Even using averages, it seems you could run into risk restrictions if you are running near maximum risk allowed under your "caps". In this case, would you opt not to add the additional bet or reduce the size of your existing bets?
In the hypothetical trinary system in my last post I'd opt not add the additional bet. In my current 'always in' system a new bet might cause me to hit a risk limit. So yes I would reduce the size of existing bets. However the effect would be small (since I have so many markets - I might be adding 1 position to say an existing set of 33, implying a cut in existing bets of just 3%), and by using buffering any backward and forward trading is minimized.
A slightly delayed update (for reasons which will become apparent); last update was 3rd July. I'm doing this in two parts as I seem to have some kind of character limit. The last couple of weeks has been much more profitable than recently. I'm up over £40K in money terms, or 10%. Drawdown is 6.8%. Big gainers GOLD £12,800 (and that is why I delayed it... more below) PLAT £10,000 PALLAD £9,400 CRUDE £3,100 Big losers WHEAT £3,800 GAS £2,000 SOYBEAN £2,000 (one of last fortnights big winners, remember) Gold of course was big news yesterday. As is often the case zerohedge has a nice comment on the story (in a future life I'd like to be zerohedge. Or maybe Matt Levine. Hopefully they'll both be dead in my future life [I don't mean that in a malicous way, it's a pure actuarial forecast], so I'd like to be the sort of current version of them.). But Gold (with the rest of the metals complex also playing a part) hasn't been doing great recently even without yesterdays fall I won't be doing an 'explainer' post on this position. The thing was going down. I was short a couple of contracts two weeks ago, and I've since sold another one. It's gone down some more. I'm at the max short I'd have (given the current volatility - if volatility falls I might sell some more). There is a point I'd like to make about risk management. An unexpectedly large gain is just as dangerous as an unexpectedly large loss. Reason being you're only a slightly biased coin flip (biased if your system has positive profit expectation) away from one becoming the other. So when I logged on yesterday morning and saw a £12K profit between my hourly checks of account value my first instinct was not 'hurray!', but rather 'there's a problem with my broker valuation' and my second (once I'd checked out what had happened) was a slight sense of panic. Anyway the Gold move was about 6 sigma at the low, although it finished just over 3 sigma down. A large move then, made worse by smaller falls across other metals, and as usual it reinforces that you need to be diversified to reduce your exposure, and to limit your portfolio exposure to different kinds of risk (for example I am running at 84% of the risk I would like to right now because I've hit my 'risk measured assuming all correlations go to one' limit). Part two follows...
Part two of regular update: Current positions: Code: code contractid positions Lock WrongContract InFwdNotRoll 25 AEX 201508 1 False False False 2 AUD 201509 -3 False False False 6 BOBL 201509 1 False False False 24 BTP 201509 1 False False False 0 CAC 201508 1 False False False 21 COPPER 201512 -2 False False False 14 CRUDE_W 201512 -2 False False False 23 EDOLLAR 201812 4 False False False 27 EDOLLAR 201809 2 False False False 5 EUR 201509 -1 False False False 15 EUROSTX 201509 -13 False False False (hedge) 12 GBP 201509 -1 False False False 11 GOLD 201508 -3 False False False 18 JPY 201509 -2 False False False 9 KR3 201509 8 False False False 1 LEANHOG 201606 1 False False False 3 LIVECOW 201510 -1 False