System Reviews by DailyFX Course Instructors - Page 10 - DailyFX Forex Forum

4xis2ez · #**136** (**permalink**) 04-28-2009, 04:24 PM

Tradency web site was down for a while. That was why the performance page could not be accessed. It is working now.

OmR · #**137** (**permalink**) 05-01-2009, 12:27 PM

Quote:

Originally Posted by Jeremy Wagner

Taking the other side of a strategy's trade is a feature of the Forex System Selector. Last week, we reviewed a common observation and significant difference when searching for reverse systems.

Today, we will discuss another observation where the reverse trades will be significantly different than the opposite side of the trade. There is a feature of the FSS platform that if the signal provider does not provide a stop and limit when opening the position, the platform automatically adds a 300 pip stop loss. This does not mean your worse case scenario is 300 pips because it is possible the system provider may send in a 400 or 500 pip stop loss. Also, you have the ability to override the stops, so you can place a 400 or 500 pip stop.

Most systems do use stops and limits. However, this 300 pip platform stop is a safety net for when the provider does not send a stop with the opening signal.

Let's assume a trade where the signal provider opens a short position. The reverse trader has assumed a long position with a 300 pip stop. Notice how this trade worked in favor of the system provider and the reverse trader got stopped out long before the system provider 'took profit'.

This brings us to our 2nd observation

II. If the difference between forward and reverse is much larger than twice the spread, see if the position had the 300 pip platform stop triggered.

Look into your HISTORY tab and see if the pip P/L is near 300.

Hi Jeremy,

Why on earth did Tradency choose this strange way to implement the "reverse" function? Isn't it obvious that the correct and sensible way to Reverse a system is the simply mirror the Target and SL? For example if we have a system that Buys at 1000 and has a Target of 1200 and a SL of 900, its Reverse should be to Sell at 1000 with a Target at 800 and a Stop at 1100.

Now, say we had a system that buys at 1000 has no Target and Stops at 500. It's Target might be based on market behavior. In Reverse, it should sell at 1000, it should still have no Target and it should Stop at 1500.

The way Tradency has it now, this same system in "reverse" would sell at 1000, and Stop at 1300. Not the same system any more!

Why?

Thanks,

John

Jeremy Wagner · #**138** (**permalink**) 05-03-2009, 06:34 PM

Quote:

Originally Posted by OmR

Hi Jeremy,

Why on earth did Tradency choose this strange way to implement the "reverse" function? Isn't it obvious that the correct and sensible way to Reverse a system is the simply mirror the Target and SL? For example if we have a system that Buys at 1000 and has a Target of 1200 and a SL of 900, its Reverse should be to Sell at 1000 with a Target at 800 and a Stop at 1100.

Now, say we had a system that buys at 1000 has no Target and Stops at 500. It's Target might be based on market behavior. In Reverse, it should sell at 1000, it should still have no Target and it should Stop at 1500.

The way Tradency has it now, this same system in "reverse" would sell at 1000, and Stop at 1300. Not the same system any more!

Why?

Thanks,

John

Hi John, intuitively what you have mentioned makes sense. I really don't know the answer to the question. There is more to the technology required than I know and there is probably some technological reason why this is the case. I have passed along your information to Gavin to see if there are ways to alleviate any unnecessary hurdles in the technology.

Due to these little inefficiences in the reverse function, I would suggest using a small portion of your account devoted to a reverse system. So if you had 3 forward systems, then you could consider a 4th system in reverse.

Jeremy Wagner · #**139** (**permalink**) 05-05-2009, 03:47 PM

It has been several weeks since we have checked into the Low Equity Portfolio. A check into the portfolio shows we are still drawing down.

Current equity is $3,649.73. So far, we have drawn down approximately 28%. A closer look at how each of the systems are performing, shows the Quants-MiniMac with some profits since Jan and PipSniper going through the drawdown.

Quants - MiniMac 38 trades (92% win) + 307.62 profit
PipSniper 58 trades (34% win) -1,656.91 loss

The challenge with our current portfolio set up is that we have most of our trades coming from one system which is currently going through a drawdown. Ideally, we would like some more diversification in hopes of the systems drawing down at different times. Of course, nothing is guaranteed as to when the systems drawdown.

