| RESULTS FOR DAY | |
|---|---|
| TF Contracts: | 1 |
| Net $P/L: | 167 |
| Wins: | 1 |
| Losses: | 0 |
| Win%: | 100 |
| Avg$Win: | 167 |
| Avg$Loss: | 0 |
Here's the weekly and monthly backtest data plotted for my TF System.
As a commenter pointed out yesterday, it helps to keep the big picture in mind when system trading. There's just no way to predict what outcome your current trade will produce so what's the point in deviating from your plan and taking the trade off early?
I mentioned yesterday that my system doesn't trail stops and got several suggestions that I might consider doing that. Thanks btw. Kevin had the best idea to actually test and see what results are. Well I had done that before but never shared the "hypothetical, backtested' results so thought I'd post some now.
For past 3.5 years, system as-is with no trail stops nets $74k with $54 avg. profit per trade.
If after 50 ticks in profit the stop is moved to BE, system nets $69k with $50 avg. profit per trade.
If after 50 ticks in profit the stop is moved to +20 ticks, system nets $65k with $47 avg. profit per trade.
Other combinations of various trigger levels, show a similar pattern. Keep in mind too that my system always lets each trade play out to its target or stop and ignores any new signals that might enter the picture while a position is on. As you can imagine, if you trail stops, you WILL exit some trades earlier than originally planned. For my system this means you will start looking for the next trade sooner and overall, you end up with more trades. If I include these "extra" trades in the backtests above, the net profit drops even more when trailing stops. So that I could actually compare apples with apples, I coded a strategy so that if a trailed stop got hit, the system would assume the position was still on until either the original target or original stop were hit. That way, the same number of trades in total are taken for the 3.5 year backtest regardless of stops being trailed or not.
Bottom line, as I have seen in nearly all systems I have tested, trailing stops diminishes overall system performance. Generally, the only advantage is a potentially smoother equity curve with reduced drawdowns. So if that is an important goal of the system, trailing stops may make sense.
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"Bottom line, as I have seen in nearly all systems I have tested, trailing stops diminishes overall system performance."
ReplyDeleteI completely agree with the diminished performance part, but would add that, IMO, the advantage of "a potentially smoother equity curve" would need to be paid for with some of the edge, as we see by your back-tested results. The cost is likely to be more than the results suggest and that could easily be the difference between ending up profitable overall or not.
Austin told me some years ago that I just needed to take fewer signals, ignore the noise/patterns in between your entry and profit target and things will work out over time. But traders continue to try to exercise control by stepping in the middle. It is more fun to do so, but less profitable/unprofitable!
Great post!
IMHO, there are 2 level of trading. Before entry and after entry. Before entry, to check if the mkt environment suitable for entry. After entry is to manage trading riskn i.e trailing stop or manual stop. Agreed with u that trailing stop will diminish perf. Manual stop handling is an art of itself, which can make a bad or good entry resulting in a winner or a loser.
ReplyDeleteI beg to differ but MBA is trying his hand at systematic trading. What you are proposing might work for discretionary traders, but it is imperative for a systematic trader to follow his plan to the last i and t. A sequence of trades matters for a systematic trader not an individual trade. Trying to outperform the system by modifying any one trade - only inexperienced fools try that.
Deletethats why I called it 2 level - different from each other, an art by itself , as this will form the paradox mentioned before by a commenter. if not, it will like a cat chasing it own tails...Exp will teach u that..not the fools ;)
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