Look at this strategy

Discussion in 'Trading' started by m4a1, Sep 17, 2006.

  1. m4a1

    m4a1

    Had I found this in 2004, I would have definitely traded it. Look at it completely break down starting in 2005. This kind of stuff really worries me.

    Anyone have an idea what might have happened? It is trading NQ. Was there some structural change in the contract or something?
     
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  2. Your subject line ask to look at this strategy.

    Yet, all you show is a performance record over the years based upon annual results.

    It would be extremely helpful if you either disclosed the specifics about the strategy or show details of all the trades.

    Regardless, just looking at the historical weekly chart data of Emini NQ and the years 2000, 2001, 2002 and 2003 produced some strong trends.

    Trading like that you can leave a position alone once the move gets going your way.

    2004 was choppy until it was saved by its trend performance the latter part of the year.

    2005 and 2006 have been choppy also.

    Yet, the weekly chart shows a nice downtrend in year 2006 between early May to mid-July.

    I'm curious if your undisclosed method performed well during the following periods without any adjustments in comparison prior trend years:

    * mid August through Dec 2004

    * early May through mid-July 2006

    If so...you obviously have something similar to a trend following method or a method that's dependent upon increasing volatility.

    Simply, to be a good trend trader...you also need to learn how to recognize when the market is no longer trending.

    Having that knowledge will tell you when not to apply your method (sit on the sidelines and wait for better trading days) even though it may be a trade signal.

    It's an edge knowing when your method tends to have drawdown periods

    Mark
     
  3. The numbers for the year 2000 thru 2004 were the simulated results. 2005 was based upon actual trades made with real money.
     
  4. m4a1

    m4a1

    no, all years were backtested results. i'm saying that if i found this in 2004, i would have started trading it. i would have never expected that performance would deteriorate so rapidly even if i did curve fit it a little.


     
  5. It doesn't matter why it failed after a successful runup. It could be any number of reasons.

    What matters is that if you had started trading this strat from the start, you would have scaled up your position size gradually during the runup and (hopefully) ratched down your size quickly through the drawdown.

    RoughTrader
     
  6. m4a1

    m4a1

  7. Hi m4a1,

    I think giggollo posted that weekly chart of VXN to connect the dots for you to my detailed comments.

    Unfortunately that particular bigcharts link only goes all the way back to late 2001 and because of such its a little more difficult for some to imagine the years before 2001 to get a good picture of volatility that trends.

    Further, the implication is not that volatility dropped or risen.

    The implication is that volatility trended (up or down) in those trend years for NQ and that volatility has not been trending in many recent months to explain the poor performance in your method.

    That`s the reason why I posted some questions to you (questions you didn`t reply to) about specific months so that I can see exactly what your method is doing in relationship to NQ.

    Once again, with more proof from VXN...your strategy is very dependent upon trends or volatility (I in error stated rising volatility when I meant to say it must not be volatility that`s choppy or going sideways).

    Another implication (connecting the dots a little more for you) here is that when VXN is choppy or going sideways...

    It's not the time to be using a trend following method and during such times you should either be out of the market or using a method that exploits choppy, sideways or range bound markets.

    Unfortunately, some traders (not implying you are one of them) need to always be in the market and they will attempt to apply their trend following method in sideways markets.

    Further, the experience traders that do such will sometimes panic and began tweaking (changing) thre trend following method because they think there`s something wrong with it.

    Far from the truth.

    The truth is when the market is not trending...don't change the trend following method because it ain`t broke.

    Instead...stop using it and switch to a method suitable for choppy or range bound markets.

    Simply, the VXN is showing you that your method is not suitable for trading conditions in recent months.

    This strengthens my suspicion that your method is dependent upon volatility to be trending (up or down) regardless if it was not designed for such.

    Therefore, one particular good use of Market Volatility Index like VIX or VXN is that they tell you when to use particular types of methods.

    This thread is a good example why its good to have one good trend following method and one good range bound method along with having knowledge to know when its time to switch from one method to a different method to avoid drawdown periods.

    I just think the markets its too difficult to trade via the same method for longterm longevity...a market that's always changing.

    Mark
     
  8. Any trend following based strategy performed really great on NQ until 2004. Some were showing 120 $ gains per single contracts in 5 years. I have a friend who found one strategy of this kind and blow his trading account.

    Take a look on the daily volumes until 2004. The reason of the fall of your system is NOISE.
     
  9. m4a1,

    Another implication here is that if you truly like the method and understand what type of markets it's designed for...

    It's time to stop trading NQ and trade futures markets that are trending.

    This is a reason why I'm not in favor of getting married to one particular trading instrument because some traders will continue trading that trading instrument into drawdown periods when they should have switched to a different trading instrument that's more suitable for the method.

    Mark
     
    #10     Sep 18, 2006