The drawdown of the PipSniper EURUSD is well within the parameters when we reviewed it several months ago. We will again look for another system or two to consider exchanging for the PipSniper or adding to the current portfolio to bring some diversification.

hben37 · #**140** (**permalink**) 05-13-2009, 09:12 AM

Hello Jeremy
On the Performance tab of the platform, what is the interpretation when the “Win %” column is over 50% while the Profit is negative in many of the systems? I would expect te Profit to be positive any time the win is over 50%
Please advise
Thanks

Jeremy Wagner · #**141** (**permalink**) 05-13-2009, 02:39 PM

Quote:

Originally Posted by hben37

Hello Jeremy
On the Performance tab of the platform, what is the interpretation when the “Win %” column is over 50% while the Profit is negative in many of the systems? I would expect te Profit to be positive any time the win is over 50%
Please advise
Thanks

Hello Hben37,

It is possible and very easy to develop a strategy that wins over 50% of the time, but ends up losing money over the long haul. Actually, the misconception of needing to win more than you lose is common among newer traders in their self trading account and their FSS account.

Here is an example system and how it can lose in the long run :
Win % = 80%
Take Profit in Pips = 50
Stop Loss in Pips = 250

So if this strategy waits for either the profit or loss to get hit, their results are out of 10 trades :
8 wins at 50 pips (8 x 50) = 400
2 losses at 250 pips (2 x 250) = 500
Net Loss = -100 pips

When I am looking at systems, consider the win percentage as a secondary or tertiary factor in entering the strategy. High win percentage strategies make you feel better because you are getting a proportionately higher number of wins. However, their losses tend to wipe out those gains and result in a significant drawdown when you get a string of losses in a row. Typically the risk to reward on a high win percentage system is skewed. In the case above we have a 5 : 1 risk to reward...for every pip risked, there is a potential reward for 1 pip for each of the trades.

In the end, my primary consideration is going to be the systems drawdowns and how it recovers from those drawdowns. So the MaxDD and RAR columns will tell me a lot.

Jeremy Wagner · #**142** (**permalink**) 05-14-2009, 03:48 PM

Our Low Equity Portfolio is pulling up from the signficant drawdown from a couple of weeks ago. It currently has 2 systems trading and all of the losses and most of the trading was coming from the PipSniper EURUSD. The losses are still within range from when we originally reviewed it, but we are going to consider a couple more systems as potential substitutes or to complement the current portfolio.

I sorted through the excel list looking for systems that have the following characteristics :
-Net profit
-Maximum Positions 1 or 2
-At least 40 trades
-Risk Adjusted Ratio of 1.5 or greater
-Max DD less than -1500

The sort generated this list of 3 to consider.

Jeremy Wagner · #**143** (**permalink**) 05-17-2009, 06:19 PM

Today, we are looking at a system that likes breakout and volatile environments. It has been around 17 months and performed well when the volatility picked up in the 4th quarter of 2008. You'll see a series of drawdowns in the 600-1000 pip range over its history. I like its ability to recover from these draw downs fairly quickly evidenced through its Risk Adjusted Ratio.

This system is worthy of consideration into the Low Equity portfolio. This system does trade 5-6 times per week, so I would not do a 1 for 1 swap by trading out PipSniper EURUSD and trading in BreakoutMaster AUDJPY. Both systems trade frequently and the portfolio essentially mirrors these frequent traders. If we continue with PipSniper EURUSD OR BreakoutMaster AUDJPY, then they need another system coupled with it to diversify the week to week portfolio.

We will check out the other two systems this week and see if that narrows our short list down.

Jeremy Wagner · #**144** (**permalink**) 05-19-2009, 02:48 PM

Here's a system that is not near as flashy as others. However, when you dig deeper, you can appreciate how it has operated over the past 11 months.

There have been 4 drawdowns that have been relatively shallow ranging from 400-800 pips. Gains have continued to outpace the losers. I like the smoothness offered by a system with 2 max positions. Since we already have a system trading EURUSD, should we decide to take the DBSwing, the Pipsniper will have to be deleted since this is being traded in a nonhedging account. Besides, we don't want to overweight the EURUSD.

We'll take a look at the CHFJPY tomorrow.

Jeremy Wagner · #**145** (**permalink**) 05-20-2009, 07:20 PM

Here is a system that trades a quiet pair that is typically not followed by most traders....the CHFJPY.