False False 13 MXP 201509 -7 False False False 4 NASDAQ 201509 1 False False False 20 NZD 201509 -3 False False False 28 PALLAD 201509 -2 False False False 16 PLAT 201510 -4 False False False 19 SMI 201509 1 False False False 17 SOYBEAN 201511 2 False False False 26 SP500 201509 1 False False False 10 US2 201509 2 False False False 8 US5 201509 1 False False False 22 V2X 201509 2 False False False 7 VIX 201508 -2 False False False Risk Code: code multisignal expected_annual_risk expected_annual_risk_per_contract position expected_annual_risk_rounded_pos 21 SMI 13.6 8739 10905 1 10905 3 SOYBEAN 16.6 10653 7126 2 14252 28 MXP -17.8 11387 1591 -7 11138 27 JPY -19.3 12385 5787 -2 11575 17 VIX -19.5 12515 6981 -2 13961 24 AUD -21.9 14005 4938 -3 14815 30 COPPER -30.2 19325 7785 -2 15571 29 NZD -22.5 14416 5409 -3 16228 33 PLAT -31.3 20024 4832 -4 19328 34 CRUDE_W -32.6 20893 9798 -2 19596 32 PALLAD -30.6 19603 10841 -2 21682 31 GOLD -37.0 23675 9103 -3 27309 25 EUR -25.8 16559 28110 -1 28110 37 EUROSTX 0.0 0 6959 -13 90473 Notice that Gold / Palladium / Platinum, are amongst my biggest shorts. Current expected portfolio risk is @ 118% of average; on 93% of maximum capital (due to the drawdown) or in money terms £6,881 a day or £110K a year (or if you like, 28% of my maximum capital, and 29.5% of my current reduced capital; versus long run targets of 25%). Risk@ 118% of average is up from 92% a couple of weeks ago. Although I describe myself as a 'slow' trader compared to the daytrading / HFT gunslingers; my risk has increased by ~30% on the back of some tidy trends in just 10 business days. Trades Code: code contractid filled_datetime filledtrade filledprice 4537 AEX 201508 2015-07-21 08:02:05 1 500.850000 4396 AUD 201509 2015-07-06 01:26:41 -1 0.747700 4447 AUD 201509 2015-07-09 01:28:32 -1 0.738200 4435 BOBL 201509 2015-07-08 10:35:37 1 130.140000 4477 BOBL 201509 2015-07-13 07:31:30 -1 129.250000 4534 BTP 201509 2015-07-20 09:30:58 1 135.100000 4528 CAC 201508 2015-07-20 08:02:37 1 5142.500000 4441 COPPER 201512 2015-07-08 12:04:56 -1 2.450000 4483 CORN 201512 2015-07-13 14:30:00 1 443.500000 4465 CRUDE_W 201512 2015-07-09 12:13:22 -1 54.390000 4459 EDOLLAR 201812 2015-07-09 12:02:13 1 97.610000 4498 EUR 201509 2015-07-16 01:36:31 -1 1.094700 4402 GAS_US 201509 2015-07-06 12:14:29 -1 2.767000 4444 GAS_US 201509 2015-07-08 12:13:06 -1 2.736000 4474 GAS_US 201509 2015-07-10 17:28:15 1 2.803000 4486 GAS_US 201509 2015-07-14 12:14:22 1 2.884000 4510 GAS_US 201509 2015-07-16 12:21:25 1 2.907000 4405 GBP 201509 2015-07-07 10:14:13 -1 1.549300 4450 GBP 201509 2015-07-09 01:33:28 -1 1.535600 4471 GBP 201509 2015-07-10 12:29:51 1 1.553700 4399 GOLD 201508 2015-07-06 12:07:26 -1 1164.500000 4426 JPY 201509 2015-07-08 07:59:08 1 0.008223 4480 JPY 201509 2015-07-13 07:57:51 -1 0.008133 4504 JPY 201509 2015-07-16 06:57:31 -1 0.008075 4456 KOSPI 201509 2015-07-09 01:47:17 -1 242.800000 4468 KOSPI 201509 2015-07-10 02:32:45 1 247.450000 4423 KR3 201509 2015-07-08 02:24:39 1 109.100000 4522 KR3 201509 2015-07-17 01:05:32 1 109.080000 4420 LEANHOG 201606 2015-07-07 14:59:16 1 82.400000 4495 LIVECOW 201510 2015-07-15 15:44:49 -1 149.950000 4453 MXP 201509 2015-07-09 01:40:29 -1 0.062770 4525 NASDAQ 201509 2015-07-17 14:22:00 1 4621.500000 4462 PLAT 201510 2015-07-09 12:10:59 -1 1034.800000 4507 SMI 201509 2015-07-16 08:05:13 1 9308.000000 4438 SOYBEAN 201511 2015-07-08 12:07:54 -1 981.750000 4516 SP500 201509 2015-07-16 14:21:18 1 2114.500000 4513 US2 201509 2015-07-16 14:10:00 -1 109.437500 4540 V2X 201508 2015-07-21 08:06:57 -1 19.700000 There is slightly less trading than normal. With trend following when you're making money you'll probably be doing less trades. The