Monthly profit target and drawdown

[Black Swan]

Could be coming to a high street near you soon. I can't see the scum who depend on welfare taking kindly to a cut in beer money from George "we're all in this together" Osborne.

Wow...

 

[elitejets]

I've had 100% wipe outs early days (2007-2008); 100 quid, then 250 then 500, 750..lasted approx. 10 months on (up to) 50pp s-bets .. When finally *ready* I funded/reloaded with a few grand which I kept, then grew to 9ish, at which point I realised I was beginning to to develop an edge and was willing to commit more and go at this full time...My target for this year was to personally take £250K out of the markets, Jan/Feb fell short of target, March/April back on course...

Here's a thing for everyone on this thread; when trading x amount of your capital per trade etc., if you had, for example, 50K in combined accounts and you only risk max 2% per trade and never go above 10% risk across all concurrent trades, what d'ya do with the under employed 90%...?

Oh, 4.5% is my biggest single daily loss this year....

LOL it is not underemployed 90% that's your capital, that's still going to be there when you have losing periods.
I actually risk less than you do at anyone time but my goal is to get a position on, get it into profit and protect that position (you could move your stop, I prefer to take some profit off to pay for my stops) and then add to that base position or add other trades. That way you are making more of your capital work but you are not risking any more at any one time.

 

[montmorencyt2w]

I've had 100% wipe outs early days (2007-2008); 100 quid, then 250 then 500, 750..lasted approx. 10 months on (up to) 50pp s-bets .. When finally *ready* I funded/reloaded with a few grand which I kept, then grew to 9ish, at which point I realised I was beginning to to develop an edge and was willing to commit more and go at this full time...My target for this year was to personally take £250K out of the markets, Jan/Feb fell short of target, March/April back on course...

Here's a thing for everyone on this thread; when trading x amount of your capital per trade etc., if you had, for example, 50K in combined accounts and you only risk max 2% per trade and never go above 10% risk across all concurrent trades, what d'ya do with the under employed 90%...?

I'm not going to attempt to answer that directly, but it's an interesting point.

Another way of looking at this - and I was thinking of this in the context of using large stops which tie up lots of your trading capital for possibly long periods, thereby incurring an "opportunity cost", i.e. the trades you are not able to take because your capital is tied up - is that while the foregoing may be seen as a disadvantage, it also means that your effective leverage is kept much smaller than it might otherwise be. Now in this I am somehat influenced by Dirk Du Toit. Now many will find his trading methods somewhat bizarre, but what he says about leverage seems to me to have a lot to commend it. You can find this easily enough with google, and you might be able to find a free copy of the first edition his book online, though of course I am not going to put up here a link to copyrighted material. Given that over-leveraging and over-trading are two of the things (sometimes it's one and the same thing) that lead to blowing up, then I would have thought that anything that can limit your effective leverage can't be such a bad thing.

 

[montmorencyt2w]

I actually risk less than you do at anyone time but my goal is to get a position on, get it into profit and protect that position (you could move your stop, I prefer to take some profit off to pay for my stops) and then add to that base position or add other trades. That way you are making more of your capital work but you are not risking any more at any one time.

Taking profit is also excellent psychology I think.
Took me a good while before I had enough trading capital to be able to put up enough of a position to be able to take some of it off in the first place, so now when I do this it feels like luxury

Where I differ from you both I think is that I don't apply any arbitrary limit on "risk" - I guess I am somewhat in TD's camp in this particular respect, and my attitude to or definition of risk is not the standard one; TD's definition [various threads passim] is closer, though still not quite the same.

 

[wackypete2]

Interesting thread. My drawdowns historically have been very low. This is due to the conservative nature of my trading, small stops, low leverage, scalping, etc...

I use a daily ROI in order to determine my consistency rather than some arbitrary %. Since I am almost exclusively a daytrader/scalper I contend that my ROI can be legitimately calculated using an entire day’s gains over the maximum margin used during that day, versus using each individual trade. Some may disagree and that’s ok. The point is to calculate it the same way each day. Also, anyone trading forex in the US had their leverage chipped from 200:1 to 100:1. All this really does is cut the ROI in half.

