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Thursday Road Map
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Thursday Road Map

by The MoleJuly 30, 2015

Finally this month’s MadΒ FOMC Wednesday is behind us and we can get back to what we do best – squeeze ill-gotten gains from this crazy market. We have a ton of juicy setups today and equities also offer us various ways to get (mildly) exposed, so let’s get to it.

2015-07-30_spoos_roadmap_briefing

Now, I’m going to make this extremely easy for you today:

  • While we’re between 2100.75 and 2095.5 – do NOTHING. This is hardcore churn territory.
  • Above 2100.75 the bulls are in possession.
  • Below 2095.5 you can be short with 1/2R or less.
  • At 2085 we evaluate – best to consult the Zero at touch down to see if there’s a potential fumble in the cards.
  • Below 2083 I will already be short if I see lackluster participation on the Zero. And yes, I misspelled SHORT – but at least I spelled misspelled correctly.

2015-07-30_YM_roadmap_briefing

Similar thresholds on the YM – I think you get the general idea. The easiest configuration by the way happens to be on the NQ today but I’m keeping this for my intrepid subs.

2015-07-30_crude_briefing

Crude – I think the chart is pretty clear, n’est-ce-pas?

2015-07-30_EURUSD_briefing

The Euro – well, as much as I want to see it crash and burn I have long learned that there’s a magic buyer down here and I probably won’t get my wish. Long here with a stop near 1.092 at which point I’ll flip for a small short.

You want more? Then pay up and join the club – freebie mongers only get to see the tip of the iceberg.

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That’s probably a lot more leadsΒ than you cared for – being mid summer and all. Just crank up that A/C, grab a glass of iced coffee and get to work, you lazy bastards!

Oh sorry – coffee is for closers only.

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.
  • HeadNShoulder

    Guten Morgen Boss.
    *Hands down on the setup*

  • hellbent

    Hey gang. I’m trailing my stop and off to bed. Sell Bucky and buy… stuff πŸ™‚ Give it heaps

  • Skynard

    Still short, she is putting up a fight. Will do my best:)

  • HeadNShoulder

    QQQ shorts hit my trailing stop, out for +$6k profit. Bah! Thanks Boss for the setup. Sexy as usual.

  • http://evilspeculator.com molecool

    That was quick!

  • http://evilspeculator.com molecool

    The downside is not convincing at this point – we need to see a more solid ZL signal…

    ..

  • Ronebadger

    Agreed, holding some longs from beg-week…watching

  • HeadNShoulder

    Yes Boss, I have been hurt by the market too many times that I would rather run away with small profit than seeing my position turn bigger profit position shrinks to negative zone again.

    When the market allows me to take smaller profit or breakeven while losing onlycommisions, I am always happy to accept that.

  • buysidetrader

    “Above 2100.75 the bulls are in possession”

    bulls have the ball

  • HeadNShoulder

    -0.5 5min ZL would be nice for a starter.

  • Ronebadger

    VIX in low 12s favorable

  • Ronebadger

    All we need now is increasing breadth and A-Volume for a short squeeze

  • http://evilspeculator.com molecool

    Yes, the Zero signal this morning was ominously clairvoyant.

  • http://evilspeculator.com molecool
  • captainboom

    Link doesn’t work boss. Have a better one?

  • tristan37
  • http://evilspeculator.com molecool

    Reload please.

  • captainboom

    Thanks. I couldn’t click on it in Disqus.

  • BKXtoZERO

    No one here reads Zero Edge so I’ll post this for you guys as it is up your alley:
    “…risk management is not another component… it is THE component of trading! Everyone goes broke because their trading size is wrong… Any fool can take a profit. It takes a lot of character, discipline and commitment to take losses and continue going – and that is the only way one can succeed. The lasting trader will always reduce trading size in order to continue trading and come back.”

    http://www.zerohedge.com/news/2015-07-30/trade-market-wizard-interview-mark-andrew-ritchie

  • Ronebadger

    HAVE…..TO…..BUST…..ES….2104…..

  • http://evilspeculator.com molecool

    Hehe – seriously.

  • Scott Phillips

    BOOM – couldn’t say it any better πŸ™‚

  • Scott Phillips

    Very cool

  • mugabe

    v interesting. requires balls if you start in a drawdown.

