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Longevity of a strategy

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mikeyc

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5 years ago #114641

Since there’s no view on how long a strategy might remain profitable, and the goal of everyone here is to make money, would it not be better to push a profitable strategy to high risk, rather than run it at low risk, only to find it loses it edge over months and years?

So if you have faith in the strategy and it look good on a live account after a couple of months, ramp the risk up very high. Withdraw the original capital as soon as you have doubled your money, and then there’s nothing to lose…

Contrast running at low risk (say 2%), it would take years to make any meaningful money without a very large initial deposit, with risk of failure due to the long timescale.

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mikeyc

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5 years ago #134876

You can add other risk to long timescales (trading over years or decades), including brokers going broke or stealing the money/fraud, black swan events (like the CHF debacle), legislation changes on the legality of retail trading.

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Patrick

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5 years ago #134883

Why are you searching for a new way, when there is already way that works? Same as with your try to make high profitable strategy.. isnt it easier to use way which is already tested? (portfolio of strategies which is usually used to minimize the risk and maximize the profit)

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geektrader

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5 years ago #134885

You never know how the strategy will do “tomorrow” and it´s also clear that a portfolio does better than a single strategy in terms of safety, at least that´s my experience. I never have the expectation that the strategy is SO good that it will most likely do totally great the next days or weeks. You can never know this before hand, it´s by random chance and any feeling towards “this must be good comings weeks” is just a human hope that it will do well. Statistically that´s just a wrong assumption. A strategy can fail on day #1, do bad for the next weeks and good the following weeks, or do good from the beginning. But I would never risk a lot of money on a trade because I believe it will go well. If I´d do that, I could do manual trading, which I don´t want at all. Personally I stick to strict money management rules and workout how much of a drawdown the combined portfolio has created in the worst case in the whole backtest, then muiltiply that x2 and then calculate the % risk per trade I am going to trade to hit the historical max DD adapted to my own drawdown tolerance (have made an extra script for that outside of SQ). Then go ahead and trade it, strictly by the rules, with no intervention.

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mikeyc

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5 years ago #134894

Why are you searching for a new way, when there is already way that works? Same as with your try to make high profitable strategy.. isnt it easier to use way which is already tested? (portfolio of strategies which is usually used to minimize the risk and maximize the profit)

Tested where Patrick? Where is it proved?

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geektrader

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5 years ago #134898

I can only talk from my experience in the last 8 years mikey and although I´ve not been making much money until now, I have had strategies I “highly believed” in and that looked great in the 15 years backtest, yet came to WC drawdown and even more in just 2 weeks after their start because of a hefty market change in the underlying symbol. That would have costed me a lot of money if I had just traded that one strategy, but instead I had a mix of others that did NOT reach WC so quick and did go up instead, and hence compensated for that 1 or 2 strategies that did go to WC quickly. That has personally shown myself the importance of having a portfolio instead to rely on one strategy and trade that one high risk on top! Also, you might want to have a read at mechanicalforex.com where Daniel comes to the same findings in many of his live-trading / backtesting scenarios in terms of portfolios versus trading single strategies high risk. For me, it´s long proven that a portfolio (of course of ONLY high quality strategies, not throwing everything in there), is a lot less risky and creates a lot safer and stable growth than gambling with just one strategy that I believe should be great the next weeks / months.

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Threshold

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5 years ago #134900

See signature. What you’re doing is high stakes gambling with higher probability of losing and sooner.
Check out Winning Algorithmic Trading Systems by Kevin Davey if you never read it. More valuable than most forums.

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CMKCMK

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5 years ago #134919

Although I have limited understanding of the insurance industry, but it is a good model we can follow, the underwriters spread their risk thin and wide. They will only underwrites a small portion of a risk. Imagine the Costa Concordia case having only one underwriter, any insurance company will go under (the salvage cost alone was about Ã¢â€š¬1.5 billion). The idea is to live to fight another day, i.e. to have money and mental clarity to trade another day.

 

‘‹Similarly why Martingale strategy won’t work, one can be right a hundred times but it only takes one time to be wrong (out of money) to wipe out the hundred rights. I personally have used Martingale strategies for several months and made money out of it but I was lucky that I got out before probability catches up on me, and the STRESS comes with it is not worth the profit. It also ‘corrupts’ the mind. 

 

A multi account, multi strategies is the way for me, i.e. One account One strategy, this is to avoid the Swiss Frank unpegged scenario (15 Jan 2015), the price just gap over the stop loss. If one having multiple strategies in one account and one of them is the CHF pair, …. Back to square one. That’s just my two pennies’ worth.

 

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mikeyc

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5 years ago #134921

Hi guys,

Some question about portfolios.

 

  1. Do you put them all on the same account with same broker?  Are you relying on some kind of hedging in this case?
  2. How do you allocate capital to each strategy? Some through testing will be better than others? How do you allocate more capital (bigger lot sizes) to better strategies?  Otherwise you are starving the best strategies of capital at the expense or poorer strategies.
  3. Are they are all on the same symbol?  What about when one strategy is long and the other is short on the same pair or an inversely correlated pair you are just wasting capital and taking risk with any gain (any profit from one will be matched by a loss on the other) and using up margin?

Thoughts?

 

Cheers,

 

Mike

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Threshold

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5 years ago #134929

  1. Do you put them all on the same account with same broker?  Are you relying on some kind of hedging in this case?

     

    Yes. No.
    If you run strategies that trade based on % risk you should combine them in the same account. As it grows they will each risk  more$ faster growing it faster. They compliment each other. Eventually the equity looks parabolic.
     

  2. How do you allocate capital to each strategy? Some through testing will be better than others? How do you allocate more capital (bigger lot sizes) to better strategies?  Otherwise you are starving the best strategies of capital at the expense or poorer strategies.