So…my daily ROI for April has ranged around the 8% area. TBH, I have no idea how this would compare to anyone else, however, for the most part that’s not relevant. I’m satisfied with it.

For those new traders who might have trouble following this...thats 8% on my maximum leverage used, NOT on my entire account.

Peter

 

[elitejets]

Interesting thread. My drawdowns historically have been very low. This is due to the conservative nature of my trading, small stops, low leverage, scalping, etc...

I use a daily ROI in order to determine my consistency rather than some arbitrary %. Since I am almost exclusively a daytrader/scalper I contend that my ROI can be legitimately calculated using an entire day’s gains over the maximum margin used during that day, versus using each individual trade. Some may disagree and that’s ok. The point is to calculate it the same way each day. Also, anyone trading forex in the US had their leverage chipped from 200:1 to 100:1. All this really does is cut the ROI in half.

So…my daily ROI for April has ranged around the 8% area. TBH, I have no idea how this would compare to anyone else, however, for the most part that’s not relevant. I’m satisfied with it.

For those new traders who might have trouble following this...thats 8% on my maximum leverage used, NOT on my entire account.

Peter

Good point, much depends on your trading style.
I am a swing trader so daily targets don't really work.
Pretty nice ROI

 

[montmorencyt2w]

So…my daily ROI for April has ranged around the 8% area. TBH, I have no idea how this would compare to anyone else, however, for the most part that’s not relevant. I’m satisfied with it.

For those new traders who might have trouble following this...thats 8% on my maximum leverage used, NOT on my entire account.

Blimey, that sounds a bit hard to keep track of. Isn't that changing all the time?
(But perhaps fancier platforms keep track of that sort of thing. Humble bed-wetter here, sorry, spread-better (Thought I'd get that in before Rothschild did ).

Don't really bother with stats myself; just head down and go for it

 

[Black Swan]

LOL it is not underemployed 90% that's your capital, that's still going to be there when you have losing periods.
I actually risk less than you do at anyone time but my goal is to get a position on, get it into profit and protect that position (you could move your stop, I prefer to take some profit off to pay for my stops) and then add to that base position or add other trades. That way you are making more of your capital work but you are not risking any more at any one time.

Come on Nic, play the game...

 

[Black Swan]

I'm not going to attempt to answer that directly, but it's an interesting point.

Another way of looking at this - and I was thinking of this in the context of using large stops which tie up lots of your trading capital for possibly long periods, thereby incurring an "opportunity cost", i.e. the trades you are not able to take because your capital is tied up - is that while the foregoing may be seen as a disadvantage, it also means that your effective leverage is kept much smaller than it might otherwise be. Now in this I am somehat influenced by Dirk Du Toit. Now many will find his trading methods somewhat bizarre, but what he says about leverage seems to me to have a lot to commend it. You can find this easily enough with google, and you might be able to find a free copy of the first edition his book online, though of course I am not going to put up here a link to copyrighted material. Given that over-leveraging and over-trading are two of the things (sometimes it's one and the same thing) that lead to blowing up, then I would have thought that anything that can limit your effective leverage can't be such a bad thing.

Good points...I likes Dirk..

 

[robster970]

I never specifically set to to define a max drawdown but have seen over time that it's 12% (6 losers on the trot) with 2% at risk per trade.

What was important for me to define was a 3 strike rule for a day primarily to inform me that I'm behaving less than harmoniously with the current mkt state. Basically push and be more aggressive if you are on the ball but stop and preserve your capital if you're not.

If you are discretionary reading price/volume/DoM you need some boundaries to tell you when to stop if you don't rely on indicators/confluence/TA.

As for what's acceptable, it's down to your method and risk tolerance.

I agree with EJ that taking a small profit early to cover costs is both a financially and psychologically rewarding if you can't handle 20% hit rates and 50% drawdowns. If you're trading frequently, the small profit per trade really mounts up over time.