  • Skynard

    Nicely said

  • http://evilspeculator.com molecool

    Surprised to see that posted over there…

  • hellbent

    XAU: 4 pip win thanks to a 10 pip trailing stop. Would have done better on manual. But it ain’t about that. 1/4R bunked mon.

  • hellbent

    Top read.

  • hellbent

    Nice elegant fix. Wonder if he’s got anything for slippage… or monkeybrain

  • http://evilspeculator.com molecool

    I think he made a mistake in the fix’s formula but I do get the general idea.

  • http://evilspeculator.com molecool

    I’m going to do a Friday post but am just starting now – so give me an hour or so.

  • Billabong

    Busted!

  • http://evilspeculator.com molecool

    That was quite a move on the Forex side…

  • hellbent

    Hell yes

  • http://evilspeculator.com molecool

    Sorry – cancel that – I’m having my hands full now.. I’ll write it over the weekend.

  • hellbent

    Oil’s not responding. Cant be a war.

    Did someone lose a job?

  • Billabong

    DX major reversal

  • hellbent

    πŸ˜€ X

  • Skynard

    Hard to resist a small position, long /ES. 2100 holds and we are off for a good drive:) Dollar in a 3 of 3.

  • BobbyLow

    Mornin Folks,

    Had Lasik Surgery on my left eye on Wednesday and it is back to 20/20 for distance. Have to wait until 8/17 to do the right eye and it’s kind of wierd that all my old glasses are useless now even with the left lens taken out. However my repaired eye has taken over so I’m not wearing any glasses except for some off the shelf readers for fine print. I increased the font size on my computer and might not need any glasses for it after I get my right eye done. All and all everything has gone very well so far.

    On the trading front, I picked up a small short in oil yesterday. I was hesitant on going short and waiting to go long. However my chart was saying that it was still a short and I must admit that when I saw Mole’s Chart yesterday, I decided to take a small bite. I will reverse at a close above $50.45 on the Daily (as of the current price structure).

    It’s good to be back in the game. πŸ™‚

  • HeadNShoulder

    Despite the selling, ZL 5min is bullish! Woot Woot!

  • Edd

    Been thinking about you Bobby, glad it went well. Still got my readers everywhere!

  • Edd

    Long ERY @25.04 will close this pm no matter what.

  • BobbyLow

    Thanks Edd. I’ve begun with 3 Pair and I’ll probably more than double that. πŸ™‚

  • http://evilspeculator.com molecool

    “Had Lasik Surgery on my left eye on Wednesday and it is back to 20/20 for distance.”

    So does that mean you will be able to decipher my charts again? πŸ™‚

    BTW, you should check out pinhole glasses. No joke – they work:

    https://en.wikipedia.org/wiki/Pinhole_glasses

  • http://evilspeculator.com molecool

    Sorry guys for missing the morning update. I’m planning on putting together something later tonight and will post it then or tomorrow. So if you don’t see an update here today drop by tomorrow for a special treat.

  • BobbyLow

    Nice one.

    I’ve switched over to charting IXE to go along with ERY/ERX (instead of the DJUSEN).

    I’ve also changed over to Fast 10 Minute Charts for my Forex Scalper so I’m taking the slow lane on the IXE and charting the Daily on it. (I don’t want to go fast on more than one thing because I don’t want to become more susceptible to error.) BTW, my Daily IXE would have been short from 5/7 to 7/29. (Another big gain I missed) πŸ™

    The Long Signal on 7/29 looks like it’s breaking down real bad. (It’s a good thing I was out of service that day) πŸ™‚ I think I’m going to wait until Monday to revisit this one.

  • BobbyLow

    Your /CL Chart couldn’t have been more clear. πŸ™‚

    BTW, I have to wear a Metal Pin Hole Patch for a week while I’m sleeping so I don’t accidently poke or rub my eye. I’m amazed at how much I can see through these pin holes. So yes I believe pinhole glasses could work.

  • Edd

    I sold the close of ERY on 7-24, (don’t hold over weekends) I chose not to buy the Monday gap up on 7-27 which is a violation of my daily system rules strictly speaking, but it sure seemed like a potential blow off spike high. Entered ERX daily at the close 7-28. Exit close on7-30. This exit was a small violation of my rules, which I have made note of in my logs. I did not reach my ATR level at which I begin to trail a stop. I made this discretionary choice because price essentially failed at a falling EMA signal I use. Closed my 10 minute scalp system on ERY from entry this am at 25.04 at 25.61. No mistakes, log in as perfect execution within my rules.
    Daily system entry at close yesterday 24.29 has stop set at 24.67.
    I try to use my 10 min scalp system in conjunction with same vehicles I may be in on the daily. Less to look at and complimentary in a way.

