Wayne, Just from your description it would seem to me that you've stumbled upon what I would call 'market-making' where you are providing liquidity and being paid a premium because of it. These systems often have amazing backtests with 45 degree angle equity curves. Could this statement characterize your system: 1) Looking for large deviations from some sort of dynamic target level, MA, highest high, stochastic reading. It sounds like you also have some sort of drift filter and trade only in one given direction at a time. 2) You are scaling into positions so your first entry is not always your best. If this is way off then perhaps your onto something completely new. Otherwise somethings to keep in mind: Top/Bottom ticks will severely alter your results. You should adjust for these in your backtest. I'm also not entirely familiar with the order systems for FX and specifically with your broker. Where does your order reside, on the brokers book or actually quoted on the InterBank market? How will you be placed in the queue? Your fills will probably deviate from the backtest so if you have a small profit target then you probably will be disappointed (but perhaps not entirely so) with your results. Keep us posted when you go live!
Well this looks like just another martingale strategy that averages losing positions. Also known as "grid trading" in some less known forums, discussed to death. Personally, I don't see value in this approach. If you think of it, it's a reverse of trend-following. Trend-following loses most of the time and profits during fat-tail events, you profit most of the time and get slaughtered during fat-tails. That's the "secret" of 98% winning rate and 2% of losing, sure the number looks small, but it's by no means insignificant. And here's the result (which is by the way reminiscent of any other martingale strategy): This also suggests that you are stopped sooner or later (which btw also messes up your "no slippage" idea). You cannot average loser to infinity. You also covered only 5 years and ignore the fact that there are very high sigma events that by assumed normal distribution should not happen at all, or should happen only once in a few hundred or thousand years. Consider this: Here you are describing non-random process. Random process is the one that cannot be explained. For example, you cannot explain why a coin toss ended up heads or tails. That is why it is considered random. (actually it can be explained, but the explanation would be extremely complex and long and probably impossible with today's technology)
You must understand that this model does not get "slaughtered" during fat tail events. It always profits from them and every other trade. Remember 99.99% profitability. That includes the fat tails. The only difference during fat tails are that the level of risk increases. More precisely, every trade has a MFE (Most Favorable Excursion) and MAE (Max Adverse Excursion). Those fat tails have a much higher MAE than 98% of the trades. But still profitable. Never take a losing trade. That's the first rule of the strategy. Actually, there a handful of losing trades out of the 5,500 trades. They are very small losses. That's why it comes to 99.99% Once you commit to the idea of never accepting a losing trade or only very small losses it will change your trading forever. Wait! I'm giving away my trading rules. I better shut up. Frankly, the fact that none of the trades loses but always win at least a few pips does change how you look at risk management. It means that you never have any Max DD where trade after trade consecutively loses more money until your account is wiped out. That's why, in the past, I did monte carlo analysis, etc. to manage that risk. In this strategy, the only risk is the MAE. Since it uses variable positions, I have to consider that enough margin and account size remains to handle the MAE for those outlier trades. One beautiful thing about Forex is the micro lot trades. So my point was, as long as the outliers serve as risk in planning money management and position sizing, there isn't a problem. The reason I work on eliminating them is because we could risk a little more on each trade and thereby increase the returns. One observation is that most of the brief periods of extreme volatility occur between 9 and 11 am eastern time US. That corresponds to when economic reports are released. My area of research is narrowing down statistically which days of week, time of day, and day in the month when those tend to occur to sit out the market. The other is to get a hold of historical schedules for economic reports and see if using those to avoid wild days makes a difference. The question is: If you systematically avoid them, does it do more harm than simply avoid those fat tails by eliminating too many other profitable trades. There's always a risk/reward question. Wayne
100% Profitable Took all of 5 mins too! All Trades Long Trades Short Trades Total Net Profit $1,391,354.00 $1,391,354.00 $0.00 Gross Profit $1,391,354.00 $1,391,354.00 $0.00 Gross Loss $0.00 $0.00 $0.00 Profit Factor n/a n/a n/a Roll Over Credit $87,147.00 $87,147.00 $0.00 Open Position P/L ($567,506.00) ($567,506.00) $0.00 Select Total Net Profit $1,201,449.00 $1,201,449.00 $0.00 Select Gross Profit $1,201,449.00 $1,201,449.00 $0.00 Select Gross Loss $0.00 $0.00 $0.00 Select Profit Factor n/a n/a n/a Adjusted Total Net Profit $1,368,222.52 $1,368,222.52 $0.00 Adjusted Gross Profit $1,368,222.52 $1,368,222.52 $0.00 Adjusted Gross Loss $0.00 $0.00 $0.00 Adjusted Profit Factor n/a n/a n/a <b>Total Number of Trades 3618 3618 0 Percent Profitable 100.00% 100.00% 0.00%</b> Winning Trades 3618 3618 0 Losing Trades 0 0 0 Even Trades 0 0 0 Avg. Trade Net Profit $384.56 $384.56 $0.00 Avg. Winning Trade $384.56 $384.56 $0.00 Avg. Losing Trade $0.00 $0.00 $0.00 Ratio Avg. Win:Avg. Loss n/a n/a n/a Largest Winning Trade $2,034.00 $2,034.00 $0.00 Largest Losing Trade $0.00 $0.00 $0.00 Largest Winner as % of Gross Profit 0.15% 0.15% n/a Largest Loser as % of Gross Loss n/a n/a n/a Net Profit as % of Largest Loss n/a n/a n/a Select Net Profit as % of Largest Loss n/a n/a n/a Adjusted Net Profit as % of Largest Loss n/a n/a n/a Max. Consecutive Winning Trades 3618 3618 0 Max. Consecutive Losing Trades 0 0 0 Avg. Bars in Total Trades 870.81 870.81 0.00 Avg. Bars in Winning Trades 870.81 870.81 0.00 Avg. Bars in Losing Trades 0.00 0.00 0.00 Avg. Bars in Even Trades 0.00 0.00 0.00 Max. Shares/Contracts Held 5000000 5000000 0 Total Shares/Contracts Held 366800000 366800000 0 Account Size Required $0.00 $0.00 $0.00 Total Slippage $0.00000 $0.00000 $0.00000 Total Commission $0.00000 $0.00000 $0.00000 Return on Initial Capital 1391.35% Annual Rate of Return 268.92% Buy & Hold Return 9.52% Return on Account n/a Avg. Monthly Return $63,469.08 Std. Deviation of Monthly Return $173,456.64 Return Retracement Ratio 6.61 RINA Index 1969.81 Sharpe Ratio n/a K-Ratio n/a Trading Period 1 Yr, 1 Dy, 45 Mins Percent of Time in the Market 99.62% Time in the Market 11 Mths, 30 Dys, 15 Hrs, 25 Mins Longest Flat Period 45 Mins Max. Equity Run-up $1,419,333.00 Date of Max. Equity Run-up 07/15/08 10:05 Max. Equity Run-up as % of Initial Capital 1419.33% Max. Drawdown (Intra-day Peak to Valley) Value ($652,790.00) ($652,790.00) $0.00 Date 08/19/08 02:35 as % of Initial Capital 652.79% 652.79% 0.00% Net Profit as % of Drawdown 213.14% 213.14% n/a Select Net Profit as % of Drawdown 184.05% 184.05% n/a Adjusted Net Profit as % of Drawdown 209.60% 209.60% n/a Max. Drawdown (Trade Close to Trade Close) Value $0.00 $0.00 $0.00 Date 08/19/07 21:35 as % of Initial Capital 0.00% 0.00% 0.00% Net Profit as % of Drawdown n/a n/a n/a Select Net Profit as % of Drawdown n/a n/a n/a Adjusted Net Profit as % of Drawdown n/a n/a n/a Max. Trade Drawdown ($6,983.00) ($6,983.00) $0.00
Indronias, Thanks for posting Black Monday. It brought back memories. That was just around the time I started to think about investing. The focus is the drop from 2500 to 1750 which is 30% loss of market value. Notice that the market reversed from 1750 to 2020 immediately after that. Let me do the math here to find out how much of % retracement that was... WOW! That was a 750 point loss followed by a 270 point gain. Do you realize that some people got VERY rich off that 36% reversal? Sure they lost had draw down during the dive but more than made it all back on that bounce. So my only concern is to make sure I can handle an MAE of that magnitude to catch the bounce and make money. One thing is for sure. Selling during that dive would be stupid--only for the panic stricken. Even if you had a stop, it would blow through it and wipe out your account if you had too much at risk. Ever read how J. Paul Getty became a billionaire? Most people mistakenly think it was by his oil company. That simply gave him the seed money to buy stocks. His wealth came from buying stocks during the great stock market crash. In his book "How to Be Rich" he talked about how it felt to buy stocks that others were selling. He of course made sure the companies he bought had intrinsic value in the form of real estate or other hard assets like mining rights. The biggest mistake most investors make is selling when they should be buying and vice versa. Look at a historical chart of the Dow after 1987. If someone bought on Black Monday with any reasonable amount of money and reinvested profits every time the market "crashed" they would be very wealthy today. Sincerely, Wayne
Knocks420, Ha! Ha! Very cute. Yes, that's one way to do 100% profitability. Everyone else, notice the Open Position P/L and max Draw Down. Tee hee. What's very said is how simple it is to fix a simple strategy like that to drop the open position P/L down to only a couple thousand $$ compared to millions in profit. It feels sad because it feels like a I spent many thousands of hours and years of life on dead ends. Why couldn't I realize that 10 years ago? Actually, my current model started out very complex, advanced math ,etc... But when it hit extreme profitability, I started weeding everything out and found that only 3 rules were truly necessary. Sincerely, Wayne
Knocks430, I loved your comical post. Let me answer your questions below. This isn't exactly market-making based on my understanding because the trades average only 5 per day. That means sometimes there's 15 in a day and other trades that last several days. Then again, maybe this is market making. I'm absolutely certain I didn't invent anything new. 1) I don't use any "indicators" in this strategy. I've been trying to wean myself off because most successful traders swear they don't work. This strategy looks only at the current price. I had an indicator during development of this that I made myself to measure market equilibrium (bad habits die so HARD). Anyway, I found that once I hit pay dirt, I could remove the indicator entirely and it still works. It just looks at the current price and the trades already on. It does some math to figure out how many positions that was, at first, very complex. But when graphed it became obvious that a very simple calculation could replace all of that. I showed that part to a coworker who loves math and we were both astounded at how the statistical probabilities very beautifully dropped to such a simple formula. By the way, my approach to strategies now is to simplify, simplify, simplify. I find that the more rules, I have, the more curve fit the strategy really is. That's because each rule is really based on observations in the past that have little relevance to the future. 