thank you copernicus for the amount of work you have put in! appreciate your effort very much and look forward to learn more from you.
have a prosperous 2015 everyone!
have a prosperous 2015 everyone!
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This is not rocket science but I thought I should mention what this means for the approach. The greatest success in this strategy (being a trend trading strategy) has been when the H1 SDC has mirrored the conditions of the SDC on higher timeframes. My personal opinion is that the higher timeframes reflect fundamental criteria as opposed to institutional shenanigans. What this means is that you need to be careful when plotting your SDC on the H1 timeframe and ensure (when trading with the higher timeframe trend) that it's slope and width is consistent with the SDC on the D1, W1 and even M1 timeframes. If you are trading a retracement of the higher timeframe primary trend, the converse is true in that you should trust the H1 SDC and ensure that the commencement of the SDC is based on the lowest low or highest high of the retracement trend.
The key to trend trading lies in ensuring that price movement is consistent with the trend you are riding. Do not simply set a fixed stop and leave the rest of the trade to pot luck. One of the important factors in trend trading is constant trade management. The whole basis of the decision to trend trade is to ride the trend. Trade management at all points along the way ensures that current price action is consistent with the trend you are following. When price action is no longer consistent with the prevailing trend, it is time for your system to get you out. Note that this is inconsistent with approaches such as the DIBS strategy, Tsunami Strategy and and Equity Millipede approach, however as noted previously this approach seeks to limit drawdowns and maximise income yield.
One of the significant benefits of the SDC, which relates to the point above, is that all price action associated with the trend is captured in its derivation as opposed to say 3 or more highs or lows that influence the derivation of the trend lines used for conventional trend following techniques. The strength of the SDC is that the position of current price within the SDC provides powerful information for the trend follower concerning when a mean retracement is likely, when the trend is running out of steam and most importantly when price action no longer fits the criteria of the trend to provide an optimal exit.
This approach has been configured to provide income yield as opposed to 'shooting for the sky'. For those wishing to adjust the inputs for enhanced returns but also face the requisite increased risk, consider the following adjustments:
Set the H1 SDC to 2.0 on entry and on reaching 3R revert to 1.0 SDC. When reaching 6R revert to 0.5 SDC. This adjustment will allow you to ride trends longer and hopefully launch you into a longer term secular trend of substance. During the initial phases of the trend however more profit will be left on the table on exit but this is the price to pay.
Set the capital risk per trade to 1.0%. Using the current approach the doubling of the trade risk will doube the ROI but also recognise that the max drawdown will also be doubled. Your trade risk per trade using this approach is your major tool to accelerate returns but use it prudently. Your primary goal is to stay in the game. A system with positive expectancy will deliver rewards over the long time but can be compromised through greed. Don't overestimate your tolerance for pain and never assume you can ride out significant drawdowns.....we are just human after all. The whole basis of this system is to manage uncertainty and keep you in the game for as long as possible till those great trends emerge.
Ensure that you are realistic in your expectations. All trend following systems encounter periods of difficulty. One of the significant benefits of this approach however is that you can sustain considerable poor trading conditions and a large number of consecutive losses without facing substantial drawdowns. Just remember that this trading approach will catch all trends of substance so if you believe that trends are a fairly regular phenomenon in the market then you can sleep well at night using this approach. This approach will quickly recover from poor trading periods once some trends of substance materialise.
You can never anticipate when an instrument will commence trending so the following key rules are paramount in delivering regularity of income yield for a trend trader.
Maintain as diverse portfolio as possible provided you can ensure you maintain control of your trading. Once skilled in this approach a portfolio of up to 40 instruments is possible given that using 24 instruments, trade activity is only about 0.5 trades per day. Obviously you will need a number of trading screens, a good quality trading platform and you will need to work on your technique to progressively add to the portfolio over time. The stats from this strategy conclude that there is a favourable probability bias with this technique so the more instruments you trade, generally the better off you will be. If you trade more markets, provided you have a probability edge, you increase the chance that you will enounter conditions favourable to your trading system in at least one of those markets. Ideally these markets should not be highly correlated.
