Thanks for all the support guys. The thing that was really frustrating was I didn't understand what I did wrong. I think now I know. I didn't do enough analysis. While I did do my backtesting with worst case scenarios (so hit no fills etc.), I didn't do the Monte Carlo scenarios because I do not know how to do it. So if someone could point in the right direction to learn that would be great. Also I realise that i was overleveraged and have taken steps to correct that in the future.
https://sites.google.com/site/prospectus/welcome/released-tools though i doubt it was the case,but anyway...
the system didnt take into account the 'context' here is the starting point for you to get the context: http://www.hebcal.com/holidays/2011-2012
There's a couple of papers on MC techniques posted on the reddit Algorithmic Trading group I moderate that you might find helpful: http://www.reddit.com/r/algorithmictrading/
Did you realize that before you started this thread or did you do a quick review and suddenly notice your position size management was too large in comparison to your prior months of trading or in comparison to your backtesting parameters after you started this thread. More importantly, what steps have you taken to correct that in the futures especially considering you said the following when you started this thread... I followed my strategy to the letter and the backtesting was done in a precise and logical manner. In addition, have you been over-leverage before this catastrophic losing trading month or did you for some reason decided to increase your leverage (position size) to the point you were over-leverage in the month of December under the simple reason (not a good reason) I'm a profitable trader. Regardless, if someone is using automation or discretionary...a trader that was consistently profitable and then unexpectedly had a blowup or catastrophic losing trading month...over-leverage (position size management) is one of the culprits any trader should look at that's at the top of the list for why such happened. Over Leveraged is amongst the most common reasons why most traders are losers or suddenly have a blowup or catastrophic losing duration. It should be on the every traders New Years Resolution list to have the discpline to not be over-leveraged.
Been there. The idea as mentioned before in this thread is to set your DD level, where you halt the system. I too was running a system that backtested great for 4 years with relatively simplistic rules. As it went from flat to a loss, I tested it on a highly correlated instrument (the original didn't have long enough history), the results were not encouraging. The number of trades and a long test sample (more than 5 years) is very important. You could also try different markets which have similar behavior, if the results are at least close - consider it confirmation.
I always knew I had to leverage more than most of the people on here basically because I had low funds. However, they were still based on what I thought was worst case scenario plus a bit more based on the numbers I got from my backtesting. Also it is true that the results were pretty consistently positive other than June and now December...although so far December's losses are double of June's and June was my previous worst month. Results after June had improved to profitable, which is why I decided that I would finish trading December. My size has not changed however, as I try to keep the same size for the whole year to avoid losing more on more contracts, getting scared, then making less on fewer contracts when the losing streak ends. I backtested as far back as 2007 because that was as much reliable data as I could my hands on. I was also told that I should not really expect something that worked 5 years ago to work now. Therefore, I didn't feel like something that would or would not have worked 10 years ago would be very relevant.
BTW, for my MonteCarlo simulations I use YASAI which is a free add-on for Excel ... A long time ago I had shared the attached sample spreadsheet on another forum ... My current spreadsheets also track the Peak P&L & Drawdown Duration (# of trades)