I performed a walk forward optimization today and here are the results. Although this is not exactly identical to my live strategy, some interesting observations may still be made. I chose one-year periods for in sample as well as out of sample data. I felt this would demonstrate better the responsiveness of the strategy to changing market conditions over a relatively short period instead of averaging out performance over several years. I like how my strategy is "alive," adapting to differing market conditions, much as a living organism adapts to its changing environment. I particularly like the consistency of the average bars held. I can know within a few days if the trade is profitable, and can turn around and deploy the cash elsewhere rather than wishing I had exited when I had the chance. The net profit and net percentage profit may be a bit unrealistic, because Amibroker is not looking at intraday data. This may result in "cherry picking" during broad market declines over a period of days. The discrepancy to live trading is yet to be seen. So far this year, I am very close to paper trading percentage wise at an 85% APR return. I have included a penny slippage on the limit entries and 5 cents slippage on the market exits, as well as $2 round trip comm. for the optimization. The maximum system draw downs, typically around 10-15%, should be quite manageable going forward, with the worst being the '08-'09 period of around 35%. It is interesting that the years with the largest draw downs also had some of the greatest returns. My current live profit factor and percentage winners are both just about on target to the historical averages. My # of trades per year will likely be higher than paper trading, but if I can keep it to 1000-2000 per year, I feel I will not be overtrading. Around 40 trades per week would be around 2000 trades per year. Some years the OOS results actually outperformed the IS results, most notably the '06-'07 period. My "realistic" expectation is to maintain a 72% APR. This would be a doubling of account size every 12 months when rolling profits back into the system.
Code: [color=green][size=2][b] Total Net Profit ($693.87) (Per Share) ($0.07) Gross Profit $1,936.73 Gross Loss ($2,630.60) Profit Factor 0.74 Total Number of Trades 74 Percent Profitable 40.54% Winning Trades 30 Losing Trades 44 Avg. Trade Net Profit ($9.38) Avg. Winning Trade $64.56 Avg. Losing Trade ($59.79) Ratio Avg. Win:Avg. Loss 1.08 Expectancy -0.16 Largest Winning Trade $312.00 Largest Losing Trade ($155.00) Max. Consecutive Winning Trades 11 Max. Consecutive Losing Trades 38 Total Shares/Contracts Held 10600 Total Commission $186.00 Return on Initial Capital -1.13% Annual Rate of Return -56.32% Buy & Hold Return 0.69% Trading Period 7 Dys, 6 Hrs, 15 Mins Max. Equity Run-up(Daily) $1,798.73 Date of Max. Equity Run-up 5/27/2011 15:00 Max. Drawdown(Daily) Value ($2,492.60) Date 5/24/2011 15:00 as % of Initial Capital 4.04% Max. Trade Drawdown ($262.00) [/b][/size][/color] It was an abysmal week for me but not for automation. The downward slope of the weekly curve represents discretionary efforts, while the upward slope represents automation. My Wells Fargo indiscretionary venture did not pan out too well. What I thought was support turned out not to be after all. I had not been aware that the financial sector has been taking it on the chin the past couple months or so. I ended up stopped out with a loss of about $2200. This is an area I need to focus on which is to not interfere with the strategy. The âpenaltyâ I payed is $3,000 by transferring funds from my personal account to investment account. I believe I thought that since I was playing with âhouseâ money, I could risk a trade with unknown edge. It will become a more painful loss for me if I see money I have been working overtime at my job to create part from me carelessly. I need to remind myself relentlessly that I cannot have any opinion about current stock price being too high or too low. Stocks have a peculiar way of getting cheaper than you think they should, as well as pricier than you think they should. No stock is worthy of more of my precious capital than what the strategy calls for. I am setting a goal to reach $100,000 by yearâs end. My current balance is $65,000 and I plan to contribute about $5,000 more this year. That means my strategy will have to generate $30,000. Since it has generated about $30,000 over the past 8 months, I feel this is a realistic goal. I want to see if the strategy can hit my goal based on its own merits, so I really need to steer clear of overriding the system. I am flat going into the holiday weekend.
