Hey guys, I ran a few backtests a while ago (but with limited flexibility in terms of parameters), and was able to find a strategy with a pretty high W/L % (based over 10 years od DOW data) Now, do you guys think its possible to use the strategy which gave the W/L % and apply a reward/risk ratio of 3:1 (if I could interpret this into the backtest I would but unfortunately my skills are not quite there yet) I will begin paper trading this , and see how I get on , but was pretty interested to see if this is how some other traders evolve their system. Cheers Benji
you have completed first step now you need to forward test on paper. If produces similar results then forward test real money if still produces same results split your NAV in 10 pieces and risk 10% per trade. You do not have unlimited time as system will stop working and you be back to nothing.
Hey toolazy, Forward testing is underway. I certainly agree with you about splitting my capital into 10 (or there about, Splitting the 10% into to chunks of 5%,5% (Or whatever % of capital I use, I will split into 2 equal sizes.) Will suit me more. Putting first 5% on a trade, once I have made 1/3 of my expected return, adding the other 5% and upping my stop loss + R:R ratio to 2:1 based on the new average price of the shares. (seeing as I have made the first part of my 3:1) If the first 5% fails... well it fails . Other 5% waits its turn. Thus limiting losses , decreasing risk etc... Here's a quick and very basic spread sheet I whipped up to calculate a quick 3:1 RR Hope someone finds it useful , just a quick guideline. I calculate my stops based on volatility so I have left it up for the users interpretation. Cheers Benji
Annualized return 27% with max drawdown 46% - not a good sign if you're trying to increase reward to risk ratio.
Hey BigFunky, Yes I realise that, but it was the entries I was more focused on. The exit strategy I have, and the exit strategy with the back test are different due to me being unable to quantify the exit side of my strategy. So in the end the Annualised return and max DD , MAR ratio etc is not really relevant from the attachment I posted earlier. What is important to me was the number of Entries which turned profitable.
Using 10% of NAV is certainly too high. Splitting it to a five and five for the add on helps and you should, at a minimum, do that; or better yet consider three and three. There is always the risk that results will change but the first round with real money is a dangerous time and, as my friend Tommy Doyle was prone to say some hours deep into the night as we drank -- piano, piano -- meaning (for those without a musical bent) softly, softly. You must have the confidence that if you miss this bus another will come along. Protect the capital for it is a hard thing to replace and essential for success.
looking at it again.... I thought 71% winners at win:loss = 3:1. If that is edge, then 10% of NAV is appropriate in my books. Such edges do not stay out there for long and you have to go for "get rich quick". Have to act while sun shining. but edge seem to be much less.
Not just long-term. A trend follower tends to relies on a few high r:r winning trades for profitability that pay for all the losers and then some, has a very high r:r and a low %. A range trader that takes profit quickly has a lower r:r on the winning trades and therefore needs a higher % to be profitable.