trades you do will normally, over this kind of period, be opening trades in the direction of a strengthening trend. So in the metals complex I just added to existing shorts. On the other hand consider GAS_US which wasn't a great market. I started the period short one contract. I then sold into what looked like a fading market. I was wrong however and had to buy back at higher prices; eventually closing out completely. This pattern of opens and closes, buying high and selling low, is very characteristic of a trend follower playing in a choppy market. You end up churning a bit and getting out with a modest small loss. Of course the hope is that this doesn't happen too often and you end up with a few markets where are decent trends; on which you take larger gains which will outweigh your more numerous small losses. In the last two weeks that has clearly been the case. It's all about sitting at the table, ponying up your small ante, and waiting for the cards to turn into your favour before you bet the big bucks. Forgot to say slippage was £2.40 (or what I just paid for a not brilliant latte) versus expectations of £198.47. Plus say another £25 for commissions and £5 for data. This can be a pretty cheap hobby GAT
Part one of fortnightly update (last July 21st) I'm happy today, and heres why So yesterday, for a few hours, I broke through my HWM and out of drawdown. A drawdown lasting a little less than 4 months is relatively short if you look at the backtest, but it's a different matter when you're living through it. I don't increase my capital at risk when I make a new HWM, instead I 'bank' the money and put it out of reach of my trading system (only in an accounting sense; the money is actually withdrawn at the end of the year or earlier to pay taxes and what not). Just over a 1% profit was 'banked' in this way; not a lot but it's better than a kick in the teeth with a Sharpe ratio stick. This also means I'm profitable for the current fiscal year. Still some way to go, but would be nice to have a down year just yet. As of this morning my profit in the last two weeks then was around £23K. Current drawdown (off the new, higher HWM don't forget) is 2.3%. Big gainers: Crude 7900 Copper 4400 Palladium 3800 Platinum 3000 Gold 2000 MXP 2000 Fallers: SP500 -2200 Nasdaq -1800 Wheat -1550 Same story as the last update, except the rest of the metals complex is catching up with Gold. Surely even non commodity traders have heard the news that Crude is down to sub $50 Current positions Code: code contractid positions Lock WrongContract InFwdNotRoll 1 AUD 201509 -1 False False False 3 BOBL 201509 2 False False False 26 BTP 201509 2 False False False 9 CAC 201509 1 False False False 20 COPPER 201512 -2 False False False 21 CORN 201512 -1 False False False 13 CRUDE_W 201512 -2 False False False 25 EDOLLAR 201812 5 False False False 28 EDOLLAR 201809 2 False False False 14 EUROSTX 201509 -13 False False False (Hedge) 29 GAS_US 201510 -2 False False False 8 GOLD 201512 -3 False False False 17 JPY 201509 -3 False False False 23 KOSPI 201509 -1 False False False 12 KR10 201509 1 False False False 5 KR3 201509 8 False False False 0 LEANHOG 201606 1 False False False 2 LIVECOW 201510 -1 False False False 10 MXP 201509 -7 False False False 19 NZD 201509 -2 False False False 22 OAT 201509 1 False False False 30 PALLAD 201509 -2 False False False 15 PLAT 201510 -4 False False False 18 SMI 201509 1 False False False 16 SOYBEAN 201511 -1 False False False 27 SP500 201509 1 False False False 7 US2 201509 2 False False False 4 US5 201509 1 False False False 24 V2X 201509 1 False False False 6 VIX 201509 -2 True False False 11 WHEAT 201512 -1 False False False Part two follows...