2) Well I built it assuming that also originally. To my surprise, a very large percent of the trades exit profitably before adding anything to the position. In the end, I add to positions for a completely different reason that my original purpose. Top/Bottom ticks Those never get used in the strategy. It simply monitors the current tick bid/ask compared to the average entry price of current positions to decide whether to add, hold, or liquidate. I had a fancy rule to decide whether to be long or short but eliminated it also. So how does it decide? Hmm. After much testing it didn't seem to matter. I know that sounds strange. And it is strange. I've often heard really successful traders say that it's not the ENTRY that matters but the exit strategy that determines profitability. Now, I can concur that is true. So it basically just uses the exit point of the last trade to see where price is moving from there and takes an opposite position from the momentum to start a new position. I just cannot get over how simple it is to trade and how everything I have read in all these forums is so true and how hard it was for me to get it into my thick skull!!!!!!! About fills and the queue. I know how it works, I'm with an ECN. I've done that research and already traded automated with them so I'm aware of the reliability and millisecond timing limitations, etc. But this strategy does not have a "small" profit target that causes it to lose if not hit as you suggest. Looking at the charts historically, it seems to miss excellent exit points frequently by 1 or 2 pips only to exit a little later at another good point. Thing is, when you assume the market is random and you never know when your exit point will come or how, it doesn't really matter much. Of course, I prefer to exit sooner only because it means that the model can turn around and make profits on additional trades. In other words, the longer trades last, they represent missed opportunities for other quick turn trades--that's all. I've got lots of ideas to fix that. I'm think of having 2 models work together as a team, etc. In fact, I noticed in Acrary's posts that he says he can always out trade his mechanical models. That's obvious now. What I mean is, in real life, if the computer has an MAE, I can help it exit sooner with profit than on its own. Anyway, I don't know if any of this makes sense. Bottom line is simply that once you "see" the price action and it makes sense, the opportunities are endless. I think that's the simple explanation. I've just looked at charts for so long and studied them so hard that finally something clicked. All my focus for the next week or two will be on the technicalities of the API to the broker. So far, I got the live quotes feeding in and all the multithreading working. The last piece is the order processing. Sincerely, Wayne
Yes. It sounds off topic. But I started this saying how genius acrary is and mentioned him again in my last post. This all a tribute to his willingness to post his ideas. Most of my recent success is based on his principals. Sure, I must have my own flavor since Alan never shares the exact details. But the focus on profitability at monthly intervals, the needs for multiple strategies working in tandem are relevant. At the moment, I'm talking about one specific model. However, I'm mixing that one with other simple trend models, etc in a "treed" approach to manage those outliers from the primary model. My latest idea to try will be to have the 2 models I suggested in the last post that actually using the same technique from work as a team to each trade while the other might be handling a MAE outlier. I don't know if this is THE treed approach Acrary uses. But he never wants to supply details. I was very greatful even for this "treed" approach tidbit. FYI: I've gotten some nasty PM's from people angry that I'm even talking this much about how it all works. Frankly, that's a small part of the reason I'm dancing around avoiding directly divulging the details. I think I know who one of the PM's came from. They're using a different account from their usual one. But the timing of the message was within a minute of another post and so I feel sure who it really is. It saddened me. But it shows you that the really successful traders are more secret than the CIA. I can't help myself talking about it now because it is so exciting but that will wear off and I will be a silent as the dead in the future. I might even keep promising more details and information but never have the time to do it because of traveling, volunteer work, etc since those activities will open up when I have the resources to do so and stop needing to research the markets as in the past years. Sound familiar? Maybe a little like Alan? Well I sympathize entirely with him. For example, someone said only Alan can answer the question about the "treed" approach. True. Very true. But (to those wondering about that) don't hold your breath. You'll be old and gray before you find out from Acrary. Instead, get off your butt and figure it out for yourself. To Alan, thanks for posting here. I feel honored. And to those who PM'd saying that I should shut my mouth, that was actually also encouraging in a way. And I promise to shut my mouth going forward. Just trying to get over the excitement of the discovery. It'll become old and boring as the money starts to roll in. By the way, as far as you (the reader) knows these posts could all be a cruel joke about an imaginary way of profiting that is faked to set you the wrong track. You never know till you experiment and figure it out for yourself, do you? Sincerely, Wayne