Be selective in your trade entries. Ensure that you trust your system and avoid listening to your gut instinct. Overtrading is one of your greatest obstacles with an approach such as this. With a large portfolio, you can afford to be selective. Don't lose sleep if you miss a trade.....there will always be others. Always monitor your statistics closely as it is a good way to detect when you are over-trading. You should be waiting till the instrument 'shouts out' to you that a trend is in place before entering.
Don't be too anal with your entries. Provided you trade within the SDC, you can enter at any time but my preference is to trade breakouts simply as they stand out to me as times when price action has high momentum in the direction of the prevailing trend. Those who are more patient might like to consider trading when price action moves through the mean SDC of the W1 chart to ensure that price is fairly valued during it's trend move. It is really up to you. Retracements upon entry are a common occurrence but provided you are within the H1 SDC and this channel is representative of the longer timeframe SDC's then all is ok. Just be patient and observe the rules of the system.
Dislikedthank you copernicus for the amount of work you have put in! appreciate your effort very much and look forward to learn more from you. have a prosperous 2015 everyone!Ignored
Risk:Reward Scenarios
The 2013 and 2014 trade results are based on the following risk parameters:
The 2 years of trading results allows me to make some bold conclusions regarding the anticipated R:R to be achieved through altering key risk management variables used by this approach. Scenario tests of risk:reward using different risk parameters are as follows:
Attached Image
Results conclude that enhanced performance within manageable risk parameters can be achieved with a risk per trade of 1.0%. If you are more risk averse or a fund manager seeking to deliver more modest but reliable returns, the lower R: R associated with a 0.5% risk per trade would be perfectly suitable.
The equity curve associated with performance since January 2013 using this approach and 0.5% risk per trade is as follows. The impact of the poor trading result in December and associated drawdown following 12 consecutive losses is reflected in the chart below.
Given the consistent performance of the approach to-date, there really is no need to alter trade variables at this stage such as the SDC width to stay in trends longer. The old saying buzzing around in my head at the moment is....If it ain’t broke, don’t fix it.
I have included my analytics spreadsheet for anyone that wants to delve deeper into the system’s performance characteristics.
Well that’s it for the annual update.
Regards
C
DislikedConclusions So far, I could not be happier. The approach currently achieves desired outcomes well in delivering a fairly consistent income with very low risk. Future considerations for amending this approach which are a work in progress include: Analysing correlations between instruments and refining the portfolio selection to achieve more consistent income yield; Assessing the optimal positioning of the H1 SDC within D1 SDC to improve entry conditions, more effectively utilise mean reversion and optimise position sizing; Increasing the instruments...Ignored
DislikedThanks B :-) I have been thinking of you and am hoping that you have put your feet up for a well earned rest over the festive period. Looking forward to a bit more collaboration with you and your trading technique next year. Let's hope its brings good results. My antennae is sensing a bit more volatility this coming year so it is going to be interesting to see how things play out for the trendies. Have a great New Year. Regards CIgnored
Disliked{quote} anyway here is a small gift to satisfy your nerdy Backtesting, optimization and Simulating Trading systems sideIgnored
Disliked{quote} Last Trading day of the year, a USD retracement, an AUD change of direction (Both already hit their ADR for the Day) and the yen pairs are pointing us to a new game plan this new year, is it gonna hold ?. Best. {image} {image}Ignored
DislikedIt's a bit early I know but thought I would get this out of the way during these market doldrums. It may run over a few posts so bear with me. 2014 Annual Review of the DTT Approach {image} Notes to associated results The results presented in the Annual Summary above were based on backtest results for 2013 and forward test results for 2014. To keep realistic, the forward test results were a result of dedicated paper trading live (within reason) during 2014 to simulate realistic conditions and assist in my determination of the practicality and manageability...Ignored
DislikedMany thanks coppernicus, for sharing your knowledge with us ... Happy New Year and Best wishes to all.Ignored
Disliked{quote} Great thread!! Just curious if you have the excel template that you used to calculate and track your progress available for download? I would love to adapt it for my own strategy.Ignored
DislikedAll of these posts is becoming too serious for me, have an excellent year start, mark your calendar. http://www.pirellical.com http://www.reef.com/missreef Best, B.R.Ignored