Number of Trades Decrease as Risk Per Trade (%) Increases?

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jameskuah
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Number of Trades Decrease as Risk Per Trade (%) Increases?

Post by jameskuah » Fri May 27, 2011 1:31 am

Hi all,

I did a few modifications to AFJ Garner's "Modified Turtle System" by switching the traditional MACD Porfolio Manager for a Moving Median PM and adding additional Chandelier Stops to the system. In additional, I have also changed the Fixed Fractional MM to risk a percentage of core equity which is a slightly more conservative value for trade sizing when the system is going through a difficult period, and it is a more aggressive value when the system is earning equity.

I decided to test it on a 31 well diversified market using a starting total trading equity of $100,000 and did a 20 year test. One thing that struck me as odd was that as I increased the the unit risk per trade (%), the number of trades decreased instead of increased and i thought that this was to be the other way around.

I have attached two image of a testing based on 5% core equity and 10% core equity and you can see clearly that there was a distinct drop in number of trades as the unit risk % increased.

Am I doing something wrong here? Would really appreciate if someone could advice a newbie on this. Thanks so much.
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10% Core Equity Test.jpg
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5% Core Equity.jpg
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AFJ Garner
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Post by AFJ Garner » Fri May 27, 2011 2:26 am

I am assuming you are using a risk management Blox. Switch it on and off and see the difference. A smaller bet size allows for a larger number of trades to come and go within the given risk criteria. A larger bet size will have you stuck in a smaller number of larger trades.

jameskuah
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Post by jameskuah » Fri May 27, 2011 3:30 am

Thanks for your reply AFJ Garner. Yes I am using Sluggo's BBBO RM and after switching off it, I noticed that the difference in trades has shrunk tremendously, but the drawback was the increase in DD length and TE DD.

By the way AFJ Garner, I have been tweaking the Modified Turtle System and I can't seem to bring the MAR ratio over 2. Are there any ways or blox files that you could recommend I explore on or look at working on to improve the MAR ratio?
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10% Core Equity.jpg
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5% Core Equity.jpg
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AFJ Garner
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Post by AFJ Garner » Fri May 27, 2011 5:48 am

I don't think there are, really. Keep fiddling and experimenting. Add a few more futures to the portfolio and see if it makes any difference to the smoothness of the curve (even if not to the MAR). In any event you will see from many other discussions on this forum that in real life and over the long term few if any have achieved a return greater than their maximum draw down. After you have satisfied yourself that there is little further you can do in terms of altering and improving one particular system, you may want to try adding non or low correlated systems to achieve a smoother equity curve. Ideally, systems which go up when your base system goes down.

jameskuah
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Post by jameskuah » Fri May 27, 2011 5:55 am

Thank you for your insightful advice. I wish you all the best in your trading and have a great weekend ahead. :D

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Post by jameskuah » Fri May 27, 2011 7:58 am

Hi AFJ Garner, just to follow up on your earlier comment that 'over the long term few if any have achieved a return greater than their maximum draw down", I must say that I am absolutely in agreement with what you have mentioned. After extensive testing and tweaking with some of TBB's systems over a long time frame, I have come to realise that even after combining different systems, the MAR ratio still comes close to 1.

I have attached a performance report for a 2% Unit Risk per trade for a testing consisting of a 50% "Modified Turtle System" and a 50% "Modified Bollinger Band Breakout" on a well diversified 49 markets with a starting equity of $500,000 traded from 1974-2011 and as you can see the MAR ratio comes close to 1.

Out of curiosity, has anybody in this forum every come close to attaining more than a 1 MAR ratio over the long term during their testing?
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2% BB & Donchian System.PDF
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AFJ Garner
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Post by AFJ Garner » Fri May 27, 2011 8:06 am

Actually, I seem to recall there have been lots of tests published here with impressive MAR. What I really meant was that even if a test does show a high figure for the MAR, achieving that in real live trading may prove difficult over the longer term.

jameskuah
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Post by jameskuah » Fri May 27, 2011 8:11 am

I see. What is the reason for that? Has there been any extensive discussion about this?

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Post by rgd » Fri May 27, 2011 11:11 am

Not to be smart, but it is similar to the laws of physics by which we are all bound. To generate returns you have to assume risk, risk = volatility, volatility = drawdown. There seems to be a limit to how much return one can extract from markets in relation to the volatility one must endure. At times, select managers seem to be immune from this limit, but over time you realize no one is. In the perfect world of backtesting, anything is possible. In real trading, not quite.

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Post by jameskuah » Thu Jun 02, 2011 4:37 am

Thanks to all for your replies. :)

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