  • BKXtoZERO

    Ha! One day my post is the springboard TO the featured comment of the day where everyone stomps on me and the next day my post IS the featured comment of the day! That is volatility for you.

  • Ronebadger

    VIX hovering around 12…good territory for continued up moves/short squeeze…OR, a downdraft…added to longs today…watching
    http://stockcharts.com/public/1092905/chartbook/143877580;

  • Edd

    Kinda like what the market can do to us. One day we are a hero and the next we are a zero. Parden the pun.

  • Ronebadger

    Just checked…18 more comments until I hit 3000. 2 more “Up-Votes” until 900. WAHHH-HOOO! Thank you all for reading and commenting my drivel. Love this board. (Where’s Fearless?)

  • BobbyLow

    Excellent!

    I know you’ve been trading ERY/ERX for awhile and it sounds like you have a great system in place. I like the ATR (which I also use) aspect of it too. One thing about ATR is that it never seemed to do that much for me but I continued to use it over and over and then one day it was kind of like somebody turned the lights on. I guess as the old saying goes, “. . . it just matters (how) you use it”. πŸ™‚

  • http://evilspeculator.com molecool

    He emigrated to Poutlandia.

  • http://evilspeculator.com molecool

    And the pinhole actually acts like an aperture and relaxes your eye muscles.

  • http://evilspeculator.com molecool

    Once a month they just have to stomp on the dollar.

  • Scott Phillips

    Fearless got exposed as being full of shit. He tried to claim he doubled an account in 5 days, and came up with this complicated story about how he had his money in OTM calls, which came good, and he rolled the winnings into another speculative play.

  • Scott Phillips

    Glad it worked out Bobby πŸ™‚

  • Ronebadger

    I remember that stuff…can I still miss him? πŸ™

  • Billabong

    Good to hear the news!

  • mugabe

    scott/mole/anyone:

    we’ve had 2 interesting links, one of which (Zero Edge) says reduce position size / % R during drawdowns and the other one (Mole’s link) effectively says do the opposite if you want to get expected returns.

    They can’t both be right …

  • hellbent

    You actually could use both quite well. Or use something else, something nefarious…

  • http://ibergamot.blogspot.com/ i Bergamot

    Its all matter of common sense and instrument you trade.

    For example:
    100000 portfolio to be diversified into 10 stocks.
    10k each position with hard stop 10% away, gives you risk of 1% (of total account) per position.
    As you lose money your positions get smaller, but risk is same – 1%.
    My trades have stop of less than 5% – to compensate against occasional huge overnight gap ( or just don’t hold position over earnings – that should take care of 80% of these catastrophic stop-outs).
    If I can’t fix a stop this close – I just pass. There are over 2000 trade-able stocks, you know…

    Futures (for example ES).
    1 contract per 10K of non-margin equity. You really need less than 5K with most brokers to hold it overnight, so there is some buffer for losses.
    If half is lost – discontinue or replenish…:-)
    As you make 5K of profit – trade 2 contracts, until you make another 5K. Then you can do 3…
    And so on up to 10 cars (I haven’t got that far yet, so that as far as it goes for now)

    Currencies will be different, but I don’t trade them, so don’t know
    Hope it helps

  • mugabe

    appreciate the reply but you’re not addressing the question I’m asking: read the 2 links πŸ™‚
    both talk about an alternative to R as a fixed % of the current balance

  • http://ibergamot.blogspot.com/ i Bergamot

    I don’t subscribe to math of R (Bergamot ducks).

    I find it unnecessary, unless you trade multi-million dollar portfolio with all kinds of different instruments (especially currencies), which most people here probably don’t.
    However, what I outlined here is not that different, more robust and easier to use.

    What would your grandmother do? Throw good money after bad, or save for when the time is right?
    When losing #1 rule is: GET SMALLER!
    The examples I offer (and use personally) will make you trade smaller
    after losses, larger after wins – so when you win you win big, and when lose you lose small…
    its like riding the trend.
    Trade Mugabe trend

  • saltwaterdog

    If I applied that strategy to coin flips, wouldn’t I be broke?

