Eckhardt is better than Richard Dennis in money management ?

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PTCM
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Eckhardt is better than Richard Dennis in money management ?

Post by PTCM » Fri Aug 05, 2005 1:27 am

Eckhardt's equity curve is unreal

http://www.iasg.com/SnapshotPT.asp?ID=114

How many times did Richard Dennis blow up over the last 20 years ?

Judging from the drawdown and AUM, Eckhardt seems to be much better than Richard Dennis, even though he lost the bet in the turtle experinment.

Does anyone know which specific markets Eckhardt trades to achieve this kind of super kick ass equity curve ?

He just made another new high..... US $430mil AUM charging 2-20....

PTCM
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just made another new HIGH

Post by PTCM » Fri Sep 23, 2005 12:44 am

http://www.iasg.com/SnapshotPT.asp?ID=114


What is he doing ? How can he possibly be so good ????

TK
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Post by TK » Fri Sep 23, 2005 1:44 am

A few months ago, when browsing through the archived contents of the web, I found this:
June 29, 1996
Ritz Carlton Hotel

Address by William Eckhardt
President, Eckhardt Trading Company


At Eckhardt Trading Company ("ETC") we try to take a scientific approach to trading. This is not an easy description to live up to. We try to earn it by paying a lot of attention to the foundations of the subject, to the soundness of our methodology, and to the correctness of our statistics.

In terms of the foundations of the subject, we rely heavily on Decision Theory and Utility Theory. To see the usefulness of this, first note that there are two respects in which profits and losses are not equivalent. One is objective and has to do with nonlinearity. For example, it requires a 100% profit to balance a 50% loss. The second is subjective and has to do with risk aversion, for many people even the prospect of a 150% profit does not compensate for the risk of a 50% loss. Through Utility Theory, such imbalances can be treated in a rigorous, quantitative manner and in this way uniform and unified procedures can be developed. Look at the question of risk management. Any trader who survives any length of time knows something about his subject, but in my experience, traders simply graft risk control on top of whatever else they are doing, often in an arbitrary way. For instance, many prospective clients have asked me what’s the most I’ll lose on one trade. I can look up these statistics, but this is not something I would ordinarily pay any attention to. It doesn’t matter how little you lose on an individual trade, but how much you might lose on your whole portfolio. You’re not going to keep a ship afloat just by making sure the leaks are small. The important thing is to limit portfolio risk, the trades will take care of themselves.

We have devised a portfolio theory quite different from the classical theory that permits factors such as risk aversion, the nonlinear imbalances between profits and drawdowns, and long-term utility growth to be built in at the ground floor. They are all part of the formulas that define what it means for a system to be good. In this way, on even the most preliminary test run of a new idea we are forced to take into consideration the subtle and complex relations between drawdowns and long-term growth. At ETC we are dedicated utility maximizers and pay particular attention to the rate of expected utility growth.

It has been shown again and again, that without proper controls, even the most honest researcher will unconsciously bias research usually in a favorable direction. Trading systems research is especially rife with possibilities for this kind of wish fulfillment. During more than 20 years, we have seen an amazing variety of ways in which research can mislead or falsify. In response to this we have developed a veritable gauntlet of tests that any system must pass to be taken seriously. We test for post-dictiveness, for computer glitches, and for statistical artifacts. We test for overfitting, for maldistribution of returns, and the degree to which a system takes advantage of unusual and possibly nonrepeatable circumstances. Theses are just a few of the potential sources of trouble that we routinely monitor. This battery of tests can bring runaway enthusiasms back down to earth.

An important feature of our approach is that we work almost exclusively with price, past and current. One reason for this is that to make any progress in the early stages of quantitative investigation you usually have to reduce the relevant factors to one or two crucial variables. Price is definitely the variable traders live and die by, so it is the obvious candidate for investigation. The other reason is that in a system that’s making good use of price information, it is very difficult to add other information without degradation. Pure price systems are close enough to the North Pole that any departure tends to bring you farther south.

Many systematic traders spend the majority of their time searching for good places to initiate. It just seems to be part of human nature to focus on the most hopeful point of the trading cycle. Our research indicated that liquidations are vastly more important than initiations. If you initiate purely randomly, you do surprisingly well with a good liquidation criterion. In contract, random liquidations will kill the best system. At ETC we expend a lot of our research effort on liquidations.

Most standard statistical techniques are inappropriate for analyzing trading. Statisticians have developed many delicate techniques that squeeze information from minimal data, but these give false results in this business. I tell traders that if the results don’t sock you in the eye, they’re probably not real. Accordingly, we use only the most robust and assumption free statistical tests, We have an aversion to summary statistics that obliterate important structural elements. For assessing systems, we use a technique called bootstrapping so that the complete distribution of past outcomes can make itself felt in decisions; the distribution is not simply viewed in terms of its mean and variance which can give a distorted picture.