Trading this pair could offer an opportunity to diversify your current trading portfolio. Over the past year it has provided a relatively smooth equity curve. Even though the start date is Mar 2008, it didn't generate its first trade until Aug 2008. Therefore, we have limited trade activity to review and although this system may help smooth out the equity curve, it would be taking up valuable equity in our low equity portfolio. We will step aside from this system in our Low Equity portfolio, though I would suggest it is considered for those trading a larger portfolio.

Lemur · #**146** (**permalink**) 05-21-2009, 02:13 PM

My thoughts here are that riding one or two systems with a 'hot hand' is a better way to go than a portfolio approach. The problem with the latter is that the losers tend to cancel the winners out leading to mediocre results.

Jeremy Wagner · #**147** (**permalink**) 05-25-2009, 01:41 PM

Quote:

Originally Posted by Lemur

My thoughts here are that riding one or two systems with a 'hot hand' is a better way to go than a portfolio approach. The problem with the latter is that the losers tend to cancel the winners out leading to mediocre results.

Your strategy is good method to follow...so long as you can discern when the hand has grown cold and time to swap out. How do you determine when to hang on to the system(s) or swap them out?

There are a couple of methods you can use to trade the FSS. The first is the portfolio method which has been the discussion prior to now.

Using the market conditions approach is another way to trade FSS. Essentially, the trader will look to identify the current and relevant market conditions (breakout, range, trend) then find a system(s) which plays to the current condition. We will dig into the market conditions approach in the coming weeks.

Jeremy Wagner · #**148** (**permalink**) 05-25-2009, 02:31 PM

Our Low Equity Portfolio has been moving up over the past couple weeks. The breakout in the EURUSD has opened the door for the PipSniper to do well. Our review back on May 5 showed us how this portfolio is heavily concentrated on PipSniper trades...so how the PipSniper goes, goes the portfolio.

We are looking at a way to spread the trades around yet preserving capital since we are limited in our resources. The short list of potential replacements include DBSwing EURUSD and BreakoutMaster AUDJPY.

DBSwing looks to trade off of support and resistance levels. The BreakoutMaster looks for breakout opportunities. The PipSniper has approximately 80-90% of its trades based on volatilty.

So, pairing the BreakoutMaster and PipSniper, may be redundant yielding larger returns yet larger drawdowns.

Below are 5 different combinations of possible solutions. The 3 DD's are the 3 largest drawdowns of the combined equity curves. The RAR is simply the net profit divided by the largest of the DD.

I am eliminating the first and third combination as the drawdowns are larger with smaller returns. The remaining 3 combinations are quite similar. I am choosing the 4th combination because its drawdowns are smaller. With a relatively small balance (less than $5,000), I don't want a combination that is so aggressive that I potentially wipe out the balance in short amount of time. A more aggressive trader could consider the other 2 as they have larger drawdowns.

Jeremy Wagner · #**149** (**permalink**) 05-26-2009, 01:24 PM

The EURUSD is trying desperately to make new swing highs. It seems to be running into a road block around 1.4000. The PipSniper EURUSD system works well during volatile times and during the past 4 months it has been drawing down. Since most of the trades in this portfolio are coming from the PipSniper, the portfolio as a whole is drawing down.

Today, we are swapping out the PipSniper EURUSD and swap in the DBSwing EURUSD. The DBSwing will open less positions and offer more stability by way of less trading. In our Low Equity Portfolio, it can get traded down in a hurry so the idea is for the DBSwing to smooth out the volatility in the equity curve we have experienced.

While we had the PipSniper, we had 66 trades (25 winners) and a net loss of $850.14.

OmR · #**150** (**permalink**) 05-29-2009, 03:24 PM

Quote:

Originally Posted by Jeremy Wagner

Your strategy is good method to follow...so long as you can discern when the hand has grown cold and time to swap out. How do you determine when to hang on to the system(s) or swap them out?

There are a couple of methods you can use to trade the FSS. The first is the portfolio method which has been the discussion prior to now.

Using the market conditions approach is another way to trade FSS. Essentially, the trader will look to identify the current and relevant market conditions (breakout, range, trend) then find a system(s) which plays to the current condition. We will dig into the market conditions approach in the coming weeks.

Hi Jeremy,

I'm looking forward to the market conditions approach. In the meanwhile, do you have any tips on identifying the current market condition and detecting when it has changed?

Regards,
John