Thanks for the quick reply. Also, if you don't mind, it would be valuable to hear your recommendations on selecting a money management approach. I realize that this would be getting a bit off topic at the moment, but if you'd come back to the topic when you think it fits, I'd appreciate it.
I'm sorry i had to run the mmgt test over (reduce trade size again). In general if you have a small account fixed ratio is probably better. Once it's grown you can switch to fixed % at risk. After you've done that for awhile you'll get some new ideas. I don't plan on posting about what I'm currently using (which is why I'm willing to post on older material). As you can see, to use fixed % mmgt you need a substantial account if you want small drawdowns.
Well here's the mmgt projected report for the 5 models. The goals: 67% average return --- beat 72.1% 87% of all months profitable -- beat 92.6% 8% Max drawdown -- beat 7.6% at 95% probability (once in 20 years) Notice how the addition of one really good model changed everything. The average annual drawdown is only expected to be 4.8%. Remember this is probably pessimistic because of the limitations of Monte-Carlo testing. The % risked per-trade was also reduced to just .3% so as you can see you don't need to risk alot to gain alot. Of course the proof is not in the model but what would have happened in historical trading. Next I'll post the historical report that uses the weights, and % risk to see how accurate the prediction model is to what have happened.
Here's the historical report for the same period with all of the weighting numbers plugged in. Risk per-trade .3% Annualized return 75.3% (slightly better than the model) % winning months 94.0% (slightly better than the model) Max DD -7.1% (slightly better than the model) Going forward the returns are dependent on the stability of the individual models. One of the nice things about using non-correlated models is even if one starts falling apart at least one of the others will most likely pick up some of the losses.
Acary>How are you backtesting the different models? Tradestation or is it some of your own software? Good luck and hope you replicate those results real time.
Tradestation was used to do the trades and monthly numbers. I then have a program that creates the test files.
The last post of the night. I wanted to just show how to use the model to get a boost in returns while reducing the drawdowns. I'm tired so this is going to be a little simplified. I call this the free money ratio. If you noticed on the minimum capital required to trade the 5 systems it only amounted to about $187,000. Since the account had $500,000 all the extra money isn't really working very hard. The free money ratio is: FR = account funding / minimum capital required in this case: FR = 500,000 / 187,000 FR = 2.673 To use this you multiply the original projected drawdown @95% confidence by the FR to come up with a new target drawdown. In this case the 95% drawdown was 7.6% * 2.673 = 20.31% Using this new drawdown target we re-run the mmgt report using a larger risk amount until it's close to the new target. We also use only the min. account required for the initial capital. In this case I upped the risk per-trade to .75% and set the initial capital to $187,000. You can see from the report the 95% drawdown level is 18.2% so I could have upped the risk per-trade a little more. What we're doing is saying of the original 500,000 most of it (313,000) is not going to be actively traded. Because of this it will have no risk and no return. The rest will be actively traded at the free money ratio. The return at the higher risk is 287.2% on the $187,000. While the drawdown at the 95% level is 18.2%. We then convert the %'s into dollar returns. Return = 187,000 * 2.872 = 537,064 expected profit Risk = 187,000 * .182 = 34,034 expected max dd at 95% confidence we then use the return and risk with the total account return = 537,064 / 500,000 = 1.074 or 107.4% expected return risk = 34,034 / 500,000 = .068 or 6.8% expected drawdown @ 95% As you can see by doing this the return was boosted and the drawdown reduced. You can do this everytime the account hits a new equity high and compound the return to much higher levels. This works because returns do not grow at a linear rate. I'm tired and I have to get up in a few hours to trade the DAX so I hope someone got some ideas from all this work. Take care until the next session.
Thanks. I am looking for a good tradestation programmer myself so I can get my models backtested (not really trusting metatrader 4 although the numbers look more or less the same). Seems like I might have to just learn it. Good luck acary.