Forums > Technically Speaking > Strategy (System) Design > what the hell happened!?!?

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Old Dec 23rd, 2011, 05:11 PM   #1
Join Date: May 2010
Posts: 345
I've been doing an automated strategy that has been profitable for 2 years and all of a sudden this month it has been catastrophic in losses. I did 4 years of backtesting with nothing that suggests this would happen. What the f*ck do I even do now? My account is destroyed. I'm not sure if I should just quit or attempt a new approach.

I followed my strategy to the letter and the backtesting was done in a precise and logical manner. How does a system all of a sudden do that?
Old Dec 23rd, 2011, 05:20 PM   #2
Join Date: May 2002
Posts: 7,423
happened to me few times in past decade..
пизда рулю..и седлу
Old Dec 23rd, 2011, 05:33 PM   #3
Join Date: Jul 2008
Location: Ottawa, Canada
Posts: 892
It happened to me a few times, too.

To give myself some objectivity in assessing whether a drawdown is "reasonable" or catastrophic, I run MonteCarlo simulations using the trade distribution out of backtesting, take for "MADD" (Maximum Allowable DrawDown) the mean + N*std-dev of the MonteCarlo sim's max drawdown. I usually run the MonteCarlo sim for a number of trades corresponding to 1-year worth of trading, and typically use N=5 to define the MADD. If a system's drawdown gets to the MADD, I consider it dead and stop trading it.

If you wish so, provide the backtesting trade distribution, an approximate number of trades for 1-year worth of trading, and I will run the MonteCarlo sim for you.
Old Dec 23rd, 2011, 05:40 PM   #4
Join Date: Jul 2011
Location: inside your bubble
Posts: 551
You did only 4 years of backtesting, but maybe you should've done 14? Yep thats right, strategies need to work on the ancient data as well, and good ones do. On the other hand, some of the top systems have very bad months where they look broken, and one month later they start working again. This december i've seen more automated strats (futures) fail than other months historically. Not mine, but other people's. Maybe the market is really weird for some of the bots right now. Who knows. There's many ways to judge the robustness though. You can look at where the trades are falling within the distribution of the backtest and forward test and if the mean center of gravity starts going weird, or stddev is way off, it's a different problem and a warning.

Switch it off and paper trade it for 20 days, see what it does.
Old Dec 23rd, 2011, 06:08 PM   #5
Join Date: Feb 2004
Location: Frederick, MD
Posts: 2,686
You silly thing OP. You brazenly assumed that past performance was a guarantee of future results. Not to mention you had no Plan B for what happens if your system stopped working.

Quote from Bob111:

happened to me few times in past decade..
пизда рулю..и седлу
I like how the narrator yells "what the fuck" in English.
Old Dec 23rd, 2011, 07:11 PM   #6
Fractals 'R Us
Join Date: Aug 2008
Posts: 2,357
It takes a whole lot of work to get to the bottom of what makes price move. You are omitting something from your thinking that is obviously an essential component vector of price moves...

I, and probably about anybody that designs systems, have seen strategies that were quite good at times but were "fragile". I had one based on volume bars that could backtest great on a days worth of data but if I changed the start time of the price data it would not work well at all!! That is very fragile!! Obviously it was not a strategy that was worth anything but it demonstrated very clearly to me just how much success can be simply built in by accident.
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