A Trader Journal

Change yourself, change your trading.

How is my trading strategy doing?

Labels: ,
Markets are always changing. Some key questions every trader has to answer irrespective of their approach is - how is my trading strategy doing currently? Is the market currently conducive to the strategy for pressing the edge or to reduce the exposure? Under what environments  my method will shine and in which environments will it run into rough seas? Is the edge gone permanently or is it just a temporary draw down?

Interestingly we don't hear much in trading literature/blogs about this aspect and techniques one can use. If you have heard, then please let me know. I like to read. 

Anyway, in my opinion, a strategy performance is dependent broadly on three factors:
  1. Suitability of current market environment to the method.
  2. Suitability of the money management algorithm being used to the method.
  3. Suitability of the trader (nature/personality) to the method.
This post focus is on first item i.e., getting an idea on whether the current market environment is conducive to the strategy and in what environments will it do well. Similarly when to pull the plug on the system and shelve it or revisit its core logic. As an example, I am using the strategy we covered in prior post. If interested, you can find more details of the system here and here.

In my opinion, having a simple and objective process/rules for doing this analysis makes a big difference both to the account and to trader's health. Often the aspects of trading that causes stress are those areas that are not simple and crisply defined to follow repeatedly.

 I am sure there are an alphabetical soup of quant/statistical tests (i.e., A - Z tests) one can perform to determine how the system is doing currently. Similarly another alphabetical soup of adaptive approaches to side step this problem. I could be wrong but IMO the problem with adaptive approaches is they will satisfy intellect more than the account, adds lot of complexity to strategy and then somehow magically hit the one case we forgot to consider. Do you know of any adaptive strategies that withstood last decade and performed well?

The approach I use is fairly simple, effective and objective. I don't know of any quant tests that can do better than the approach I use currently. Doesn't mean there are no better approaches out there nor this approach is the best. I am sure there are and look forward to investigate. I welcome readers to share their thoughts and techniques.

 I think there is wealth of information one can gain from a simple performance summary chart. To get better mileage for you and for me, I recommend readers to take a deep look at the 1st image for couple minutes and note down what comes to their mind about the system character. Then look at the 2nd image which is heavily annotated with my observations.  Then please let me know where our observations differ or things I overlooked/mistaken. If enough readers do, it will be beneficial to all.

Profiting from emotions price action strategy performance

 Note: Read the annotations in the order they are numbered. These will set the path to the final question i.e., how is the trading strategy doing currently? is the edge still there? when can one press the edge for this system? and finally what are the the red flags to watch for that will let me know the system edge is in danger. 

Profiting from emotions price action strategy performance with annotations

Please feel free to share your thoughts, any techniques you found useful and also any inconsistencies in my analysis. We learn most when our views and ideas differ. I hope readers got some useful takeaway from the post.

 Wish you all good health and good trading!

0 comments:

Post a Comment

Subscribe to: Post Comments (Atom)
Share