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Hello and thanks for your reply.
I will read up on Stridesman. Thanks for the tip.
Your reply was insiteful but I am a little confused on
something. In the beginning of your message, you state
that max dd will always be broken. But yet towards the
end of the message you say that max dd should not be
broken and if it does, then it was a designing error.
Sorry if I misundersood what you meant.
Sincerely,
Todd Hoff
Date: Mon, 28 Apr 2003 13:04:38 +0200
From: trader@xxxxxxxxxxxx
To: "omega-list" <omega-list@xxxxxxxxxx>
Subject: Re: when a strategy breaks the max drawdown
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----- Original Message -----
From: "Todd Hoff" <gatrboots@xxxxxxxxx>
> In your opinion, when or by how much do you
> realistically stop trading your strategy when it
> breaks the max historical drawdown?
In my opinion, historical drawdown will allway's be
broken so it is to be expected.
However, if you designed your trading system the
right way, you just "be allong for the ride" and stay
where you are. Ofcourse... the big doubt is... did
you design it the right way...
> For example. Let's say, that I back-tested my
strategy
> for the last 5 years and the max historical drawdown
> on this e mini sp system on a 1 contract basis was
> $3,000. I was once told that we should give it some
> leeway when ,in real time trading, it approaches the
> max drawdown. Someone told me once to give it 20%.
So
> in this example, we would stop trading the strategy
> when it reached $3,600. Others have told me give it
> 50%.
So you give it 50%, the DD goes to 55% and what do
you think ? After it reached that, it recovered in 2
weeks and made so much money as it never did before !!
(wich, in a way, is also a bad thing :-)
> I don't know if it is just murphey's law or just
some
> not so great systems, but every system that I have
> traded, always breaks the max drawdown substantially
> and it usually falls apart after trading it real
time.
Don't count on Murphey here. My guess would be that
you are just a poor system designer who does not know
what he is doing wrong.
> It seems that we just never know how much to allow
> the system to exceed the max drawdown.
At this point, now i know you trade the S&P, i would
say
that your historical DD should not be broken. Breaking
your
historical DD means you made a designing error. (this
is
my personal opinion, based on my knowledge at this
point
and i don't want to make this message to long by
explaining
it exactly. Read Thomas Stridsman for my reasons of
thinking
what i think)
> Sometimes I have stopped trading a system too early
,
> when it barely broke the max dd and then recovered
and
> other times, I might have given it even too much
> leeway when it broke the max dd, since it continued
> drawing down even after stopping it.
See, that sounds like designing error :-) You should
know
why and when your DD can be broken. If you don't know
that,
you are shooting from the hip (hope that is the way
it's called :-)
> Your input will be very welcome and helpful to me.
Read the books writen by Thomas Stridsman. I found
them
very valuable. www.thomasstridsman.com i believe...
don't be
fooled by the poor website. Go to www.amazon.com to
read
some reviews of readers.
greetings and good luck
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