ETMA_The Evolution

Thanks guys, it's really intriguing.

Latest Backtest for the EU with no leverage, 1 contract with no Pyramiding, optimized with no walk Forward optimization, take a look at the Drawdown.

Nice Bass. There is some good scalability potential with your EA given that equity curve profile and low drawdown.

Are you able to test over different instruments to see how it goes with some more problematic market conditions and copes with stress? EURUSD has been a good trender over the period concerned. Some example poor forex pair trenders between 2005 to current are as follows:

1. CADJPY
2. EURCAD
3. EURGBP
4. NZDJPY

I hate these instruments but they are necessary evils when testing robustness in the last decade or so.

If your back-test fares well over a diversified set including some notable poor trenders over the period you will get a feel for how much you can scale it up without getting into excessive drawdown potential based on past history.

C., the systems are robust enough as per my tests shows, i back tested, optimized and Walk-Forward Optimisation (WFO) with in and out of sample data, 42 - 45 Instruments during 6 Months of Intensive work 3 Years ago and i ran these systems in incubation mode for 1 year afterwards to make sure that the strategies works as it should.

I keep doing these backtesting every year as i get hold of new FX, Futures and commodities Data from new sources .

I run my Backtests on different softwares, trading blox as my main and i do different tests also on Ninja and lately i was looking in and trying right edge but still need to mastered it as it is built more to programmers and not traders, i heard a lot of good stuff on Amibroker also.

One of my main concerns is the difficulty to find good backtesting tools ( Software and Data) as professional ones cost a bunch( The best is CSI Data, cost $500 Yearly for North American Futures + $150 Non-refundable Licensing Fee) and of course avoiding Curve fitting.

Best,
B.R.

Nice mate. You are deep into it. :-)

le travail oblige Monsieur, u can not do it any other way, there is no shortcuts or else you will be gambling like i did so many years before .

Money Management

“Money management is like sex: Everyone does it, one way or another, but not many like to talk about it and some do it better than others. But there’s a big difference: Sex sites on the Web proliferate, while sites devoted to the art and science of money management are somewhat difficult to find.”
Gibbons Burke

First Article :

Johan Ginyard Interview: Bet Sizing for Trend Followers is Key

The following interview was with renowned psychologist Johan Ginyard, M.Sc.:

Q: How did you end up here?
Johan: I don’t really remember how I first got in contact with the site. It feels like it was ages ago I first visited TurtleTrader. Perhaps I was searching for information about money management on the net and just ended up at TurtleTrader or maybe it was an interest in Trend Following philosophy itself. I can’t remember, but I’m coming back again and again. I like the site mostly for the vast amount of good information and interviews and I think it is extraordinary refreshing to read the cutting comments, especially those about all the publicly, knowing-it-all tipsters whose expert advice we so often read and hear about.

Q: Can you talk about your study on position sizing? Can you give our readers some background? While we understand you had theories going into the experiment, were there new insights learned in the actual process?
Johan: It all began three years ago, when I realized that there was no information available in Sweden about money management. I’m sure there were professionals, who knew the game, but they were not giving away anything. I knew I had to search elsewhere so I went to the US. I was now convinced of the importance of money management, or more specifically, the importance of position size. Last year when I was planning the study in behavioral finance, which was the basis of my masters’ thesis, I found there was almost no research made on the effect of position size. Of course, you just had to run a couple of iterations with the same probabilities of winning/losing to see that there is a significant effect of position size on return, but then you have not included the human factor in the process. What I wanted to do was to find scientific evidence of the importance for a trader to have knowledge about the effect of position size and being able to use it. I didn’t want the effect of the traders trading methodology to come in play, but wanted to isolate the effect of position size. Therefore, I had to set up a situation where all the participants got the same conditions. By letting the participants trade through a series of trades, with a certain probability of winning and different return (wins as well as losses), they were to decide how much of their fictitious capital they wanted to put at risk in each and every trade. They did not need to time the trades or analyze the markets. The only factor they could affect was position size. In addition to the results presented in the study, I realized how difficult it is to decide what the proper bet size should be and how to vary your bet size over losing and winning streaks. By running Monte Carlo simulations, you can get idea of what bet size would give the best return, but would that fit you? In this study it was not possible to vary bet size during the trade, i.e scaling in or scaling out, which I believe is a good strategy, given some conditions. The results I saw from participants varying bet size during streaks supported the danger of increasing your bet after a series of losses, but it also showed there is risk in increasing your bet size after a series of winners, too. Eventually, your winning streak ends and then you have your ever largest bet on. Further, as I cited in the paper, you won’t win if you don’t bet. Many participants didn’t take advantage of the opportunities they got; they were too scared to risk their money, and therefore ended up with very small profits (Small in my view, regarding the expectancy of the systems they traded). It was mostly my fault since I, during the lectures, really emphasized the importance of protecting their capital and not how to get good return. This is not new, revolutionary insights. Seasoned traders have known this for decades, centuries even. For me personally, it has been extraordinary important, though. It is a great source and very useful now in the project I’m currently involved in. The project is developing software for testing and simulating position sizing strategies, based upon your true historical trades or back-tested trades. It really opens your eyes for what works and what doesn’t. The beta’s so far are really promising.