    There are a few ways to skin this, I believe Ivan and Mole have mentioned Equity Curve filtering as one example on a few occasions. My understanding is, below the curve, you stop, period, or trade something so small, as a marker, that it doesn’t matter.

  • http://ibergamot.blogspot.com/ i Bergamot

    I actually did 1000 coin flips. Results are definitely not 50/50.
    Math would disagree with this statement, but math has a big problem in real world of financial speculation.

    I read Mole’s article about EC filtering – excellent notion. Also – Market Weather.
    Bottom line – nothing works all the time, some things work only sometimes (but with spectacular results). People lose in the markets, because they are constantly changing.
    When you fallen below ‘the Curve” – its not written anywhere that you will eventually rise above it. May be thats it? Temporary irregularity you exploited was arbitraged away.

    I don’t have an answer. its a constant struggle.

  • hellbent

    It’s common sense that we have to watch out for most. Sadly our human brains are piss poor at number relationships and it costs us a fortune.

    Good book – Thinking Fast And Slow, Daniel Kanheman.

  • saltwaterdog

    If an RBT were to fall below it, keeping mind the curve itself is fluid and will “trail” the Equity Curve, and never cross back up… then by definition wouldn’t one be in a death spiral that, were it not for the filter, would be the proverbial blow up? The curve would seem pretty useful in that case.

  • http://ibergamot.blogspot.com/ i Bergamot

    Have it. Great book. Alot of very useful staff about loss avoidance, greed, fear, etc.
    More useful than 90% of my trading library, for sure

    BTW, common sense is not so common…

  • http://ibergamot.blogspot.com/ i Bergamot

    Correct.

    Specifically, I traded a system for over 2 years (after 10 year back test). In historical results it had about 65% win ratio. Last year it was running at 70-75 wins. Awesome, right?

    Then between October’14 and February’15 it broke down. Less than 30% winners. I reduced gradually, until by March it went completely off. Took a big chunk out of profits. I continue to paper trade it. Still more than half losers.

    Had I continue to trade it – would most likely destroyed my account.

  • saltwaterdog

    Interesting… any idea of what changed? Personally I believe in giving a system a finite lifespan, though yours might have jumped the tracks before it’s end of life.

  • Edd

    Sorry for delay Bobby, stepped out for a few hours. It was Scott and yourself that got me to seriously think in terms of ATR. If I trade correctly, (mistake free), if I follow my own rules without exception, ATR has become more important to me as a measuring stick than the money. I constantly backtest my systems so I can accurately asses my performance against what should have been my results versus my own real time results. It was using ATR that led me to discover I was applying trailing stops way to soon. It took me the better part of a year to figure out the absolute value and necessity of determining MFE. By keeping a running record of MFE on my systems as a multiple of ATR, I have made a significant difference in my returns. I suppose any constant of measure would work, but ATR is it for me. No mistakes trading today. (thanks Scott and Mole, et al) A good day indeed.

  • Grant

    Were you using an EC to filter results? Is your system highly dependant on your market of choice trending?

  • Grant

    They are both correct, if you want a risk adjusted bet size that does not diminish with the greater # of trades taken. Meaning that the bet size per 1% of your account decreases with losses and that by a factor of the # of trades your bet size diminishes by a factor of the # of trades taken. One adjusts for account size and the other for the diminishing # of trades as an exponent.

  • http://ibergamot.blogspot.com/ i Bergamot

    Not really “to filter”…
    What happen is some solid buy points where stopped out violently. Some stocks got stuck – not high enough to take profits, not low enough for stop-loss. It was easy to see that something is wrong. Still I continued, but cutting position size by alot, it was hard to believe that my holy grail was just a dog dish.

    yes, it needs a trend. Isn’t everything need a trend? I tried and researched mean-reversion and range trading methods. Non worked reliably, or with significant profit. All ended with spectacular blow-ups. (I don’t know everything… may be there is something out there?)
    This particular method uses certain criteria for stocks selection. Not all these stocks trend all the time of course. Many do, others just pop and give quick profit. The whipsaw I experienced is uncharacteristic for these securities and happened before broad stock market settled into current range (or rather at the very beginning of it – making it impossible to recognize at that time). Now its all clear as day… 20/20 and all

  • Grant

    Entry and exit should be known beforehand. Sometimes this does not mean a price point but a timeframe. Slippage and stops outs on large price moves are part of the game. On your EC, are you able to identify when your system might be going into a drawdown. I realize this is never perfect but if one is looking not to blow up while trend trading then one should know when to “get off the bus” and “go sight see” and then get back on when the drawdown is ending. Are there any such patterns on your EC that might ID this?