Our aversion to summary statistics that obliterate structure extends to the trading systems themselves. For instance, we avoid moving averages of price in making trades. Such moving averages are popular mostly because they’re mathematically tractable, but they smooth away all the structural information inherent in the price data.

Another popular tool, the price breakout, may be far better than the moving average, but it still eliminates most of the relevant structure. A breakout trader keeps two pieces of structural information, the high and the low for a given time period, but ignores all the price structure in between. For this and for other reasons we judiciously avoid breakout trading in all parts of all our systems.

It’s a lot easier to look scientific than to be scientific. We try to avoid the kind of delicate fine tuning that gives on the feeling of being very accurate, but that is in fact mostly arbitrary. We have taken to heart the research that shows that simple yes-no schemes, either fully accept or fully reject something, are more useful and more robust tan delicate weighting schemes. For instance, we do not favor trades according to how good they are supposed to be, instead we use the following rule: if a trade is good enough to make, it’s good enough to make at full size; if a trade isn’t good enough to make at full size, then don’t make it at all. We adhere to this kind of reasoning all the way down the line. All five systems we currently use are given equal weight. We also try to give equal weight to each of the fifty or so markets we trade.

I would characterize our overall approach as "conservative". This does not mean that we avoid market risk, for market risk is the raw material from which profit is fashioned, but we are conservative about what we know and about what can be done. My experience with Decision Theory indicates that knowing what it is you are ignorant of is in fact a powerful position to be in. The task of the trader is to locate those few areas where ignorance is not complete and to convert this information into profitability in an efficient way. False knowledge can be very detrimental to this process, but acknowledged ignorance can be quite beneficial.

PTCM
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Does anyknow how "bootstrapping" can be used in si

Post by PTCM » Fri Sep 23, 2005 5:19 am

thanks TK,

I did a google search on "bootstrapping." I found this, but I don't fully understand it and more importantly how Eckhardt used it in his back-testings.....

Anyone ????

http://www.icp.ucl.ac.be/~opperd/private/bootstrap.html

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Post by damian » Fri Sep 23, 2005 6:48 am

Our aversion to summary statistics that obliterate structure extends to the trading systems themselves. For instance, we avoid moving averages of price in making trades. Such moving averages are popular mostly because they’re mathematically tractable, but they smooth away all the structural information inherent in the price data.

Another popular tool, the price breakout, may be far better than the moving average, but it still eliminates most of the relevant structure. A breakout trader keeps two pieces of structural information, the high and the low for a given time period, but ignores all the price structure in between.
This is not a conclusion, but it sounds like he is (was) counting waves or trading chart patterns.

PTCM -

assume you are happy with a CAGR of 30%
assume you are happy with max DD of 30%
assume you have a few million dollars and so can get very granular position sizing delta with each equity delta and can also bet 0.25% of equity each trade.
assume you have lots of time resource and a sound process of designing, testing and accepting/rejecting systems.

Come up with a set of very simple systems, none of which need to be astounding, they just need to have low drawdowns. Who cares if they also have low returns. Make each trend following system with a particular feature in mind: long term weekly and slow, intra day bars and fast, intra day bars and slow, daily bars and slow, daily bars and fast, some lock in profits, some have profit targets. Pay attention to correlation and the correlation between entry and exit.

Combine all these systems into one pot and call it your system. You might be surprised at how you can aggregate simplistic ho-hum performance into quite a reasonable yield curve with 1:1 pain to gain.

This is just a theory, I have not yet proved it in reality (TBB, Mechanica, TR etc are not reality).

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Post by AFJ Garner » Fri Sep 23, 2005 12:54 pm

Don't just look at the annualised return or the MAR based on the whole history. Look at the performance over the past 5 years. Look at the performance over the past 10 years. Note the very high 1987 performance. Not knocking him, far from it. But you need to look further than the headline figures.

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Post by sluggo » Fri Sep 23, 2005 1:43 pm

A nice introduction to bootstrap methods can be had for US $16.00 plus shipping http://www.amazon.com/exec/obidos/tg/de ... 80395381X/

Beware: this is a math book. If you hate math, don't bother with the above link.

While you're browsing at amazon you might also enjoy looking at the other product offerings in the "Customers who bought this book also bought" sections.

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Post by BARLI » Sat Sep 24, 2005 6:44 pm

PTCM wrote:What is he doing ? How can he possibly be so good ????
In 1974 William Eckhardt began trading for his own account at the Mid America Commodity Exchange.
When you been trading 11 years, i think you can come up with some tradable strategies and have enough confidence to start a Hedge fund.

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