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Good News Everyone – We Had A Drawdown!
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Good News Everyone – We Had A Drawdown!

by The MoleMay 16, 2014

Now that I have your attention let me explain. A few weeks ago I finished implementation of an Equity Curve (EC) Filter for CrazyIvan – if you missed it then feel free to point your browser to my pertinent post which also covers the general theory behind it. In theory EC filtering works wonders avoiding draw down periods which are inherent among high dependency strategies. For a good example look no further then the CrazyIvan performance stats of the past five months:

This graph above shows us the stats of all six CrazyIvan symbols (Forex and futures) combined starting from January 1st to the last trade which closed today. Quite a few draw downs in there and to no big surprise as Ivan’s basic system is known to alternate between earning and shake-out periods. Over time it does come out ahead but still – it naturally does bode the question as to whether or not it would be possible to avoid especially some of those deep drawdown periods. If you read the previous post which introduces the concept of EC filtering it sounds almost trivial to implement. Obviously CrazyIvan is a high dependency system and thus makes for a great candidate.

The trick however was in running six separate symbols concurrently against one single equity curve. Let’s not forget that CrazyIvan trades on 480 minute charts, which means that campaigns can potentially be open for several days. And that complicates matters. What the original article doesn’t cover is the problem of inertia which is inherent in trading multiple symbols against a single equity curve. For instance let’s say I have three open campaigns right now and one of them closes. The one that closed gets logged to the spreadsheet and let’s say that it was a winner which pushed the equity curve back above its SMA. So we’re trading full position sizes again – great!

However a few hours later the other two campaigns close as well and they get logged as having traded full percentages. But wait a minute – both of them originated from before we pushed back above the SMA. So when analyzing your strategy you can’t go by the close out dates as they will be deceptive. This only works for strategies that trade single positions against an equity curve tied to one symbol only. You also can’t just sort your spreadsheet by the exit dates only as you now don’t know which strategy triggered the SMA rollover and thus how to build your equity curve.

If you manage to solve this problem there is an additional one as well. You could have five open trades – all winners during a drawdown period. Another campaign triggers – so do you still ignore it or only take a fraction of your risk percentage? Or do you consider open trades as well – and when? After much debate we decided to consider open trades in addition to the list of completed trades. Again trivial in theory but in reality it opened up a Pandora’s Box of engineering problems. It took me weeks to implement this properly but in the end all our efforts paid off handsomely as there are good news to report:

So here are the past ten weeks of CrazyIvan – once again we’re looking at the raw equity curve against its SMA(12). Now we were pretty lucky on the timing side as we turned it on right before a deep draw down that would have pushed us from near 48R all the way down to 36R. That’s a rough one and although the raw version of CrazyIvan (the blue line) dug its way out of it naturally (as expected) I’m sure many of our subs would have been less than thrilled.

If you peruse the original article you know that the author tested various EC filtering techniques – one that completely skips trades and two that adjust position sizing based on a fixed fractional position sizing. Which is fancy talk for taking 1% or more above the SMA and let’s say for example 0.3R or less below it. As we are suckers for punishment we decided to follow the second model for several reasons – 1) we believe it to be superior as it may get us out of draw downs quicker – and 2) technically speaking it would have been a royal pain in the butt to not trade at all during off periods. At any rate – implementing the idea was more difficult than anticipated but we got it done.

The latest stats are shown above – the raw version of CrazyIvan actually got pretty lucky there as it enjoyed several 3R winners last week. Nevertheless the EC adjusted version is already starting to pull ahead, and that’s only after two weeks of being active. But most importantly – look at the nasty drawdown right after we had turned it on. It completely avoided all of the pain – psychologically this would have been a rough time for even the most placid of my subscribers.

The graph above also shows us that our technique of considering open campaigns for our EC algo works rather well as I don’t see much inertia at all. It seems to be rather responsive and that’s good news on all fronts.

Jabber Alerts

Some of you may remember that I was also working on an alternative messaging model for CrazyIvan (and  soon Heisenberg). I reviewed various options (e.g. SMS, WhatsApp (popular in Asia and Europe), Snapchat, etc.) and in the end settled on XMPP a.k.a. Jabber. It’s not very popular compared to Snapchat or Whatsapp but it’s open source and it’s completely free. Most importantly there are a ton of mobile clients that support XMPP and since I’m running the service there won’t be any spam and no ugly surprises once (and not if) those companies change their business model.