  • http://ibergamot.blogspot.com/ i Bergamot

    My entry is good. That part I got.
    Exit is more tricky. Of course there are bolingers, point and figure targets, formation measurements… I use them as general guide posts, but find them unreliable for exit (especially in trend). My method gives iron-clad exit signal that I never ignore. Not ever. BUT this exit signal can happen below entry price and before stop loss is hit, resulting in small loss. Several of these losses can’t hurt me much, but in the beginning of this year I had too many of them in a row to ignore.

    I can’t tell when system WILL go into drawdown, nor I can put a timeframe on it. Believe me, I tried most published methods and some of my own ‘inventions’. I have no ability to forecast the future or my P&L. None. Zero.

    As for bus… In this particular case I continue to paper trade this system, hoping that its affected by general market malaise… or may be we are going into bear market – then nothing will work… I don’t know.
    I remember trading a rudimentary ES method in 2009-2010. Was ok until I had to stop because of non-market related reasons.. Recently I decided to revisit that old idea. Upon review of that ‘system’ I found that it would not be profitable neither during 1990’s, nor now.
    Some roads just lead nowhere

  • Grant

    Yep, you’re correct. Sometimes systems don’t work out. You could try to build another by starting with your basic edge and build out. Exits should follow a process and not conflict. I realized I was not smart enough to create my own system and paid for training. It’s hard enough trading a successfull system much less one that is arbitrary. Money well spent IMO. I used the basic info to create a system that works for my world. It took time but will serve me for the rest of my life and all those that I can teach. Sometimes failure and humility are the best places to start.

  • http://ibergamot.blogspot.com/ i Bergamot

    Arbitrary systems are not a systems at all.
    I’m currently running a day-trading ES system. Completely rules based. Zero discretion required (still I sin sometimes). Its probably the hardest job I ever done. Grueling long hours, complete isolation, constant struggle to keep my ‘gut feeling’ away. Profitable, but can’t say for sure if its really worthwhile.
    Plus I keep waiting for the thing to blow up or stop working, or something…
    There is always something…

    Good thing you developed your own method. I attended some seminars free and paid. I even passed CMT exam. What I learned for sure is exactly what one of my college teachers told me at graduation: now that you learned all this bullshit, the best thing to do is to forget it, because reality is very different from theory.
    Stock market teaches humility right quick… unfortunately for a very steep price
    πŸ™‚

  • Grant

    You should know that you are going to win when the rules are applied correctly. It should be only a matter of time. One could begin in a draw or on the positive side of the EcQ (EC) but the outcome should not be in question. Knowing this takes away some of the emotions and should help you to beat that little voice away when it arrives. If you stop b/c of the difficulty or subc b/c you fear the system will blow up then winning is not gauranteed and the system is arbitrary or as you say, “not a sys at all.” Not trying to be rude and hopefully you get your system the way you want it.

  • http://ibergamot.blogspot.com/ i Bergamot

    Not sure what changed, still straggling to find an answer.
    Its a stock-trading system (one that broke down), as such its affected by general market conditions. On a way up many stocks offer diversification benefit, so while they don’t advance all at the same time the whole portfolio just keep steadily marching higher. On a way down they all become correlated and fall together (gold miners aside lol).
    With this understood, I am not about to claim a bloody bear market with S&Pee few percent from ATH.
    Its a market of stocks, but leaders don’t lead. Someday it will be sorted out… up or down… anywhere is better than here. Meanwhile I wait.

    Can you elaborate about “giving a system a finite lifespan”. Never occurred to me… How?

  • http://ibergamot.blogspot.com/ i Bergamot

    You are not rude at all.
    Thank you for keeping this conversation going.
    I don’t visit this blog as often as I like, and miss having a discussion with like-minded people.