 

[meanreversion]

I tweaked one trend system to return 120 pct a year, the only downside is that over a ten year period, you would expect to see a drawdown of 85 pct. Not for the faint hearted.

Amibroker also provides "standard error" which indicates how volatile the returns are (variation on Sharpe ratio I suppose). Unfortunately it just comes as an absolute number so the only way I've got it to be meaningful is to test with a static bet amount (i.e. no compounding). Then you get a rough idea of how choppy the equity curve is between systems.

 

[Adamus]

You need ten such systems whose returns are not correlated. Trade them as a portfolio and their drawdowns will be buffered by the others' profits. Actually I just plucked 10 out of the air - I'm not sure statistically how you would determine the best number of systems. I guess I would keep it simple and keep adding systems until the cumulative drawdown in backtesting reduced to something my account can handle.

 

[SvenFoster]

If your trading discretionary I think you need to consider N strikes and your out for a bit(be it day, days,week etc) as if your just not on it, no need to blow the lot.
For me that is 2 strikes and call it a day, specific trade %risk(R), max %loss for the day(2R). On the flip side I look for a daily target of 2R, most days thats 1 trade, somedays its 2+. If I achieve more than that on the 1st trade but cant resist another because conditions are ripe, I'll usually trade a smaller position as I want to finish the day in +ve territory.
As for monthly targets I think thats a waste of time. Its far better to have a good idea how many trades your likely to make, at what risk you will take them and let the numbers drop out at the end.

If your automating then its down to analysis. If your "lucky" enough to have losing streaks then you can use that to your advantage by scaling size back when you start to lose.
If you tend to have 1 or two losses followed by a win(or a huge win) then keeping the same size or carefully increasing your size *may* be of benefit.
With the numbers you can usually optimise the equity curve to something that you prefer...bigger closing equity or smoother DD....you get nothing for free but you can certainly have a compromise that suits your personallity/system more.


You have the ability to set your own rules and to be honest if you do that your pretty much sorted as without a doubt losing is all about making it up as you go along with to much risk on the table.

IMHO

 

[meanreversion]

Ten systems?? I don't have the capital/resources/time to trade 10 systems. Even large systematic funds like JW Henry only trade about 5 systems.

Or do you mean trade 10 securities?

 

[Adamus]

Even large systematic funds like JW Henry only trade about 5 systems.

I don't know anything about JW Henry. Should I? Why do they make anything like that public?

I classify one system as one instance of trading strategy, including unique parameter values.

I found a 'system' (which is untradeable from my point of risk) that can be traded with the same settings across multiple instruments. That's one system in my book.

I have another strategy which requires optimizing for each market, indeed for long trades and for short. Each optimization is one system, to me.

On the previous strategy I used where I did the calculations, I found that InteractiveBrokers demanded roughly the same in margin as my risk analysis told me I should allocate from the account on each system (or system - market combo if you like).

I also ran calculations to add up the total amount of margin I would need at any one point in time and for my original basket of 25 futures, my account size was a tenth of what was required! I ran it on a basket of 17 futures and that had several days in the last 10 years where I still needed twice what I had, and then I dropped down to ten. Hence my original stab in the dark.

 

[meanreversion]

http://www.jwh.com/templ007.cfm?id=007PP&left=1&tid=007PP

Actually looks like they have 8 programs.

All their performance data is there, month by month. Most hedge funds make this information freely available.

 

[Adamus]

Thanks.

But to be honest they have a fund e.g. the International Forex Program, but they are traded a whole bunch of pairs and who knows how many strategies / algorithms.

 

[meanreversion]

Nah, it's really only one strategy, trend following. It's not nearly as complex as people might think, however it doesn't do to say "we're doing something simple" so they dress it up in fancy verbiage.

 

[meanreversion]

Bill Dunn, another well known "trendie", claims not to have changed his system in the last 20 years. In a way he hasn't, however he does reoptimize some of his parameters once a year.

You can test this idea using walk forward. Some people say this is "chasing your tail" but if it works, it doesn't matter what you call it.

 

[Adamus]

why re-optimize on a yearly basis? the markets don't shift from one state to another annually.