Discretionary trading

[Billy]

Paul,

This is a terrific wealth of resources on the topic! It shows your commitment to search for constant improvement.
Before digging into all the details, I have a conceptual hesitation.
It seems all the models are based on individual securities or stocks.
Since IWM is already including a +/- 2,000 stocks diversification and GDX is including a 32 stocks diversification, shouldn't you take into account the exisiting diversification implied in ETF holdings? In other words, can we be sure that the models are not misleading for our robot allocation needs?
Billy

[Rembert]

Thanks for the material Paul. This is a topic that interests me vey much. It goes beyond simply being a trader. It's about learning how to manage money ... large sums of money. No doubt that all the billionaire funds know these concepts all too well.

Billy, I think one can diversify in multiple ways. Using IWM is a great starting point, being diversified in 2000 different stocks. But it doesn't have to end there. One can add another layer of diversifiction by employing multiple systems using different markets/strategies/timeframes. It doesn't have to be 1000 systems, I think 3 (IWM,GDX,XLE) is a nice number that is still managable.

Here's a few more links from the excellent automated trading system blog :

http://www.automated-trading-system....on-free-lunch/ (I like the coffee cup analogy)
http://www.automated-trading-system....uce-drawdowns/

[asomani]

I would consider to:

1. start by constructing a portfolio of the IWM Robot and GDX Robot that has produced the lowest intraday drawdown, not considering leverage.

2. next construct a portfolio of the IWM Robot and GDX Robot that has produced the lowest end-of-day drawdown, not considering leverage.

3. next construct a portfolio of the IWM Robot and GDX Robot that produces the lowest annualized volatility, not considering leverage.

After performing the above steps, a clear answer as to the appropriate allocation between the two robots may emerge (at least based on historical results) for the maximization of volatility-adjusted return. If not, further investigation will be required.

[Pascal]

I would consider to:

1. start by constructing a portfolio of the IWM Robot and GDX Robot that has produced the lowest intraday drawdown, not considering leverage.

2. next construct a portfolio of the IWM Robot and GDX Robot that has produced the lowest end-of-day drawdown, not considering leverage.

3. next construct a portfolio of the IWM Robot and GDX Robot that produces the lowest annualized volatility, not considering leverage.

After performing the above steps, a clear answer as to the appropriate allocation between the two robots may emerge (at least based on historical results) for the maximization of volatility-adjusted return. If not, further investigation will be required.

This looks like a great idea. I accept your help with great pleasure, because I am somewhat overwhelmed.
In the attached file, you will have two sets of thee colums. These are the results of either IWM/GDX or TWM/GDX combined portfolio (compared to each element separately).

I'd be happy if you could share the formula that you use to calculate the drawdowns that you mention on these equity curves. I can then generate different ratio of IWM/GDX combinations as I only use now 50/50.

Thanks again for your help.



Pascal

IWM_GDX_TMP.xls

[asomani]

This looks like a great idea. I accept your help with great pleasure, because I am somewhat overwhelmed.
In the attached file, you will have two sets of thee colums. These are the results of either IWM/GDX or TWM/GDX combined portfolio (compared to each element separately).

I'd be happy if you could share the formula that you use to calculate the drawdowns that you mention on these equity curves. I can then generate different ratio of IWM/GDX combinations as I only use now 50/50.

Thanks again for your help.



Pascal

Attachment 8914

Hi Pascal,

Actually, I wasn't offering to help at this time. I would love to help but, you see, I'm quite busy right now with my work and other activities. I simply wanted to suggest a few ideas to you and the group to help get things rolling a bit.

I have taken a bit of time, though, to make an example for you of how to calculate drawdowns in Excel. I have attached a spreadsheet showing how the calculations should be performed, based on my knowledge. In my spreadsheet, the EOD (end-of-day) and intraday drawdown calculations are for a simple strategy that takes a buy-and-hold approach on the SPY from the beginning of the year through to yesterday.

I hope the spreadsheet is clear. Please let me know if you have questions.

You will notice that, to calculate intraday drawdown, you will need to obtain the intraday % change for the Robots based on the High of the day (if short) or Low of the day (if long) for each day of the testing period.

[Pascal]

Hi Pascal,

Actually, I wasn't offering to help at this time. I would love to help but, you see, I'm quite busy right now with my work and other activities. I simply wanted to suggest a few ideas to you and the group to help get things rolling a bit.

I have taken a bit of time, though, to make an example for you of how to calculate drawdowns in Excel. I have attached a spreadsheet showing how the calculations should be performed, based on my knowledge. In my spreadsheet, the EOD (end-of-day) and intraday drawdown calculations are for a simple strategy that takes a buy-and-hold approach on the SPY from the beginning of the year through to yesterday.

I hope the spreadsheet is clear. Please let me know if you have questions.

You will notice that, to calculate intraday drawdown, you will need to obtain the intraday % change for the Robots based on the High of the day (if short) or Low of the day (if long) for each day of the testing period.

Thanks. I'll have a look.


Pascal

[Rembert]

Amibroker is probably more suited to test such things. But since you're more used to work with Excel that's probably the better option.

It's possible to import the signals for each system into Amibroker and generate the equity curves.
After that it should be quite easy to test various things.

Amibroker also has optimization ...
http://www.amibroker.com/guide/gifs/h_optimize.gif
The X and Y axis are the parameters to opimize for example position size etc. Z axis is the value you opimize for (CAGR, Max DD, MAR, ...).

Here's an example I've been looking at regarding testing a portfolio of different systems. Haven't had the time yet to test it out tough.

http://quantingdutchman.wordpress.co...-amibroker-12/
http://quantingdutchman.wordpress.co...-amibroker-22/

[Rembert]

It's nice to know intraday DD, but not really necessary I think.
Again this article makes a good case for testing closed equity DD instead of intraday DD.
http://www.automated-trading-system....uce-drawdowns/

[Pascal]

Below is a link to the IWM/GDX portfolio analysis.


http://www.effectivevolume.eu/conten...o_Analysis.pdf



Pascal

[grems8544]

Below is a link to the IWM/GDX portfolio analysis.
http://www.effectivevolume.eu/conten...o_Analysis.pdfl

Thank you Pascal. Great documentation, as always.

With an IWM historical MDD of -10.5%, is it safe to conclude that using the leveraged triple ETF would result in a MDD in excess of -31.5%?

Regards,

pgd