  • Malcolm O’Mara

    Good for you, Bobby. It’s a low risk high reward procedure.
    I bet when you visit your optometrist, you’ll clock-in
    better than 20/20 on distance. Just be careful in the shower and such. Until your eye heals, wear sunglasses outdoors to protect your eye from dust and debris.

  • Scott Phillips

    It is mathematically provable that this is a suboptimal way to trade.

    Not necessarily unprofitable. Just suboptimal.

  • Scott Phillips

    We have a conflict between what is best in theory (maximizing total return) and what is most likely best in the real world.

    An academic will be able to prove (and will be absolutely correct) that the only thing that matters is maximising upside while minimising risk of ruin.

    In the real world, drawdowns take an emotional toll. They induce mistakes, poor record keeping and bad judgement. They make you doubt, and alter your systems unless you have a lot of experience. Nobody is immune to this, not me or Mole either.

    My preference, which mirrors many of the greats like Ed Seykota and Paul Tudor Jones, is to reduce position size in a drawdown, so that you approach your maximum drawdown (and by definition your most stressful time, and worst trading) asymptopically

  • Scott Phillips

    Yes, all these things are totally correct πŸ™‚

  • Scott Phillips

    Happens all the time. Market type changes – shit gets ugly

  • Scott Phillips

    Sure I liked him also. It’s understandable why he liked being the one eyed man in the kingdom of the blind πŸ™‚

  • hellbent

    Good question, obviously. I’m gonna stick my neck out:

    The Zero Edge one is right and the doctor is leading us down the garden path.

    1. We use fixed fractional for good reason. No need to elaborate.

    2. The only reason we need a fix for it is because the standard (perhaps) practice has become to calculate expectancy using arithmetic mean, which gives an incorrect figure that gets worse over large data samples thanks to the power of compounding. If we calculate using geometric mean in the first place there is no error.

    3. The good doctor is doing is giving us a kind of dumb equity curve filter. The Rats can do better than that. The doctor’s chart looks impressive only because he’s increasing R. If we have a filter phase that puts us into R*1.1 when the going is good then we can be hero’s too.

    4. Optimising position sizing is most definitely an edge. Compounding, remember…

  • http://evilspeculator.com molecool

    I tried to be nice but there you go…

  • http://evilspeculator.com molecool

    No, you can not.

  • http://evilspeculator.com molecool

    Yeah, I did that once – playing Monopoli. All it took was a rule change that allowed buying mortgage based securities against rent properties which were clearly heading into a bubble.

  • mugabe

    Re the discussion, I don’t like the approach in Mole’s link (constantly increase position size, altough same R %, based on the theoretical / expected account value after x number of trades) since:

    a) It could lead to the poor house if the system is broken / out of sync with the market for a v long time

    b) Even if it isn’t, psychologically it would be very hard to do during a drawdown.

    It seems to me that some kind of *pretedermined* equity curve filter is in order eg:

    1 Stop trading/ reduce R % if the equity curve dips below a certain moving average (e.g. 30 trade ma), resume when it regains the ma.

    2 Stop trading/ reduce R % if the equity curve goes down by a certain amount e.g. 10%. Resume when it goes up by the same %.

    In both cases you would need to run a concurrent simulated equity curve based on your original R % to know when re-entry conditions are established.

    I’m not sure which of the 2 systems, 1 or 2, would be better, but I imagine that there wouldn’t be much in it.

  • http://evilspeculator.com molecool

    I’m actually posting an article about it later today. It actually all depends on the strategy – some will be more affected than others based on my crunching the numbers over the past few days. If nothing else one needs to adjust the compounding expectations accordingly.

  • http://evilspeculator.com molecool

    Reg. 1. Equity curve filters are detrimental to MOST systems actually. Trust me – I have run the numbers on that extensively. You need very high dependency for it to actually have a beneficial effect.

    2. is something I would do as well but it can backfire – again it depends on the system. If you have a system that lives by outlier winners then this approach will suffer from the same flaw as EC filters.

  • mugabe

    Very interesting and I believe you about them being detrimental. When you say a high dependency, I assume you mean clumping, in layman’s terms.
    I suppose there are 2 reasons for having some sort of equity curve filter:
    1 Psychological (nothing to do with profit here).
    2 To guard against the system actually going bust / being out of sync for a v large number of trades. I know this *shouldn’t* happen if the system is truly robust.

    i suppose the obvious question is: Why do have an equity curve filter for CI? High dependency? Psychological reasons (not necessarily yours, but subscribers’)?

