Discretionary trading

[Pascal]

Billy or Pascal,

For a fixed amount dedicated to robot trades, would you split this amount equally between the robots, and stick to that allocation, trading all primary signals? Alternatively and diversification benefits aside would you rotate out of positions that indicate Strong primary entries for a given robot, in an effort to seek better returns, for the robot account.

Dave

Hello Dave,


This is a very good question.
As Billy wrote it, I am now busy with the research, whihc could still last a few days, as more results bring more questions.

As of now, the basic findings are the following:
1. If you trade one instrument with high leverage (for example TNA/TZA) and do not mind the drawdown risk, then adding GDX will not help create better returns. In fact, GDX would even hurt the TNA/TZA returns.
2. If you use TWM/RWM (double leveraged), then a combination with GDX improves the returns.
3. If you use IWM and GDX then staying with only GDX is better. But then GDX is more volatile than IWM, which means larger drawdowns.

The principle of this test was to invest 100% of the capital in the first robot that issues a signal that is not neutral (Buy, strong buy, sell, strong sell). You then keep the trade unless one of the following event occurs:
- You hit a stop loss or you have a signal change
- The other robot issues a signal that is not neutral. In such a case, you sell 50% of the first position and invest 50% in the second robot.

The idea is to be 100% invested whenever there is a non neutral signal in one of the robot and to split between robots when the two robots have produced a signal.

I did not test the idea of switching 100% to the second robot from the first if the second robot signal is very strong, while the first turned to neutral. I believe that this could encourage over trading and would deny some benefits of trading two instruments that are lightly correlated. However, this is just an opinion. Testing might reveal that this opinion is groundless.

To be honest, what I like best in the case number two (TWM/RWM and GDX) is that the equity curve is very very smooth. I will not post it now, because I need to check some things and then do more tests, but as I am much a "risk averse" person, that rings a bell somewhere in my trading guts.


Pascal