Q: Our readers look forward to seeing your study again.
Johan: It is available again.

Q: Thanks for your time Johan.
Johan: You are welcome.

Second Article :

Money Management FAQ

In the twenty-first century it has become fashionable to manage one’s own investments, yet few traders implement disciplined, professional money management strategies. During the stock market bubble, limiting risk was an afterthought, but given the recent price action, it’s time to get serious about management of money and risk. Professional risk and money management strategies are the foundation for success. Essentially, money management tells you how many shares or contracts to trade at a given point.

Money management is a defensive concept. It keeps you in the game to play another day. For example, money management tells you whether you have enough new money to trade additional positions. Don’t confuse money management with stop placement. Stop placement does not address the how much question.

Money management is risk management. Risk management is the difference between success or failure in trading. Trading correctly is 90% money and portfolio management. Unfortunately, this is a fact that most people want to avoid or don’t understand. Once you have your money management under control, your discipline and psychology is 100% of your success.

Money management optimizes capital usage. Few have the ability to view their portfolios as a whole. Even fewer traders and investors make the move from a defensive or reactive view of risk, in which they measure risk to avoid losses, to an offensive or proactive posture in which risks are actively managed for a more efficient use of capital. Trend following risk management formulas and philosophies are key to increasing profits while controlling risk.

Q. What are some issues addressed by money management or bet sizing?
A. For example:

1. How much capital do you place on each trade.
2. What is the heat of your trading.
3. Capital preservation v. capital appreciation.
4. When do you experience expectation of success.
5. When must you take a loss to avoid larger losses.
6. If you are on a losing streak do you trade the same.
7. How must you prepare if trading both long and short positions.
8. Does a portfolio of long and short allow one to trade more positions.
9. How is your trading adjusted with accumulated new profits.
10. How is volatility handled.
11. How do you prepare yourself psychologically.
12. Have you tested your bet sizing.
13. More Money Management FAQ

Q. Does money management impact a decision to trade the same number of contracts or shares in all markets?
A. Yes. Money and portfolio management rules dictate the number of contracts or shares. Precise formulas set forth size. A trader who uses a constant trading size gives up an important edge in much the same way ablackjack player does when always betting the same regardless of what cards are on the table. Common single contract/share measures of trading system performance such as win/loss ratio, percent winning trades, etc. are of little value to decision-making when using trend following systems (and the turtle system). Often the best trading approach, when tested on a single contract/share basis, will turn out not to be the best approach when money management strategies are incorporated.

Q. What about short term trading? Isn’t short term less risky, and therefore you don’t need money management strategies?
A. Short term trading is not, by definition, less risky. Some people may mistakenly apply a cause and effect relationship between using a long term strategy and the potential of incurring large loss. They forget profit and loss are proportional. A short term system will never allow you to be in the trend long enough to achieve large profits. You end up with small losses but also small profits. Added together, numerous small losses equal a big loss. When you trade for the long term, you have a more positive expectation in terms of the size of the move. In the big picture, the larger the move, the larger the validation of the move. If you were trading some short term pattern predictive system you would never be able to participate fully in the big trends. Big trends make the big profits.