  • mugabe

    look forward to it!

  • http://evilspeculator.com molecool

    High dependency in combination with small std deviation on Ci – but my work shows that is pretty rare.

  • http://evilspeculator.com molecool

    working on it…

  • mugabe

    this is really interesting stuff … not bad way to avoid the heat at the w/e!

  • http://evilspeculator.com molecool

    Actually it’s gorgeous over here – about 26 Celsius. Unfortunately I have a long list of deliverables.

  • saltwaterdog

    I believe strongly that RBT-based trading is a business venture, not much different than opening a burger stand, and thus requires a plan. I also believe that part of that plan is the end goal, and in trading that is certainly financial. Therefore, imo it stands to reason that once you open for business, you are in pursuit of that goal until you achieve it, or determine that it is not possible. Neither follows the open-ended approach of “make buckets of dough for as long as you can”.

    I also believe strongly that there is a certain “energy” that must be brought to the process to achieve success, and it is a function of multiple things, including humility. Making a plan, identifying how much is “enough”, and sticking to that intention assists in that energy, but this point of view is certainly not for everyone.

  • mugabe

    zee mole has sprechen.

  • Scott Phillips

    Equity curve filters have a number of practical problems, especially for trend following systems.

    For trend following systems, losers tend to happen fairly quickly, while winners can be around a long time. Keep your losses short and let your profits run, and all that.

    It’s also quite complicated for systems running a lot of correlated or simultaneous positions, like Thor.

    Also, lets say you do the equity curve on an SMA of actual equity. It’s all perfect for the first few equity curve switches. Then the actual shape of the equity curve is very different from what it was.

    It’s quite a difficult problem to solve.

  • Grant

    Equity curve filters can be detrimental and helpfull when dealing with a drawdown. It depends on when you stop trading and when you begin again. In a shallow draw, you are correct in saying that the possibility of missing a large outlier that takes the sys out of the draw can signigicantly hurt profits. On the other hand, in a deep draw, if trading resumes at the bottom of the draw then returns can be greater than if one just “traded through” it. For trend traders, this summer has been a bit frustrating b/c of the Greece situation which has produced a significant draw over this summer since May. For some systems this may have been deeper than others, but IMO sitting it out and relaxing/recharging has been nice. My system went green on Friday, and I am only out 3.5R…. I have been out since mid June save a few days in July. If the draw had been deeper, and I am anticipating more significant draws in the future with the worldwide debt levels , then I may have resumed at the bottom of the draw and actually benefited in R’s from my filter.

    EDIT: This all depends on the signals being used in identifying when to stop and start trading. I am sure yours are different than mine. I learned mine from Ivan and incorporated another which follows his trend/trendette philosophy.

  • Scott Phillips

    Correct on all points. Ivan, for example, uses an effective technique where he calculates R size on equity peak. This brings him out of drawdown faster, while increasing risk of ruin and increasing max drawdown. Great, for a very good system.

    There IS NO WAY to have your cake and eat it too. Either you want to get out of drawdown faster, maximise total profit, or minimise drawdown. You have to choose, at a personal level.

    For example, I have a greater tolerance to drawdowns than Mole does. He is a very conservative trader, everything in ordnung.

    One flip side of equity curve filtering is that usually systems in drawdown switch out of the blue to a sequence of winners. Taking 5 winners in a row in a losing system for tiny position sizes can be emotionally devastating… giving strong feelings of unfairness and “missing out”

    On balance, for me, it’s a wash whether to use equity curve filtering. I don’t currently, but I will in the future on Thor.

  • http://evilspeculator.com molecool
  • http://evilspeculator.com molecool

    gesprochen

  • http://ibergamot.blogspot.com/ i Bergamot

    I know.
    But its the best way I ever found, when operating with small account.
    Simple, fast and robust.
    Requires no margin.
    Will take a long-long-long time to blow up the account this way (note – this is a combo of longer term /swing stock portfolio with short term / daytrade ES futures).
    OTOH, this 100K portfolio will not become 1mil any time soon (my didn’t), but can produce solid double digit returns (my did).

  • hellbent

    Good info. Thanks.