i have the same paradox too, what i found is that without taking on an inordinate amount of risk its actually quite tough to produce decent returns, same thing another paradox -- long term or short term, short term u get more false signals but faster exits when things go wrong whereas long term u get better signals but have to endure serious drawdowns, during drawdowns u start to doubt yourself whether your model still works doesn't matter how much testing u've done
Weekly Update for week 2/50 ended 1/28/2012 Nice week, up 9K (4.7%). A little step towards getting my year back on course. Was away for much of the week on training, but managed to make it on 5 discretionary trades, while breaking even on 2 automated trades. Code: Opening Balance: 189,279 Net gain for the week 8,860 ------------------------------------------------ Net Balance: 198,139
Without pointing to that obvious point of poor risk management, I think the even larger problem is not having a systematic approach. Risk management by itself does not have anything to do with success. Neke, why haven't you tried to make your automation more profitable? He's likely not to answer, and hasn't spoken to me in over two years, but I'd still like to know. Had he reported his profit factor at 1.2 a long time ago, it would have been fairly easy to predict this decline but a lot of people didn't need this information to know that a large drawdown was likely. I wouldn't have known for certain unless he did disclose his profit factors, and without naysaying his run was truly remarkable, but has ended. If you'd like to respond to why you haven't tried to perfect your automation, I'd appreciate some type of response, Neke.
I disagree. Risk management first, system second. All systems fail at one point or another, having resources to sustain and adjust to bring the system to a new higher level, is what keeps winners in the game.
Great point... I haven't seen neke respond to anyone... why post a thread about a user-induced drawdown and not respond or take any insight? I'm also curious how an automated system makes two trades a week and is profitable. Those types of quarterly and annually cumulative profit curves look like rickety stairsteps - or in neke's case, a chaos wave. True points... but either way, a trader is dead without one of them.
I've never gotten the "risk management on its own will save the trader (from losses)" because they're dependent on each other. His strategy does not appear robust, but without the statistics of his hypothetical performance and lack of information about what's happened in real-time, there's not much to say if he doesn't want to talk about it. His system might be dependent on his risk management, and his discretionary trades have more to do with that by itself than the system and risk combined.
Neke.. I'm going to provide some of my thoughts * I do not believe that focusing on profit factor is the most important factor for ones success as a trader. You note yourself that your best years had a low profit factor. I've found some of my best months had a low profit factor. In fact, focusing on obtaining a high profit factor (taking only best trades) can be more risky then taking mediocre trades because as the sample size decreases your risk per trade goes up. This is the reason that, for example, my rule-based trading system makes a lot more per trade but has a lower risk adjusted return then my discretionary performance. Likewise, average profit per trade need only cover expenses and provide for profit. You don't need to make much. * You're real problem is that you're edge is insufficient for your leverage you are using. I have monitor all the best systems. Out of the best traders, the good traders will only do a 1/1 risk/reward over the long run. That is making 50% return with 50% DD. This is the GOOD trader. The best traders will only do a bit less then 2x risk/reward. That means 200% return with a 50% drawdown. Let's factor this in, if you are trying to make 100% per year then you only need need to make 8.3% per month. Indeed, you might make 30% in one month but you don't really need to expect it.. if you can do 4% to 5% per month you are doing good. * Max risk per day should be AT MOST 5% of your account. I'd say 1.5% - 3% in your case. * Hope you find some value in this. I think you are on right track with starting to really look deeper into performance. Good luck.. ----