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Old Mar 5th, 2012, 11:44 AM   #1
dom993
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Join Date: Jul 2008
Location: Ottawa, Canada
Posts: 834
I identified about a year ago a reversal pattern on CL, which seemed interesting enough for me to start developing an automated system for it.

I won't disclose the specifics of the strategy here, but the idea is to look for for a trend reversal manifesting itself by price making a HH directly off a LL (reversal off a down-trend) - the entry long is in the 1st pullback following that HH (reverse everything for a short after a reversal off an up-trend). I use 2 targets, target-1 is "scalping" and has an average reward of about 85% the average risk, target-2 is "runner" and has an average reward of ~250% the average risk.

This reversal pattern does show-up in all timeframes, and I chose to go as "low" as possible in order to maximize the number of opportunities. I decided to work off a 200-volume chart (CL), which initially seemed a good comprise (I would have used a 100-volume chart, if it wasn't for a limitation of my trading platform which limits the number of bars in a chart to 65,000 - CL can actually go higher than that on a single month on a 100-vol chart).

The real key to this system is pivots identification. I developed a 1st version that I took live mid-September 2011, only to stop trading it early November as the system experienced a severe loss of performance (which really had started early August). That loss of performance did continue into the new year, until around the start of active trading of CLH12 (late January). Meanwhile, I was frantically scrutinizing the charts, looking for clues. But really, I couldn't find any "reason" for that loss of performance, aside from using "bad" pivots.

I then reworked the pivots identification mechanism ... that yielded a significant improvement, manifesting itself not only in the last few months. But it remains that the last quarter of 2011 had the most severe drawdown period of the backtesting history (I currently use tick data since October 2009 for this backtesting, this is 28 months, total number of trades in backtesting is 554).

Attached is the P&L curve out of the latest backtesting. Interestingly, the system recovery -since the beginning of CLH12- is only forward testing.

I am quite concerned by the amount & the duration of the recent drawdown period. I did MC sim using the trade distribution up to the start of the drawdown, for a number of trades corresponding to what happened since (108 trades) ... the 7,000 drawdown is 4 std-dev away from the mean, and the drawdown duration itself (96 trades) is 8 std-dev away from the mean. But I really lack experience to interpret these figures, and I would appreciate your comments/feedback.


To answer some questions I know will be asked:
- the system is all about price action ... it uses no indicator whatsoever, only H/L pivots & projection techniques from these
- system accounts for $5 comms per contract / trade
- system assumes 1-tick slippage on all stop exits
- system entries & targets are LMT, assumed filled only when price trades through the limit
- system P/F = 1.95 on entire 28 months ; it is down from 2.25 on the 1st 24 months of the backtesting period
- system P/F for target-1 is 1.65 on entire 28 months
- system P/F for target-2 is 2.00 on entire 28 months
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Old Mar 5th, 2012, 11:50 AM   #2
HurricaneUS
 
 
Join Date: Aug 2008
Location: New York
Posts: 885
edges come and edges go..in fact, you most likely didn't have an edge to begin with...just a selection bias or curve-fit


go back to the drawing board and develop something else....


move along..move along people...nothing else to see here..
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Old Mar 5th, 2012, 01:23 PM   #3
sheepsucker
 
 
Join Date: Jun 2009
Posts: 214
Hi,

Here you have some more questions

Did you run it trough an optimizer?
Did you test it out of sample before forward testing?
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Old Mar 5th, 2012, 01:25 PM   #4
Zr1Trader
 
 
Join Date: Dec 2010
Posts: 1,827
IMO the best "so called edges" can't be automated.... yet. My .02
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Old Mar 5th, 2012, 01:49 PM   #5
sheepsucker
 
 
Join Date: Jun 2009
Posts: 214
Hi,

Also think the attachment was forgotten
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Old Mar 5th, 2012, 02:51 PM   #6
dom993
ET Sponsor
 
Join Date: Jul 2008
Location: Ottawa, Canada
Posts: 834
Quote:
Quote from sheepsucker:

Hi,

Here you have some more questions

Did you run it trough an optimizer?
Did you test it out of sample before forward testing?
No optimizer, but a lot of manual testing to find out the best settings.

I reworked the pivots based on observations made in the drawdown months ... so in a sense, the prior 23 months could be considered as out-of-sample from that point of view, but certainly not from a basic system point of view.

The following figures are month by month difference in P&L between the new version & the old one:

-970
4150
-1320
-1090
-210
510
410
820
-820
-570
590
-210
380
40
1320
-920
6240
-2080
-2930
860
-40
-110
1630
3860
820
2360
3210
1770
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