I returned to incorporating some UltraShort ETFs into my overall strategy yesterday and got off to a good start with the DOW retreating 279 on economic worries today. Worries? What a new revelation! While back testing is still very inconclusive with my rtm strategy on the short side, I don't think the past 5 years have been fair to them. When the ultra short ETFs were introduced in '06, my strategy did very well with them up until the market bottomed in March '09 and went on a bull run. I want to try to use them when I am not getting many signals on the long side with equities. In fact, when I am not getting long only signals, may very well be a leading indicator that it is a good time to short the market. I am still working out entry parameters and position sizing with them, but as long as the market doesn't go on another year long plus bull run, today's results show potential. Here are the ETFs I have chosen to integrate into my strategy: DXD UltraShort Dow 30 ProShares MZZ UltraShort MidCap400 ProShrs QID UltraShort QQQ ProShares SDS UltraShort S&P 500 ProShares SKF UltraShort Financials ProShare SMN UltraShort Bas Mat ProShares SRS UltraShort Real Estate ProShrs TWM ProShares Ultra Short Russel2k
Code: [color=green][size=2][b] Total Net Profit $1,461.13 (Per Share) $0.37 Gross Profit $1,605.74 Gross Loss ($144.61) Profit Factor 11.1 Total Number of Trades 30 Percent Profitable 73.33% Winning Trades 22 Losing Trades 8 Avg. Trade Net Profit $48.70 Avg. Winning Trade $72.99 Avg. Losing Trade ($18.08) Ratio Avg. Win:Avg. Loss 4.04 Expectancy 2.70 Largest Winning Trade $246.14 Largest Losing Trade ($111.94) Max. Consecutive Winning Trades 15 Max. Consecutive Losing Trades 6 Total Shares/Contracts Held 4000 Total Commission $74.80 Return on Initial Capital 2.25% Annual Rate of Return 249.71% Buy & Hold Return 0.84% Trading Period 3 Dys, 5 Hrs, 59 Mins Max. Equity Run-up(Daily) $1,531.13 Date of Max. Equity Run-up 6/3/2011 15:00 Max. Drawdown(Daily) Value ($70.00) Date 5/31/2011 15:00 as % of Initial Capital 0.11% Max. Trade Drawdown ($209.27) [/b][/size][/color] While the system currently delivers a considerable unrealized loss correlating with the broad market downturn as of late, it is operating within its designed framework. I just need to keep my sights upon the light at the end of the tunnel for my eventual reward. The time to be fearful about holding positions overnight is not when they are already deeply oversold. Rather, it is either when they have been freshly bid up, or are trading in a tight range about their mean, IMHO. Having been in this position of draw down many times before, I graciously accept what the market is handing me at the time. The difficult aspect of rtm trading is that virtually every position you take will be underwater at some point, some more than others. Current account equity exposure is 135%. Today, the Russell 2000 index was down 1.5%, reflected in my unrealized loss of around $1800. As misleading as the curve this week is, it nonetheless represents how the strategy churns out steady gains, at whatever time that may be. I hope that some of the present losers can reverse direction next week. I estimate that my strategy could handle another 100+ drop in the DOW Monday, followed by a gap down and then reversal Tuesday, without an excruciatingly large draw down. This would coincide with my average holding time of 2-3 days on positions. The SP500 has given up all of its gains for the past 4 months, so anything I have scored in the plus column is a positive. I am down a mere $500 MTM for the week, with a current account net worth of $64,561.54. My strategy generally is able to "tread water" when markets tank and then rebound significantly with the eventual market recovery. At least for me, it is easier to view the markets over a period of days rather than try to predict intraday moves. I doubt the Generals are day traders. I prefer a more macro view on market activity, as I think one can get a better feel for tensions generated and dissipated. Sometimes, I imagine the markets as a giant ocean-going vessel. Changes in the steering can take awhile to cause the ship to change direction.
This is monthly net profit YTD. May ended with a surprisingly nice net profit in view of the errors committed by me. Using a 10% stop loss earlier in the month hurt strategy performance, as well as my discretionary trading activity. One aspect of my strategy I like is its ability so far to maintain a relatively smooth equity curve through market timing, position sizing, and risk distribution.
nice going, Rol! may I suggest a larger font size for your posts? at least in my browsers the letters appear to be in ~2point font in your recent posts.
Thanks shortie! It's always nice to hear from long time ET members. I noticed how font size varies depending on the computer I log into. I will just leave the font size code out. Let me know if that improves things, please. I use different fonts for variety and coding practice (I like to code ). In addition, unpredictable fonts are a metaphor for the day-to-day unpredictability of the markets. Edit: This is font size = 4. Is that better for you?