     

    I have more than a few on EURUSD. A scalper that only trades during slow hours after the NYC close, a D1 that only a few signals per year to trend follow, and 2 H1 based strategies that have some correlation but I can live with it. I give the D1 high risk: 3.5%. Scalper 0.5% because I don’t trust it to be honest. 1 H1 1.5% risk and 1 h1 1%. These are not all my strategies it just an example of 1 pair.

  3. Are they are all on the same symbol?  What about when one strategy is long and the other is short on the same pair or an inversely correlated pair you are just wasting capital and taking risk with any gain (any profit from one will be matched by a loss on the other) and using up margin?

     

    Only EURUSD (and soon GBPJPY will) has multiple strategies. Sometimes one is long, sometimes 1 is short. Only the Almighty knows which one will win. If I intervene it automatically makes all my scientific quantitative research obsolete. The pain of watching this my first year was hard, after a while you ignore it and dont care. Its part of letting the portfolio run. As for margin I always have lots of free margin. I dont see having it as a waste. If I used full margin on every trade with 1:200 leverage I’d have no money left in my account.

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geektrader

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5 years ago #134938

@mikeyc: I confirm that, I for example have 2 strategies on EURUSD that have a 0.02 correlation (so basically none at all). It´s sometimes the case that one is long and the other is short, often even at the exact same price.

 

That is barely a waste of money or margin (btw, the margin requirement is usually 0 if you have 2 trades at the same lot-size in different directions, there are few brokers where this INCREASES margin nowadays) or whatever, because still both trades can win! It depends on the SL, when the trailing stop or bar exit comes in, etc etc etc.  You can´t just say that having 2 opposite positions on a symbol is useless. Say for example strategy #1 goes long EURUSD at 1.1000 and strategy #2 goes short at 1.1000. Market now moves to 1.0950 and strategy #2 takes profit. The SL on strategy #1 is 100 pips, so the trade is currently at -50 pips at that point when the other one takes profit. However, the market goes up again now to 1.1050 and strategy #1 takes profit too now. Both strategies had a winner although they have entered opposite trades at the exact same time. See what I mean?

 

As long as the correlation between both is low in the long run, it makes BIG sense to trade both, especially BECAUSE of the low correlation as each one evens out the other ones equity curve and drawdown periods.

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Patrick

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5 years ago #134942

i think we are trading statistics and we have probability on our side-it is just game of numbers.

 

i dont remember i ever had 2 positions in a different direction, but if i had, the trades are based on history and non of them is wasting money. loss will come in future as a profit and the profit is usually bigger.

 

i find out if you have 2 strategies with correlation e.g. 0.35 its better to trade only the better one. less strategies, less trades, less commissions. les correlation, more profit. lees strategies, less problem with MT4. no enter at market, no problem with slowly execution. 

 

MM – i dont think its clever to trade risk in % at protfolio fo strategies (or even generate with thisMM!), you give same risk to strategy which is loosing and to strategy which is making profits….this is nonsense. also they are orders that expires after x bars, so when you change your trade size it can be “late”. Better think and programm your own MM 🙂

 

Strategies works at all brokers almost, no reason to diversify between them. My account is not millions of $ yet to have separate accounts or to trade as a company from tax paradise (but this i plan when the profits will be bigger – why to pay taxes omg 🙂 smart rich people do not pay taxes, and companies like Apple…)

 

To Mikeyc: I think you will believe only if you will see it on your own. I also do not believe in God because i have never seen him. 

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Patrick

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5 years ago #134943

Although I have limited understanding of the insurance industry, but it is a good model we can follow, the underwriters spread their risk thin and wide. They will only underwrites a small portion of a risk. Imagine the Costa Concordia case having only one underwriter, any insurance company will go under (the salvage cost alone was about Ã¢â€š¬1.5 billion). The idea is to live to fight another day, i.e. to have money and mental clarity to trade another day.

 

‘‹Similarly why Martingale strategy won’t work, one can be right a hundred times but it only takes one time to be wrong (out of money) to wipe out the hundred rights. I personally have used Martingale strategies for several months and made money out of it but I was lucky that I got out before probability catches up on me, and the STRESS comes with it is not worth the profit. It also ‘corrupts’ the mind. 

 

A multi account, multi strategies is the way for me, i.e. One account One strategy, this is to avoid the Swiss Frank unpegged scenario (15 Jan 2015), the price just gap over the stop loss. If one having multiple strategies in one account and one of them is the CHF pair, …. Back to square one. That’s just my two pennies’ worth.

 

 

if you have one account one- strategy, you cannot use your capital effectively, can you? because for portfolio of strategies you need less capital than trading each strategy separately…

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geektrader

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5 years ago #134948

Strategies with correlation lower than 0.5 are absolutely fine to trade aside. I would never just trade the “better one”, because the “better one” can be the “bad one” tomorrow and the “bad one of today” can be the “good one” of tomorrow that evens out the losses of the other one. You can never know which one will be the good one going forward. Apart from that I only add good strategies to the portfolio (return / dd ratio at least 30, stability at least 0.98) and that have low correlation with the existing ones. MM is no problem, I trade % per trade and whenever a new strategy gets added, the other strategies will go down in % risk so that the total risk is again my initial risk (e.g. 2% per trade with just 1 strategy, 1% if 2 strategies, etc etc.). This way you can keep all the benefits of having a portfolio that evens out drawdowns.

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Patrick

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5 years ago #134949

i mean better one in backtest not better one at real. 

 

 Apart from that I only add good strategies to the portfolio (return / dd ratio at least 30, stability at least 0.98) and that have low correlation with the existing ones.–realy?i dont have so good system. wow 🙂

 

MM is problem to give same risk to strategy which is loosing and same to winning one. but it depends at everybodys mind.

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