Part two of regular update Risk Code: Expected annual risk more than GBP6400 per year, GBP400 per day code multisignal expected_annual_risk expected_annual_risk_per_contract position expected_annual_risk_rounded_pos 25 EUR -14.9 9531 21455 0 0 24 AUD -13.4 8609 5160 -1 5160 4 WHEAT -10.0 6411 5176 -1 5176 3 SOYBEAN -11.1 7138 6911 -1 6911 27 JPY -19.7 12592 4572 -2 9144 29 NZD -20.0 12812 5111 -2 10223 35 GAS_US -16.0 10247 5251 -2 10503 28 MXP -17.7 11335 1609 -7 11260 17 VIX -18.8 12033 5929 -2 11858 30 COPPER -30.1 19253 7835 -2 15670 33 PLAT -30.1 19253 4768 -4 19074 34 CRUDE_W -35.2 22514 9720 -2 19440 32 PALLAD -35.5 22763 10356 -2 20713 31 GOLD -35.5 22763 8432 -3 25297 21 SMI 11.2 7165 9712 1 9712 10 OAT 15.0 9577 6551 1 6551 36 EDOLLAR 16.7 10676 1474 7 10320 8 BTP 18.3 11692 7415 2 14830 Current expected portfolio risk is @ 121% of average; on 97.7% of maximum capital (due to the drawdown) or in money terms £7371 a day or £118K a year (or if you like, 29.4% of my maximum capital, and 30.1% of my current reduced capital; versus long run targets of 25%). Risk@121 % of average is slightly up from 118% a couple of weeks ago. My system has hit a risk ceiling (maximum total signal; or if you like the measure of risk that assumes in a crisis all correlations will go to 1 or -1, whichever is worse) which is mostly preventing it from scaling up any further. Trades Code: code contractid filled_datetime filledtrade filledprice 4585 AEX 201508 2015-07-24 07:59:56 -1 491.400000 4660 AUD 201509 2015-07-31 16:00:00 1 0.732900 4684 AUD 201509 2015-08-04 01:25:33 -1 0.725100 4687 AUD 201509 2015-08-04 06:27:51 1 0.733400 4696 AUD 201509 2015-08-04 16:07:59 1 0.740300 4690 BTP 201509 2015-08-04 07:31:58 1 136.710000 4609 CAC 201508 2015-07-27 14:57:56 -1 4948.500000 4693 CAC 201509 2015-08-04 08:05:36 1 5099.000000 4567 COPPER 201512 2015-07-22 14:17:09 -1 2.447500 4633 COPPER 201512 2015-07-28 19:34:12 1 2.420000 4630 CORN 201512 2015-07-28 15:17:10 -1 384.250000 4597 CRUDE_W 201512 2015-07-27 12:10:03 -1 49.330000 4681 CRUDE_W 201512 2015-08-03 17:21:03 1 47.290000 4648 EDOLLAR 201812 2015-07-31 12:10:45 1 97.580000 4594 EUR 201509 2015-07-27 03:26:25 1 1.100900 4600 GAS_US 201510 2015-07-27 12:15:01 -1 2.790000 4666 GAS_US 201510 2015-08-03 12:17:00 -1 2.796000 4570 GBP 201509 2015-07-23 06:14:11 1 1.561700 4576 GBP 201509 2015-07-24 01:45:26 -1 1.550800 4636 GBP 201509 2015-07-29 01:34:55 1 1.560400 4669 GOLD 201508 2015-08-03 12:35:16 1 1091.000000 4672 GOLD 201512 2015-08-03 12:35:16 -1 1091.000000 4675 GOLD 201508 2015-08-03 12:47:32 2 1090.400000 4678 GOLD 201512 2015-08-03 12:47:32 -2 1090.400000 4699 JPY 201509 2015-08-05 01:43:52 -1 0.008046 4615 KOSPI 201509 2015-07-28 01:26:32 -1 244.000000 4591 KR10 201509 2015-07-27 01:39:29 1 123.700000 4618 MXP 201509 2015-07-28 01:49:46 -1 0.061170 4651 MXP 201509 2015-07-31 13:46:21 1 0.061970 4627 NASDAQ 201509 2015-07-28 14:13:57 -1 4531.500000 4573 NZD 201509 2015-07-23 09:21:14 1 0.665400 4579 NZD 201509 2015-07-24 01:55:11 -1 0.658700 4642 NZD 201509 2015-07-30 15:20:19 1 0.656300 4582 OAT 201509 2015-07-24 07:33:44 1 148.700000 4612 SMI 201509 