Q. How does money management impact drawdowns?
A. All systems have drawdowns. You can’t have a profitable methodology, without taking some calculated risks as well as some losses. Trend following drawdowns are a function of the risk level desired. Risk level among trend followers varies depending upon the size of the profit they seek. For example, if you sought 100%+ a year gains you must be prepared for the possibility of a 30% drawdown. Anyone who promises you can make 100%+ with only the possibility of a 5% drawdown is lying. More on Volatility.

Q. Can you manage margin issues?
A. Required margin has little to do with money management considerations. For example, if the margin was dropped from $5000 to $2500 on a particular stock or commodity, must you trade twice as many shares or contracts? Of course not. Margin issues are not money management.

Q. Is slippage a concern with money management?
A. No one wants bad fills. But trend following for the long term places far less emphasis on perfect fills for success. In contrast, short term traders’ transaction costs and skids on their fills affect their bottom line to a much greater degree.

Q. What is the win/loss ratio of trend following management? Can it experience many losses in a row?
A. Trend following systems (and the turtle system) trade for the outsized large move. Several big trends a year are your key to success. The strategy cuts your losing positions quickly. Consequently, a few big trades will make up the bulk of your profits and many small trades will make up your losses. Winning trades can range from 35-50%, but that percentage reveals little information since we expect more losses (of smaller value) than winners (of much larger value). Win/loss ratio, while a favorite of the novice trader, has limited use in terms of trend following analysis.

Excellent summary. What i would like to add here: KISS - Keep It So Simple.
Happy New Year traders !

Anyone has watched this video? I hate but cannot stop watching it

3 steps to disciplined trading

Are you a struggling trader jumping from strategy to strategy only to lose money every time?
Millions of aspiring traders just like you are doing the same every day and the majority never make it as successful traders. Unless you spend your time focussing on the right aspects of trading, youre probably never going to reach the success you dream of.
What if there were a few simple steps you could follow to increase your chance of trading success?
In this article I'm going to show you the path to disciplined trading in 3 simple steps as recommended by a trading expert with 45+ years of market experience.

Step 1 Methodology

The 1st step is to find a systematic rule-based approach to trading the markets that has been proven to work, either by computerised backtests or manual testing. This is extremely important because without a validated strategy you will not be able to build confidence in it and will likely just end up losing money and increasing stress.
Make sure you stay away from strategies that do not have clearly defined rules you can program into a computer, the rules should be simple and not require interpretation otherwise the results will be inconsistent. This step must be completed properly, if you do not then the string of losses you will likely experience will make it very difficult to continue following the strategy and you'll either stop trading or jump to the next strategy and repeat the losing process.

Step 2 Confidence

The 2nd step is to gain confidence with the strategy by understanding how it works, why does it make money? Really understand the backtest results, know the type of markets it works in best, then either paper-trade it or trade it with a small position size for a while to get a feel for how it behaves.
This process can take some time so dont rush it. Also, dont assume you can trade it just because you know the rules and have read the backtest report; there is a large difference between knowing something and doing it, so while you may think you can handle the performance characteristics of the system it can be an entirely different scenario once you're risking your own money with it.

Step 3 Discipline

The 3rd step is to gain discipline by following the strategy religiously. This is very important because not following the rules will erode your confidence and invalidate the results.
Make sure you resist the temptation to constantly tweak the strategy rules, especially based on the results of a small number of trades. All strategies have winning periods and losing periods and the results are not defined by any one trade, rather you need to apply the strategy over a large number of trades to let the edge work in your favour.
If you find you constantly want to change the strategy or cant enter or exit trades when the strategy requires it, you lack confidence in the strategy and the only solution is to stop trading it and go back to steps 1 and 2 again.
Go do it!
By following these 3 steps you can become a more disciplined trader. It wont be easy, there are many challenges in trading, but if you remain persistent and are always looking to improve you give yourself a much better chance of being a successful trader.

2015 Better System Trader

i Just wanna wish everybody at this beginning of the Year a successful, warm, productive and happy New year.

We are Traders and Down to the trading pit we go, Cheers.

Are u in or out, real Trading Results a proof that it can BE DONE.

Hello Bassramy. This is a nice clip. Thanks

4 traders that i highly respect and follow on twitter tweeted yesterday and today about a GBPJPY short trade, too little too late i guess, it makes me wonder if this pair is bottoming ?, do i have to cover my shorts and go long ?.

