My systems got killed this past February (Jan. 30th through Feb. 9th specifically) - losses exceeded my previously-backtested expectations. I've spent some trying to come up with a technical indicator or something that would have flagged and caused me to stop trading during this time period. But everything I've tested results in the systems being way too cautious during other time periods and significantly lowers Sharpe/CAR/MDD. I'm curious if others either had the same experience or already had lower exposure during this period. I'd love some specifics on what signals you were able to look that predicted this drawdown. Thanks for any help! Joel
How good is your chart and open interest reading ability? The red moving average is 4 period, so when entire week's range is above, can expect downturn at some soon week, most of time retraces to grey sma 18 period, but since been rather long time of a decent correction, went further. I think in terms of sharpness of angles, where patterns turn into "rocketship". If you check open interest, there is normal patterns except for January as it climbed way too fast, many using the ES as hedge for stocks, short ES for long term positions and also options to hedge the ES. I actually do opposite of trend trading in futures but maintain long dividend paying stock positions/sell options and hedge open profits when probabilities warrant. Back testing has limits, and good/bad parts of it are limits will be exceeded, you can count on it. Learn charting extreme patterns and learn how to hedge, I threw everything away 8 years ago to learn how to hedge and using options much more, still learning how to get drawdowns as low can go. Good hunting.
It is not clear what types of trades you do, but since you got hit this Feb, perhaps you are either primarily Long or a net seller of premium. If so, and your positions are longer term (> 30 days for premium selling), have you considered using /VX front and next month Contango as a prerequisite for trading-holding those? Backwardation typically indicates fear may be justified--so kinda self-leveling indicator. (This is more useful if your trades are on SPX) Just a thought!
That time period was tough but I always have some key momentum indicators that I use that generally keep me out of major trouble. Between Jan 30-Feb 1, it was clear that there had been a momentum shift. My advice is just play around with some and see what ones make sense to you.
The 30/01 sell-off was unusual, coming from a bull market. Obviously, various over-bought indicators would have been showing by late January, but they had probably been periodically flashing red alert for about 3 years of bull market so not the greatest life-belt. There's nothing radical I can suggest, just what I was doing at the time - keep drawing profits out, pyramid the winners, keep re-entering on pull-backs, always set a stop-loss (I'm using 2 x ATR20 below entry), keep position sizes and aggregated correlated exposure to a manageable level. One thing I have added recently is to trail a string of short orders on individual bearish stocks while I'm long on their indices. I don't think there's a single magic bullet answer.
It's always bothersome when someone like you posts a request for advice, but doesn't bother to outline your basic strategy or trading environment. If you can generally define what universe you're in, you'll be more likely to receive some useful responses. At the very least define what you're trading, and within what time frame.