avg trade(win & loss) $ 2027.80
Max consec. winners 5 Max consec. losers 8
Avg # bars in winners 37 Avg # bars in losers 15
Max intraday drawdown $-119637.50
Profit factor 1.91 Max # contracts held 61
Account size required $ 119637.50 Return on account 208%
I now make a quarter of a million. The maxDD is $120,000 BUT...I feel this is an artificial MaxDD...since I only buy more contracts if I have more NETPROFIT
1. Is this LOGICAL?
2. Is the MaxDD $2,800 or $119,637 or something in between?
3. I think Kaufman would argue that in the first system risks are constantly decreasing, but in the second system...risk is a constant....does this constant risk mean this is a time bomb? Got any simple math to prove it?
4. Can a MonteCarlo simulation be done on this system or does this again not work since postition size increases with netprofit...so the odds of a huge drawdown really early actually don't exist since the contract quantity traded early on would be very low.
5. Can this system be traded with $2,800 or even $10,000...rather than $120,000?
HELP! I have never seen this written about in books or seen in systems.
thanks
Andy
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