STUDY 1: Percent winning trades triggering INCREASE / DECREASE IN LEVERAGE (RISK)
A week ago, I published a study that found a weak link between increased AlgoLab performance (decrease in risk/reward ratio (G/P)) and a recent string of both winning trades, and losing trades. if there is a good % of winning trades recently, then GP improves if risk is increased. If there is a large % of losing trades over a much longer period of time, then GP also improves if risk is ALSO increased. This is logical, and basically says that when the % of profitable trades starts to increase, that it will continue. This also says that if we have been going through a long drawdown period, it can make some sense to increase risk to catch the equity "bounce back" when marke...
Is is possible to reduce drawdowns in your account by manually adjusting your AlgoLab settings?
AlgoLab was designed to be fully automatic, but it does offer the some manual controls like using the pause button, adjusting the risk value (leverage), and customizing the symbol portfolio.
Can we improve the results of your AlgoLab by overriding the automatic operation, by using your discretion to apply some of these custom settings? In this blog post I'll attempt to test a theory that I have about using a recent string of winning closed trades as an indicator to improve the risk/reward ratio.
RISK REWARD RATIO (GAIN/PAIN RATIO)
When I measure trading results, I do not like to use profits as the only measure of how well a system performs. What is m...
Human beings with our animal brains are very poor decision makers, and not really suited to making buying or selling decisions based on far more information than our meat computers can process. This is why objective, tested algorithmic trading is always going to be more profitable.
Excerpts from “The Drunkards Walk”
Which is greater: the number of six-letter English words having “n” as their fifth letter, or the number of six-letter English words ending in “ing”? Most people choose the group of words ending in “ing.” Why? Because they’re easier to think of than generic six-letter words. But the group of six-letter words having “n” as their fifth letter includes all six-letter words ending in “ing.” Psychologists call thi...
Yes, we are in a drawdown. Drawdowns have happened before, and they will happen again - I can guarantee that. Be patient. I would like to remind everyone that the AlgoLabHouse account (shown above) has been through quite a few drawdowns since 2016, and has never paused trading, or reduced risk. Of course, many of you do pause or reduce risk during the drawdowns and have avoided some of the losses.
It does appear that the extent of this drawdown is similar to what has occurred in the past. That does not guarantee that we are nearing the end of this drawdown, but that is possible.