2015-07-27 15:01:34 -1 9177.000000 4645 SMI 201509 2015-07-31 08:03:49 1 9397.000000 4564 SOYBEAN 201511 2015-07-22 12:02:12 -1 996.500000 4588 SOYBEAN 201511 2015-07-24 12:13:30 -1 978.000000 4639 SOYBEAN 201511 2015-07-29 12:05:00 -1 943.750000 4606 SP500 201509 2015-07-27 14:17:06 -1 2064.250000 4654 SP500 201509 2015-07-31 14:11:16 1 2106.250000 4603 US2 201509 2015-07-27 14:11:34 1 109.507812 4657 US2 201509 2015-07-31 15:47:47 -1 109.539062 4621 V2X 201509 2015-07-28 08:08:28 -1 21.200000 4624 WHEAT 201512 2015-07-28 12:05:09 -1 516.750000 Slippage £72.50 vs £185 expectated Just to say, if there is any information you'd like to see included in these regular updates, or any questions you have, fire away. It will be far more interesting for me. There won't be another of these updates for about a month, as I'm taking some holiday. During that time I'll be away from my trading system with only a brief day back at home in late August. That will enable me to do the early quarterly rolls for bond contracts. The monthly rolls for VIX, V2X, AEX and CAC I've already done. How should one deal with holidays as a slowish automated trader (a day trader can probably not trade)? The first option is to close all your positions. This incurs two lots of slippage (though if you're smart you can do it in conjunction with rolling) - probably several thousand; and opportunity cost from not trading (depending on what I think my Sharpe Ratio is, between £1K and £2K a week lost on average, though it could be a gain). This strikes me as very conservative. The second option is to keep your positions open, but turn off your trading system so you won't react to anything that happens. If you're trading slowly enough you might just get away with it. Personally that scares me a little. The third option is to keep your system on, but reduce your risk in some way. You can do this across the board (eg cut all positions in half) or selectively. Last year for example I had some massive short VIX/V2X positions. That kind of negative skew whilst being away from the system was a little worrying. This year I could cut my big shorts in crude and metals. Theoretically it's better just to cut all your positions than to do it selectively. I'm giving this option some serious consideration. The fourth option is to keep your system on with full initial positions, but only allow trading which reduces your risk (eg closing positions). This is an option which I find tempting. The final option is of course to let everything run just as it is. I'm a little more confident in my system than I was last summer, but it's still a bit worrying. If anyone has any thoughts on this, I'd be interested to hear them (before Sunday morning, when I have to action them!). GAT
You said you have about 40 different instruments traded at all times. After you have a year of data, wouldn't it be wise to get ride of the worst performing 5-10 instruments and just keep the rest? 30 is still very well diversified.... Of course it is possible that those 5-10 futures just had a bad year, but would be interesting to see their back test what it shows in a longer time frame.