Well, after testing it on my end for over a week I just deployed the latest version of CrazyIvan which now also sends Jabber alerts to your phone or your computer. If you are a sub and haven’t signed up for a Jabber account yet (and are interested) then please write me an email to admin@ with your current Evil Speculator username and the password you want. I have tested several Jabber clients, so here is a list of my favorites:

Android

iOS

For Windows there are a ton, so check the whole list. On OS X the list is a bit shorter but I like Psi – works like a charm. Usually all you have to do is to enter username@evilspeculator.com as your login and the password you sent me in order to connect. A few clients require only the username and the server name separately but I’m sure you can figure it out – if you run into trouble then let me know. Oh, and in case you’re wondering – of course we’ll keep email alerts as most seem to prefer them.

And that is it for now – see you later during the session.

It’s not too late – learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don’t waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.

Cheers,


About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.
  • DarthTrader

    Pot’l ABC up in the /TF (Russell 2000 Futures) I’ve notated the below chart so you can see what
    I’m talking about here. The initial move up is labeled A-B then there
    is a pullback to the C point. The assumption is that there will be
    another move up of equal distance of the A-B. This assumption gains
    traction when the B point is broken above with more volume. On the 10
    min chart shown that volume was 5392. The more the volume is stronger
    the greater my confidence we will get a 100% move of a move to point D.
    The Fact that this is setting up to get the volume from the open is
    very positive.

    This is the basics. What happens next is bit more
    complicated . . . so you complete that ABC up well then it can extend
    to the 161.8% of the original move or 261.8%. Also as this rally is in
    the face of a larger sell off this is likely setting up a Gartley Sell
    you can tell by laying a Fibo on the overall sell off to see if the D
    point lies on or near a major Fibo level.

    Also this ABC up
    could complete then sell off and set up another even Larger ABC Up . . .
    this stuff happens over and over all over the place. So it can be
    overwhelming at first as these patterns are constantly overlapping each
    other. Just thought I would explain the technicals that I post about
    from time to time.

  • http://evilspeculator.com molecool

    Long gave up on EWT as having any predictive value. But whatever floats your boat – are you banking coin?

  • DarthTrader

    This is not Elliott Wave though I guess it does have similar elements. I’ve never really attempted an in depth study of EWT. However like your own style it is trading what is happening right now, at specific trading levels, Not making excessive distant prognostications like EWT

  • http://dartht.blogspot.com/ Gold_Gerb

    I’m seeing a lot of coulds, thens, and cans in your statements.
    what is the success rate?

  • DarthTrader

    Currencys are telling me this sell off, like most in the 1st 1/2hour in recent weeks, should be bought

  • http://evilspeculator.com molecool

    Well, you mentioned fibs and ABCs – sounded like a form of wave wanking to me 😉

  • http://evilspeculator.com molecool

    More importantly – how many pushups can a gerbil do and how fast?

  • tradingmom

    5 min zero triangle

  • tradingmom

    picture doesn’t want to post — I’m having computer problems
    nevermind!

  • DarthTrader

    Gerb if anybody is being honest about Technical Analysis they should have lots of “coulds, thens, and cans” and many more qualifying statements. Anybody who is certain about this call or that one is full of it. That being said the best formation is the Gartley which has about a 70% success rate which figures because you have two market impulses coinciding 1) The impulse of the market to reassert it’s dominant trend after a retrace. 2) The impulse of price action to reverse after an ABC has completed.

    All of is using natural geometry that occurs through out nature. In the spacings of the planets, to the arrangements of petals on a flower to price action in the market , patterns in the weather etc

  • http://dartht.blogspot.com/ Gold_Gerb

    ok. ok. calm down.
    full moon was two days ago. no need to go werewolf.
    😉

  • http://dartht.blogspot.com/ Gold_Gerb

    it could be the operator. a little rusty.

  • Billabong

    Mole, yes, I had read the msg (head held in shame) and hadn’t digested it … sorry boss for a repeat.

