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Chris Edwall wrote:
>
>snip
> Question for you however. You indicated that you thought your mistake was
> under capitalizing, I think. But if you had a 75% drawdown, then I would
> think the system is definitely "broken," and that THAT was the problem. And
> you mentioned that the vendor claimed for the year that it was profitable.
> Is that because they ran it over multiple commodities and you were supposed
> to do the same?
Commodex is a low %win system. That means that risking 5-7% per trade
was too much, based on what I've read. I believe that was one problem.
The other was not having enough cash to make it thru the drawdown in the
portfolio that I did choose. This is related to the risk per trade but
obviously also the number of commodities in the portfolio.
I remember that Commomdex had numerous good trades in a number of the
commodities that were not in my portfolio. The good ones occurred in
cotton, coffee, bellies, currencies, etc if I recall correctly.
However, I had noticed that these commodities often risked about $900
per trade and, even without much knowledge of mm, I thot this was too
much for my account. So I avoided most of these.
I know that the bottom line figure for the end of the year, published on
their website (commodex.com) was a large positive number. (They have a
bad procedure in how they report stopout prices; this definately makes
their real performance worse than what they list, but probably does not
take it from + to -.) As it was in other years it was the difference of
large numbers. I believe that after the whole year even "my"
commodities were profitable.
I think a risk/trade limit may not be enough, even tho its' probably the
most important parameter. But suppose you have a 10K acct., and could
find 10 commodities with margins of 1K that you actually could trade
with 2% per trade. Obviously if the system was in all of these at once,
as soon as you have one loss, you would have to cross off a commodity
from you portfolio, since you wouldn't have the margin. It therefore
seems like you have to have a portfolio limit also. And that it has to
be sized to your (capital-expected drawdown) so you never have to cross
something off. This sounds obvious now, but back then i really didn't
realize the size of drawdowns that commodity trading in general, and
trend following systems in particular, have.
With my trading at that time, as I crossed off a particular commodity, a
number of times a nice size profitable trade came along.
In short, I think Commodex made money overall. I think a subset
portfolio would have worked but only with more reserves for drawdowns.
In other words I should have had a smaller portfolio.
Which brings up a point about subset port. I think you have to be
careful here. The vendor may have chosen the subset because it "trades
well together", i.e., produced a low drawdown. But, since dd's are a
result of the *order* of the trades not just the average size, I believe
they are very irreproducible. If the subset was chosen by dd it's a
form of curve fitting in a sense. I think you have to allow for a much
larger dd.
Conrad Bowers
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