When To Stop Trading

Discussions about the testing and simulation of mechanical trading systems using historical data and other methods. Trading Blox Customers should post Trading Blox specific questions in the Customer Support forum.
GENX
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Post by GENX »

Dean Hoffman wrote

[quote]On a separate note, I am staying away from the Trading Blox vs. Mechanica thing! That was NEVER my intention. I think they are both fantastic products and I am forever grateful to both Bob Spear and c.f. for making these available to us. I highly recommend them both and I have no vested interest in either of them. However, I will add one point; I think one should consider the comparison comments only from those who own both. I’ve seen a lot of comparison comments from people that don’t. As somebody that has both I can tell you unequivocally that there would be no way for me to draw a meaningful comparison if I only had one, OR if I somehow had a vested interest in (or against) one of them. No offence to Bob Spear or Forum Mgmnt, but to think either of you can comment without bias is rather silly. It’s no different if I (or somebody that has a vested interest in or against me) is talking about one of “myâ€
sluggo
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Post by sluggo »

GENX, maybe this little snippet from Robert Pardo's book Design, Testing, and Optimization of Trading systems is a step in the direction you're contemplating:
The correlation between equity curve and perfect profit is an evaluation type that implicitly includes the distribution of trades. More important is that this measure grounds system performance in the actual profit opportunities offered by the market.

Perfect profit is a theoretical measure of market potential. It is the total dollar profit resulting from buying every valley and selling every peak that occurs in price movement. Obviously, this is an impossible task, hence the name perfect profit. Mathematically, it is the sum of the absolute price differences.
One could imagine calculating the correlation between the most recent N days' worth of equity curve, and the most recent N days' worth of perfect profit, and putting it on a daily chart. After you've studied dozens of such plots for dozens of different systems, you'd eventually begin to get a feel for what "normal" behavior looks like on one of these plots. Then if the markets started behaving in a new way, one that your system was not designed to handle, you might see "abnormal" behavior on the plot of correlation between equity and perfect profit.

Actually I think Pardo might have gotten a little too fancy here, I suspect correlation may be overkill. It may well be that something like "Percent of Perfect Profit" would perfectly adequate for our purposes. This is calculated as

Numerator = (Real_Equity_Curve[today] - Real_Equity_Curve[N days ago])
Denominator = (Perfect_Profit_Equity_Curve[today] - Perfect_Profit_Equity_Curve[N days ago])
Percent of Perfect Profit = 100% * Numerator / Denominator
GENX
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Post by GENX »

Thank you very much sluggo.
ADMP
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Post by ADMP »

Coming back to an old subject, but it is perhaps not so out of date...
I read c.f.'s book. And I was wondering, what they did in 1987 just after being in their worst drawdown (being short ED and T-Bills, long gold, etc). Did they trade as usual without changing anything or did they reduce their size (other as induced by the atr) because of the "special case / crisis / potential Fed's actions"?
Perhaps this question is already covered somewhere in this forum, but didn t find.

Alex
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