Drawdown on MRCI Trades

Discussion in 'Commodity Futures' started by GiantHogweed, Sep 27, 2009.

  1. Hi all,

    I have been trading MRCI since January this year and of course it has been an up and down year. Trades in the last 2 to 3 months have been performing poorly and are regularly getting stopped out at a loss. I have been working to improve my entries and exits in order to both get in at the right time (of course, a trader's wish) and use improved stop losses and trailing stops to cut the losing trades short and let the winners run (a trader's dream).

    Does anyone have some experience with drawdowns using MRCI? I am most interested in a method of reducing exposure until the recommendations return to their normal winning percentage of approx 50%.

    Here are some of the ideas I've been working on, and I'd appreciate some feedback from folks that have experience waiting out drawdowns in their system.

    First Entry
    Add additional criteria prior to entry such as:
    1) spread must increase a percentage of historical avg profit after entry by MRCI at the entry date. Say 50 to 75%. For example if the considered trade has a hist avg profit of $400, then I would wait to enter with the profit increases to $200 or $300 after the MRCI entry.
    2) Technical analysis must show the spread in an uptrend, or forming a probable bottom. Use basic trendlines, channels, reversal patterns and RSI.
    3) In the case of FX spreads, use cash FX to reduce exposure and scale in if spread moves in the right direction.

    Add additional positions
    1) If spread profit increases to 75% of historical avg profit then add positions. Of course, this percentage could be changed to reduce risk.
    2) Use basic technical analysis to add positions after a breakout, or confirmed reversal.

    1) For initial positions, move the MRCI stop up to breakeven once the spread profit increases to a percentage of historical avg profit, say 50 to 75%.
    2) For additional positions, use a stop that again is a certain percentage of the hist avg away from the 2nd entry point.
    3) Use trailing stops to protect profits within a week or two of the MRCI recommended exit date.

    Obviously, most of these use the historical avg profit data that MRCI calculates and uses to determine stops. Does anyone use other methods? perhaps volatility?

  2. Most of this stuff sounds like grasping at straws. Throwing methods like breakeven stops at your trades does not mean much UNLESS YOU TESTED THEM WITH YOUR OWN PAST TRADES, A LOT OT THEM OVER SIGNIFICANT PERIODS OF TIME

    Every system, every trader, every time period, every method is different. What works for others may have no relevance to you. A trading method is going to have drawdown periods, with lengths or severity you obviously cannot see beforehand. These really cannot be predicted or fixed. Your only real defense is diversifying and trading small. If you cannot live through a method's lengthy drawdown, you really should not be trading it.