I didn't start trading yet in the new year and these trades are left running from the 2015 i guess i have to wait and see, remember let your profits run, let's see where it goes and where this trend gonna ends.

Best,
B.R.

Please find below this month's Wisdom State of Trend Following report.

DECEMBER 2015: TREND FOLLOWING DOWN -2.44%, YTD: +7.29%

Happy New Year to all our readers! In this forst post of 2016, we look back at the performance of our trend following index over last year. Despite closing on a low for the month, the strategy's performance was positive for 2015.
Below is the full State of Trend Following report as of last month.

Performance is hypothetical. Chart for December:

Individual System Contribution

The index is composed of several systems, each traded over different time horizons (short, medium and long) with a diversified portfolio of futures.
We can measure the contribution of each system variation by charting the evolution of their respective performance attribution over the last month:

And further below, the performance attribution of each system over the last 12 months, sorted by ranking.

Methodology

The index performance is simulated using Trading Blox and CSI data (back-adjusted contracts rolling on Open Interest). The performance of the index is directly derived from the performance of a Trading Blox simulation suite composed of each system component as a system part of that suite.

The simulation uses realistic trading friction parameters (slippage, commissions, interest as detailed aside).
The portfolio used in the simulation is a sample of the 300+ global markets accessible to Wisdom Trading clients. The portfolio selected for the index represents a diversified mix of over 40 global futures balanced across all sectors (check the exact portfolio here).

Please check the post on the blog (and subscribe if you haven't yet) to check details on simulation assumptions (slippage, commissions) and more info on the systems used and their parameters.

Not bad Bass. Not quite the Larry Williams result in the World Cup in 1987 of >11000% assisted by Ralph Vince's optimal f, but close enough. Michael Cook obviously will be shortly doing the podcast tours with Covel et al.

The Wisdom system results for December were interesting. I was expecting a bonanza December month for the Wisdom systems, but not to be. It seems like positive results were probably restricted to forex instruments such as the CAD pairs and not so much in the commodity space. That Wisdom site is such a great website.

Have a great week mate :-)

PS Just edited return result for Larry which was 11,376% net return. I had to blink a few times to accept it. Michelle didn't do too bad a job in 1997 with a 1000% net return. Like father like daughter.

Yo C., the yen and CAD Pairs made the Difference in December and maybe the GBP's also, Indices, Bonds, commodities and especially the Grains killed the Performance for trend Followers and light up the skies for Mean Reversion Strategies, range was the Name of the Game for these assets while waiting for The Fed Tightening and the Surprise was the Buck Mini Crash at the End of the Year.

IMHO the timing of the Rate raise was bad at the end of the Year, especially for the Big Boys which were busy doing the end of the year auditing and started the Holidays parties, i think that the real Reaction for the Fed will be seen now at the beginning of the Year when the big Banks and Institutions resume trading once more, and sure it did yesterday with the return of volatility with a bang ( Did u see these moves in china and the Indices yesterday ?) i think this is a small example and a sample of what's waiting for us in the coming year, Bonne Annee. .

And she didn't want to trade afterwards, she focused solely on acting ( One of her career highlights was Brokeback Mountain (2005), which earned Williams a Best Supporting Actress nomination from the Academy Awards for her role as the wife of Ennis Del Mar. She followed this with I'm Not There (2007), Synecdoche, New York (2008) and Martin Scorsese's Shutter Island (2010). Williams's performance as a drifter in 2008's Wendy and Lucy earned her critical praise and her work opposite Ryan Gosling in Blue Valentine (2010) garnered her a nomination for the Academy Award for Best Actress. She won the Golden Globe Award for Best Actress – Motion Picture Comedy or Musical for her portrayal of Marilyn Monroe in My Week with Marilyn (2011), which also garnered her third Academy Award nomination. In 2014 she made her Broadway debut in a revival of Cabaret as Sally Bowles.)

May the Volatility be with you.

Best,
B.R.

hi Copernicus, hope you are doing well, Sir
early this year we are seeing some great middle term trends, do not you think? the king is the dollar and yen is the queen.
Regards,
TK