Exercise N° 1

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.
Post Reply
marriot
Roundtable Knight
Roundtable Knight
Posts: 352
Joined: Thu Nov 20, 2008 3:02 am

Exercise N° 1

Post by marriot » Mon May 21, 2012 3:26 pm

Reproduce known Ed Seykota's results.

Starting equity on 1972, five thousand dollars.
Ending equity on 1988: fifteen millons.

Toosday
Roundtable Fellow
Roundtable Fellow
Posts: 70
Joined: Fri Jun 03, 2011 11:21 am
Location: Austin, TX

Post by Toosday » Mon May 21, 2012 5:06 pm

Good idea. I did try this and got fairly close. I will have another go and see what happens. One issue is that I do think there was some discretion in that period as well.

Chelonia
Roundtable Knight
Roundtable Knight
Posts: 497
Joined: Mon Apr 30, 2007 3:37 pm

Post by Chelonia » Mon May 21, 2012 8:28 pm

There is always discretion :-)

marriot
Roundtable Knight
Roundtable Knight
Posts: 352
Joined: Thu Nov 20, 2008 3:02 am

Post by marriot » Tue May 22, 2012 7:21 am

On 1977 there were 27 futures available.
W,C,S,O,BO,SM,SI,PL,LC,SB,CC,HG,LH,KW,OJ,CT,LB,FC,JY,CD,BP,SF,KC,GC,
PA,US.

I don't know if Ed was trading all markets and if i he was trading more then one sistem.
I don't think he was too much sophisticated at that time.
We can assume he was trading a simple channel break or a dual moving average.
I can't do that with 5.000 starting equity, even using all futures and the
two systems together.

rhc
Roundtable Knight
Roundtable Knight
Posts: 464
Joined: Tue Nov 18, 2008 8:46 pm
Location: Oz

Post by rhc » Tue May 22, 2012 11:34 pm

Have you considered that Ed may have used a Pyramiding strategy with very high heat?
During the inflationary 70's we had very large upside moves with not to much 'chop' so anyone that kept adding to positions as markets moved up and then kept adding to positions as markets moved up some more would have found them selves with HUGE profits.

Pyramiding worked for the Egyptians maybe it worked for Ed as well.

The challenge, of course, was to exit with the bulk of those profits still intact.

stopsareforwimps
Roundtable Knight
Roundtable Knight
Posts: 199
Joined: Sun Oct 10, 2010 1:47 am
Location: Melbourne Australia

Post by stopsareforwimps » Wed May 23, 2012 4:06 am

marriot wrote:On 1977 there were 27 futures available.
W,C,S,O,BO,SM,SI,PL,LC,SB,CC,HG,LH,KW,OJ,CT,LB,FC,JY,CD,BP,SF,KC,GC,
PA,US.

I don't know if Ed was trading all markets and if i he was trading more then one sistem.
I don't think he was too much sophisticated at that time.
We can assume he was trading a simple channel break or a dual moving average.
I can't do that with 5.000 starting equity, even using all futures and the
two systems together.
He did imply that he was selective about which markets he traded in at any given time. He said on his FAQ that without a feel for which markets to trade in it is difficult to get a Sharpe ratio over 1.0 over time.

This is also in line with his statement that he spent a lot of time going over markets - as many as he could get printed graphs for - one day at a time, with a piece of paper hiding future prices, to get a strong feel for markets.

He also agreed with a comment that the mathematically optimal heat is more than almost anyone's "gut" can take ie it is beyond the vomit level.

He also said he had to take "volatility holidays" from time to time.

Market Wizards quoted his compounded returns after tax but gave no measure of risk eg Sharpe, Stdev, Lake ratio, etc. For other traders the book did quote measures of risk and volatility.

Putting all this together I think his "risk" levels were indeed terrifyingly high.

marriot
Roundtable Knight
Roundtable Knight
Posts: 352
Joined: Thu Nov 20, 2008 3:02 am

Post by marriot » Wed May 23, 2012 4:49 am

What ever i try i need at least 15.000 usd starting and never get less then
70% DD.
And i still do not belive he was already using heat control at that time.
Could it be that he was just a "lucky bastard" ?
:D

well,at least at the begining.

rhc
Roundtable Knight
Roundtable Knight
Posts: 464
Joined: Tue Nov 18, 2008 8:46 pm
Location: Oz

Post by rhc » Wed May 23, 2012 9:14 am

marriot wrote:Could it be that he was just a "lucky bastard" ?
It certainly is possible.
Nassim Taleb (controversially) reckons;
There is one world in which I believe the habit of mistaking luck for skill is most prevalent – and most conspicuous – and that is the world of markets
And
For instance, we often have the mistaken impression that . . . a trader(is) a talented trader, only to realize that 99.9% of their past performance is attributable to chance, and chance alone.
Source:
http://www.curatedalpha.com/2011/nassim ... l-markets/

Aaron01
Roundtable Knight
Roundtable Knight
Posts: 113
Joined: Thu Jun 02, 2011 1:21 pm

Post by Aaron01 » Thu May 24, 2012 12:20 am

stopsareforwimps wrote: He also agreed with a comment that the mathematically optimal heat is more than almost anyone's "gut" can take ie it is beyond the vomit level.
A similar statement is shared by Ralph Vince

Moto moto
Roundtable Knight
Roundtable Knight
Posts: 427
Joined: Mon Jun 01, 2009 4:12 am
Location: once again in the UK

Post by Moto moto » Thu May 24, 2012 3:22 am

Understanding that your skills are really only luck just hold you back and force you to be conservative.
sometimes the best skill is being able to believe that you are skillful, or at least be able to recognise when you got lucky.

You still need skill to be able to ride the luck, put yourself in the positions to be able to make the most of that luck, and minimise the impact of bad luck.....oh isn't that the aim of systematic trend following? :shock:

too many sliding doors possibilities to think about.

gunter
Roundtable Fellow
Roundtable Fellow
Posts: 83
Joined: Wed Aug 24, 2005 7:25 am
Location: George Town, Cayman Islands

Post by gunter » Thu May 24, 2012 8:47 am

marriot wrote:What ever i try i need at least 15.000 usd starting and never get less then
70% DD.
And i still do not belive he was already using heat control at that time.
Could it be that he was just a "lucky bastard" ?
:D

well,at least at the begining.
Ed also allowed client to withdraw cash from their accounts and not add any more. At first I thought it was to maintain "exclusivity" (lack of better word), but now I think that it was beneficial to the relationship between him and the client.

Whenever the clients got nervous, they could just withdraw money, but when greed kicked in, they could not deposit any withdrawn money back into the account.

This would have provided some form of heat control.

But then again, all of this is pure speculation on my part as I have never seen that account statement.

Post Reply