Another Look at portfolio construction

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.
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Chris67
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Another Look at portfolio construction

Post by Chris67 »

Been having a good hard look at markets to trade again recently. I believe a good way to do your backtesting would be to take out the yen and eurodollars. I think these 2 markets have been so profitable in years gone by that they are the staple of all trendfollowing portfolios. Therefore to get a better real life feel .. take away these markets .. as we have seen eurodolls have really gone nowhere for a long time and with interest rates prob sticking in the sub 3 to 5 % bracket for many years to come I think it would be more realistic to eradicate the obvious products.

Semms to me also that system design is a trade off between catching a trend and drawdown .. I.e the usual portfolio of 15 - 20 markets that I'm sure we all trade on this forum may be the worst trenders in years to come and o.j , cocoa, platinum and bellies may be the best .. nobody knows .. But what we do know is twofold .. the more markets you are in the more likely you are to catch a trend and the more markets you are in the bigger your drawdown is likely to be .. its an interesting tradeoff .. anyone else done any work with it??

Also has anyone come up with any really good shorter term ideas on trendfollowing based on the 6 systems currently supplied ? My best shorter term idea surround the bolly counter trend but its hard to get a smooth and reliable parametr space ..

Chris
Ted Annemann
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Post by Ted Annemann »

Nobody can tell you whether your idea is good or bad, for that would amount to predicting the future. "Eurodollars will not trend enough to make money" is a prediction of the future.

The best you can possibly hope to do, is decide whether your idea is a good fit to your individual and unique pesonality. If it feels good, do it. Who cares whether it feels good for somebody else?

Who cares what somebody else thinks is a good way to choose a portfolio? They're not you. All they can do is choose a portfolio that feels good to them.
edward kim
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Re: Another Look at portfolio construction

Post by edward kim »

Chris67 wrote:But what we do know is twofold .. the more markets you are in the more likely you are to catch a trend and the more markets you are in the bigger your drawdown is likely to be .. its an interesting tradeoff .. Chris
"We" do know that for sure? I do not know.

Drawdown (in the most basic form) is the interactive result of bet size and number of markets traded. For a purely random distribution, 2% bets in 10 markets might have a larger drawdown thank 1% bets in 20 markets.

Your statement has a tendency to be true if the bet size stays the same, but the drawdown curve is not linear. At some portfolio size, you have huge open equity exposure. If you keep the potential heat constant (bet size X # of markets traded), you might experience lower drawdowns by trading more markets with smaller bet sizes.

Edward
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