Improving Market Structure - December 12, 2011

[TraderD]

The robot needs sustained up or down trends to make its largest returns. I don’t really care if we are heading into apocalypse or into a new 1982 secular bull market. I am confident that the 20 DMF and the robot will capture such trends early. I would even prefer the apocalypse and take a small loss in this choppy sideways mean-reverting environment before cashing big in a crash.
Billy

If I understand correctly, you're implying that an extended choppy environment will inevitably drag the robot into a losing territory, yet in the long run, the mix of trends vs chops is such that the robot cannot afford to be left out of a position when the big swings materialize. It strikes me that the most recent trade could have been quite profitable already (rather than criss-cross above and below the entry price) if it were to have taken multiple ATR-size profits off the entry limits (e.g. 73.14->75.00 =~ +2.5%) but that would have required the robot to change its plan (it simply doesn't know the stats associated with that scenario). As you say, statistically there's that big swing chance awaiting that will dwarf all these small losses to chop so sticking to the robot plan, as tested, is the best course of trading action.

Trader D

[Pascal]

If I understand correctly, you're implying that an extended choppy environment will inevitably drag the robot into a losing territory, yet in the long run, the mix of trends vs chops is such that the robot cannot afford to be left out of a position when the big swings materialize. It strikes me that the most recent trade could have been quite profitable already (rather than criss-cross above and below the entry price) if it were to have taken multiple ATR-size profits off the entry limits (e.g. 73.14->75.00 =~ +2.5%) but that would have required the robot to change its plan (it simply doesn't know the stats associated with that scenario). As you say, statistically there's that big swing chance awaiting that will dwarf all these small losses to chop so sticking to the robot plan, as tested, is the best course of trading action.

Trader D

The IWM Robot's trade record is below.
You can see that after the string of small losses during the summer, we changed the robot settings to avoid trading weak signals. We are up 18.38% since March, while with the new model, we would be up 27.51%. This means that the new model can handle choppy environments.

One last point concerning the current trade: we entered the trade on December 1. However, the IWM Robot had been searching for a long position since the 20DMF issued a buy signal and its entry point of 68.74 was almost hit on 11/28, as the low of the day was 68.91. To me, this means that the current settings are "in tune" with the market.


Pascal

[TraderD]

The IWM Robot's trade record is below.
You can see that after the string of small losses during the summer, we changed the robot settings to avoid trading weak signals. We are up 18.38% since March, while with the new model, we would be up 27.51%. This means that the new model can handle choppy environments.
Pascal

Pascal, many thanks for the clarifications. It may well be that skipping the weak signals altogether is the best decision for the robot. However, I'm still pondering whether an alternative trade mgmt plan (e.g. taking volatility-based profits) would have been able to address the chop (presuming it coincides with the weak signals) and provide for competitive returns.