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AlgoLab by theAlgoLab.com is trade execution assistance software. theAlgoLab.com company, software, or it's principals do not provide trading advice or recommendations. If you require personalized professional trading / investing advice, please consult with a licensed broker/CTM. Actual past performance, or simulated past performance does not guarantee future results. Trading futures assumes a high level of risk. theALgoLab.com and it's principals are not registered as investment advisors. Consult with a CPA or financial advisor, or broker to ensure that your strategy utilized is suitable for your investment profile before trading in an actual funded live brokerage account.


Some trading performance results posted at this web site are from back-testing systems during the dates indicated, using specific settings, from a basket of different futures contracts. Some performance results shown here benefit from hind-sight. Some results shown result not from actual funded trading accounts, but from simulated accounts which have certain limitations. Actual results will differ given that simulated results could under, or over compensate the impact of certain market conditions. Actual draw downs could exceed back-testing draw downs when traded on actual trading accounts.  While back-tested results might show profitable returns, once commission, slippage, and fees are considered, actual returns will vary. 

Futures trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this website or on any reports. The past performance of any trading system or methodology is not necessarily indicative of future results. 

August 22, 2019

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Avoiding drawdowns (Part 2/2)

March 25, 2018

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 market conditions start to revert back to normal once again.


However, I DID NOT find sufficient evidence required to build these new filters into the trading systems. The findings were very weak, but they are there.


STUDY 2: Percent winning trades triggering a TRADING PAUSE / UNPAUSE


This study was similar to the previous study, except that I was looking at the effect of suspending trading (PAUSE) after a recent increase of % winning trades, and also suspending trading after a recent increase in % LOSING trades.


Results of study 2


I found weak evidence that when the % of winning trades increases to between 48% to 60% wins over a long period of between 100 to 200 previous trades followed by a suspension (PAUSE) of trading for between 50 to 300 next trades, the GP ratio improved marginally.


I also found weak evidence that when the % of winning trades DECREASES to between 5% to 10% over a period of between 10 to 20 previous trades, followed by a suspension of trading (PAUSE) of between 10 to 80 next trades, the GP ratio also improved marginally.


Generally speaking, since it is very difficult to predict how long a winning streak, or equity run-up is going to last, we do know that the longer it continues, the more likely a drawdown will occur next. if you can time a pause near the top of an equity run-up (or reduce your leverage (risk), then you may be able to avoid some of the subsequent drawdown.


Also, if we have been going through a drawdown, it does make some sense to UNPAUSE trading in advance of the next equity run-up period (or increase leverage (risk) - assuming you can "time" (guess) when the equity peak will form.


As I said above, the evidence is weak (but somewhat consistent). Acting on these ideas may or may not improve your results beyond that of simply leaving the AlgoLab systems running on auto-drive.






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