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I really love your thread and the way you determine your optimal position size. I am following a similar approach using Monte Carlo simulations and the maximum drawdown found via those simulations.
The 38% drawdown is something i would not want to see myself. Of course i am not suggesting that it is not right for you, i am merely curious as to why it is acceptable for you.
From your posts i assume you plan on rerunning the analysis with new data periodically to avoid "deviation from reality" in your position sizing. Is that correct?
Do you have a system stop loss over periods of time? Personally i am currently thinking about stopping the system when it is down a given amount (or % value) in X amount of time (1 week for example). I would the analyse the cause for this - maybe the system stopped to work, the markets changed fundamentally, flash crash, or maybe just some unprobable string of losses. If i find that i should trade the system despite this massive drawdown, i would start it again - with a system stop loss found by analysis including the new data.
Lastly, i recently read Van Tharp's book, and it really is a must read. Nassim Taleb's Fooled by Randomness is also good, although more on the philosophical side of things (but it nevertheless changed my approach to things).
What are your thoughts?
"I don't even see the code anymore. I just see blonde, brunette, redhead..." -Cipher, The Matrix
Thanks for the kind comments, @ahwii. Here are some answers:
1. The 38% drawdown is OK to me, mainly because I trade a bunch of different strategies, and diversification will help mitigate this large drawdown. I agree it is big, though - maybe I should be taking less risk.
2. I might change my position sizing ONLY if the system does really well. In that (hopeful) case, I would scale back the risk I am taking. If it happens, I will detail it here.
3. My "system stop" point is a $5,000 drawdown, based on trading a single contract. The will be the maximum. I may cut it shorter, probably not, but if I do I'll detail my reasoning in this thread.
4. I like most of what Tharp and Taleb have to say. I don't agree with everything, but their works stimulate (and sometimes change) my thinking on things.
I am always trying to look at correlation across a portfolio. Can you briefly tell me what inputs you are using and if you are generating this data yourself and piping it to Excel, or some other tool?
My hurdle has been trying to feed a dozen strategies (trade output) into Excel, having to do it manually is less than ideal.
I have threads on this, somewhere... basically I found it easier to write my own output. Unfortunately, still terrible. I want actual portfolio management, backtesting and reporting built-in to the platform, but there is no demand for it apparently.
It would be nice if you could present it in the same format s the daily combine report or at least on a trade by trade basis. It makes it easier for us novices to follow.
Thanks for the response!
So the drawdown number is for one strategy, which makes the overall max drawdown smaller because the strategies are uncorrelated. Seems i have misunderstood your posts as i thought it was for the whole portfolio. Makes sense now, thanks for clearing that up.
Thanks for addressing the other points as well, now i better understand what you are doing. Looking forward to you posting here!
Have a nice weekend
"I don't even see the code anymore. I just see blonde, brunette, redhead..." -Cipher, The Matrix