  • http://www.ProfitFromPatterns.com/ Ivan K

    Neat … this is generically one of the several ‘filtering’ concepts that can be applied with my setups … it works a treat and does wonders for reducing ‘false’ starts … aka losses along the way … the actual strike rate is in the 70’s also.

    CM still needs to be addressed!

  • Billabong

    Can’t EW be used in conjunction with other tools? Not as a stand alone but as supporting evidence? I don’t use it myself having passed through the EW gates of hell many years ago … although some may laugh at me incorporating RSI.

  • DarthTrader

    Gotta go mine some salt . . . sorry for long delay in replying. Computer is moving glacially today.

    Gotta clean it up this weekend

  • http://www.ProfitFromPatterns.com/ Ivan K

    Elements can be … for sure … as well as the basic essence of EW as a template.

  • bdoone

    SLOPEX chopfest anyway:
    VIX sell signal question: I see VIX closing 12.17 on Wednesay, right on lower BB. Rule says close below for step 1, but is a close on BB close enough for gov’t work?

  • ridingwaves

    bots are guarding that spy 50sma, fear is just below it…probably a good time to start hurting dip buyers..easier money now…bears once again failed to follow thru

  • Billabong

    Still a lot of daylight to burn…

  • http://dartht.blogspot.com/ Gold_Gerb

    as a surfer, you should know by Now.

    Big Tide Thursday, quiet Friday. ™
    http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=3&dy=0&id=p22713163326

  • http://dartht.blogspot.com/ Gold_Gerb
  • http://dartht.blogspot.com/ Gold_Gerb

    one thing Scott said to me, if you’re going to know something, know it well.
    notice the interaction of the Tee and the Fibonacci Fan.
    yes yes, nobody likes my fan lense, NOBODY.

    http://s21.postimg.org/67vm6lg8n/in_Tc.png

    I’ve seen it before, this is the first time i’ve exposed it.
    Given all the discipline around here, The journey now is to log the belief, find examples where it doesn’t work.
    and either file it as an ‘edge’, or a nice but never really works % of the time.

    Hell, maybe can name it after me like the bollinger guy.

    -Gerbinacci

  • Billabong

    I like both your fans and Ts … You may be known in the annals of TA history as Fan Gerbil Rodentia.

  • http://dartht.blogspot.com/ Gold_Gerb

    please, no mention of ‘annals’.
    😯

  • Sean

    The trick is going to be defining the rules… the problem with this type of stuff is that the human brain is designed to find patters, and without a specific set of rules it will usually find patters where none exist. Taleb makes an interesting point when he notes that when people are asked to list random numbers the distribution will usually look more random to an outside observer when compared to an actual list of random numbers … so without rules you wouldn’t be able to do any kind of objective back-testing, which means you will have to walk this forward, and judging by the 2.5 month time frame of the chart above it would take you at least a decade to get a statistically significant sample (you could test it at lower time frames, but I believe that the markets are quantum-fractal, meaning: while they are similar across multiple time frames, they still have different properties at different time scales, so the findings wouldn’t necessarily apply to higher levels exactly as tested)… just my initial thoughts… good stuff though, I appreciate it when someone actually wants to do more than, well, the usual.

  • Billabong

    The sun is setting for the weekend and short positions are being closed … volatility is pretty low in the indexes for this closing up move.

  • http://dartht.blogspot.com/ Gold_Gerb

    yes, I thought about that 2.5 month time frame. at least a decade if not several.
    any sample size under 100, 10% error or bigger, forget it.

    http://3.bp.blogspot.com/-3Qd1L4H1uS0/TyG_HLjrc9I/AAAAAAAABfM/t2jsr0VgpGI/s1600/Marginoferror95.PNG

  • ridingwaves

    bears are extinct in the fed bubble world….they are currently looking for a new planet…one with salmon preferred

  • Sean

    Interesting price action today (up 7pts with a weak TRIN and BPNYA ticking lower) and it looks like we bounced off of some sort of support yesterday… VIX and VXV/VIX supports the up move, and UP vol vs. DN vol looks like an up-day… but while the yen carries are up, they don’t look like they are “this up”… and what is most interesting to me is that call options haven’t popped on this move. Puts fell as expected, but the calls didn’t budge… took no action today, let’s see how next week plays out.

