Michael, I'm currently running 4-6 systems on ~500 markets total. Note: One market = one stock, one futures contract or one options contract, etc. -Eric
Eric thank you for your method but maybe the method is not senstive look at the trade number from 350 -500,the equity curve becomes a horizon line with your method the system should be deactived but now the system begins to make money
If you are looking for a method to tell you in advance which trades will be profitable or losing, with 100% accuracy, then I wish you good luck. Unfortunately, that sort of thing does not exist. Until it does, the best we can do, IMO, is to develop a rigid, systematic and logical approach which improves your odds of activating good systems, and deactivating bad systems. I have used the approach described in this thread for years, and am comfortable with it (and believe it improves my trading performance, as well). That said, a trader must understand and have confidence in his/her trading system and activation/deactivation method. If this method doesn't make sense to you, or you don't feel confident with it, then you should definitely not use it, as you will likely override the outputs suggested and possibly make you trading worse that it otherwise would have been.
Hey Eric, Excellent thread. In essence you have quantified a way to say when the system that you are trading live is not that profitable compared to the swings it is causing in your portfolio and when to shut it down. Excellent. I currently just do it based on the way it feels on my gut; but good to see it quantified. Not sure if you have answered this already; but how do you solve the following problem: Say you deactivate a system based on this technique; essentially you are stopping to trade it after essentially it has caused somewhat of a drawdown (that when the confidence number goes down). Now assume this system stays profitable and it comes back into your green zone (ok to trade), the only way it can do that is, it went from a bad spell to a good spell. Now assuming that you know that the system will stay profitable (albeit with lower profitability) arent you better off with sticking with it all the while? yes; i know i think thats a trade off you make to stop trading a system that goes from being profitable to not being profitable anymore; but is there a better solution? -gariki
How would we ever 'know' a system will continue profitability? I've been trading successfully every year since the late 1990's and I don't know if my systems will begin consistent losses starting tomorrow. Personally, I don't know what the future will hold, but I do know how I will respond to it. As a trader, you must protect your hard earned capital. Once your capital is gone, your trading career is done. As a result, I think wise traders error on the side of safety, and in this case, that means suspending trading during poor trading environments. You are correct though, in the long run, you <b>might</b> make more money by never suspending trading but your odds of losing all of your cash and being forced into another career will increase dramatically as well. Similarly, you might be better off if you don't carry health insurance on yourself (and wife and six kids). => Let's assume that you are all healthy, eat well, exercise regularly, etc. However, what if your wife develops ovarian cancer, or a child gets leukemia => Treating such an illness will drive your family into bankrupcy, and possibly lead to their death. Can you afford to take that chance in order to possibly save the cost of insurance?