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Drawdown reduction ideas?

  • #21
  • Jan 13, 2012 11:28am Jan 13, 2012 11:28am
Quoting hilmy83
currently i compound my position everyday. The problem is of course when i hit a bad day, i'm at the maximum position and it can wipe several days of profit. The upside is of course a quick parabolic equity curve when you/re winning.

i thought of using fixed size for a span of time before increasing it i'm thinking that would smooth out the effects of drawdowns on bad days/sessions.

i also thought about limiting losses to some percentage of the profit made to date. If i do that while compounding everyday, then i'm limited to how many trades i...
yeah, fixed size is not pratical either. Cause that would also affect my profits.
  • #22
  • Jan 13, 2012 11:30am Jan 13, 2012 11:30am
Quoting Pipalicious
Scaling into a position rather than entering fully.

Pyramiding into a position as previous orders are tp'd partially.

Its theoretical to me since it would capitalize on a strong directional move by exploiting the partial gains of previous entries. Equity curve goes parabolic during a good run.
hm, have to look into that.
  • #23
  • Jan 13, 2012 1:20pm Jan 13, 2012 1:20pm
Quoting Custos
hm, have to look into that.
I don't know if this is any good. Fascinating, tho.
  • #24
  • Jan 13, 2012 3:03pm Jan 13, 2012 3:03pm
Quoting Custos
Hi,
I am contemplating since a while on how to reduce drawdown while maintaining the return on account. Maybe you guys got some good ideas besides what I already know.

Assumption: We have a winning system that has a clearly definable edge and produces a rising equity curve over a couple of thousand trades.

Solutions for drawdown reduction:
1. Diversification across uncorrelated instruments
2. Combine the winning system with an inversely correlated or uncorrelated winning system
3. Combine your standard parameters of your winning system with different...
here is another one, which I just found. Get rid of the months that are only negative, each and every year. For me that is for whatever reason june. Drawdown decreased significantly AND profits increased signficantly.
  • #25
  • Feb 16, 2012 6:04pm Feb 16, 2012 6:04pm
Quoting Custos
[...] Get rid of the months that are only negative, each and every year. [...]
Definitely a good idea. I suppose that this especially applies to strategies which have longer holding periods like several days. As I am focusing on day trading systems I have found out that it is very important to filter out bad or dangerous times of the day.

To reduce risk, I have a rule to stop trading for 15 minutes after a loser. I might even stop trading for the rest of the day, but this depends. The logic behind this is that a loser is an event which is less likely in usual market conditions. If it happens nevertheless then the market conditions might be unusual, so continued trading would be risky. As I am scalping, I expect a high hit rate as a compensation for a bad R:R ratio.

One of the best things I have found to reduce drawdown is to monitor the equity curve of the system and to only take trades if it is rising (e.g. above 20 day ema). If I get a drawdown, I stop live trading altogether until the equity curve of my backtest resumes its uptrend. This is one of the strongest rules I have ever found and it is also one of the simplest and most general rules that I am using.

Of course, improvement of trading systems is a never ending story and there is a lot more about this. There is a good book about optimization and portfolios of automatic trading systems in general which focuses on systems with longer holding periods (several days as opposed to day trading): http://www.amazon.co.uk/Trading-Syst...9433866&sr=8-1
  • #26
  • Last Post: Feb 17, 2012 12:46am Feb 17, 2012 12:46am
Quoting TraderJF
Definitely a good idea. I suppose that this especially applies to strategies which have longer holding periods like several days. As I am focusing on day trading systems I have found out that it is very important to filter out bad or dangerous times of the day.

To reduce risk, I have a rule to stop trading for 15 minutes after a loser. I might even stop trading for the rest of the day, but this depends. The logic behind this is that a loser is an event which is less likely in usual market conditions. If it happens nevertheless then the market...
Thanks for the recommendation!
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