  • http://dartht.blogspot.com/ Gold_Gerb

    where’s the Beer Salute? it is Friday, yes?

    okay, I’m outta here.

    Be Tenacious.

    I’ll be watching the higher timeframe, next week.

    http://s17.postimg.org/yvsuo6tjj/tenacious.png

  • strider

    the best performing industry in the 9 sectors is brewers and the second is aluminum. i guess everyone is drinking their brew out of cans

  • http://evilspeculator.com molecool

    No f…ing way.

  • phylum

    What’s the old saying? …. 1,2,3,5,8,13,21………….

  • http://dartht.blogspot.com/ Gold_Gerb

    where’s the weekend commentary? Sheesh.

    http://s23.postimg.org/3z5obyp3f/rat_sniper2.png

  • newbfxtrader

    Do leeches have a say?…

  • newbfxtrader

    Definitely lacking the thrust vector on the last few weeks….

  • Billabong

    Where’s the volatility? ES, YM, NQ volatility flatlined and TF volatility trending down … this isn’t typical of bottoms, even short duration down moves.

  • newbfxtrader
  • ridingwaves

    I was stopped out of this trade on that move back to 2.74….I didn’t think they could move the 10 yr without a little correction….what the heck do I know….nothing.. its still heading to 2.40 area…without I…
    ridingwaves • a month ago
    Since its slow- the 10 yr bond seems like it’s still a play…the PTB needs rates lower to spur home selling and get rid of remaining bank REO inventory at these price levels. Scott is saying bulls are still in trouble, why bet against him…I like the 10 yr to head down to the 360sma and equity down move should get it there…stop noted.

  • phylum

    A view, fwiw

  • mugabe

    FWIW another view:

    http://scharts.co/1lTEsjc

  • http://www.ProfitFromPatterns.com/ Ivan K

    ENTRY / SETUP versus CAMPAIGN MANAGEMENT (CM)

    Whilst most market players focus on where and when to buy / sell … as well as a view … few spend the same amount of effort on … where, when and how to exit a campaign … this curious aspect of risk taking is as obvious here as it is on virtually every other blog on the net … part of the explanation for this lies in the fact that extra ‘work’ is required … whether by way of guided self-discovery or totally solo or somewhere in between.

    Even tho few here may be aware of the deal-breaking role CM can and does play in success … even fewer post examples of their of own experience / s in their quest to come up with a RBT that suits their own goals and requirements … it may well be that everyone is working on their own version of the Holy Grail … in secret.

    Fortunately one of my students believes that sharing experiences is part of personal growth … and definitely the go to ultimate success … after all some else has surely walked down a similar road in their own Journey … and an exchange of ideas can benefit all!

    The two charts below graphically illustrate the role of CM … CM certainly is not a ‘one size fits all’ concept … it benefits from being tailored to an actual RBT (black and white) … as well as the actual setups involved (also black and white) … and the phase of a market (black and white or with shades of gray).

    One chart plots the fortunes of applying all my 12 setups on a 24 hour basis … using a very plain vanilla CM approach … most would dismiss the RBT simply because of the negative return for the month of this sample … one aspect that I stress with my students is to always persevere with even something that looks ‘unworthy’ of further effort … certainly part of a road less travelled.

    The other chart uses exactly the same 12 setups … yet both the path to, and the end result, are vastly different … the differentiating factor is the CM routine that is applied … based on the stats of the plain vanilla approach it quickly became obvious to my student that grabbing a profit can play a dramatic role with this particular RBT could greatly alter the Equity Curve (EqC) … having created his own spreadsheet to manipulate the numbers he was able to quickly show exactly what that difference would be.

    As this particular RBT is based on 60 and 30 minute views, it is impractical to be traded fully by one person manually … the next step is to establish the time of day that produces most of the profits (‘Optimal Time Window’ is my phrase for that – OTW) … this again can be done by a simple spreadsheet without relying on a mantra that purports to having achieved the same thing.

    The final step for this student is to establish how the OTW fits his own time window … and this has to be a personal step naturally … as everyone’s personal life requirements are different.