We have been researching the performance variation between those accounts with <$80k capital at any point and those with >$80k and have discovered that the larger capital accounts can average about 25% greater profit per trade than the lower capital accounts. The reason for this is that at times of high trading activity, the smaller accounts miss a significant number of trades due to insufficient margin. Margin is consumed BOTH by Open Positions (you can see this on the dashboard) AND by Open Orders (orders that are not yet filled, not visible on the dashboard). In addition, there is an order priority constraint used by CME and/or IB when accounts have low capital thereby reducing the number of orders that actually get placed. Following is the anal...
Most AlgoLab users are trading with the DifferenceEngine (DE) system or subscribed to AutoSystemSwitcher, which has been set to trade the DE system for over 6 months so AlgoLabHouse2 is the reference house system for this analysis.
If you've ever noticed that the AlgoLabHouse2 account seems to outperform your own AlgoLab account, there are a few reasons why this might happen, and none of them are due to an unfair advantage that the house accounts may have over other AlgoLab accounts. The possible causes for this discrepancy could be any or all of the following 3 reasons:
You are circumventing AlgoLab's built in automation by pausing your account, changing your leverage (risk value, or # of contracts traded), or manually exiting your trades (Al...
AlgoLab automated trading software is now connected to and live-trading for just under 100 clients. Over 132,000 futures trades have been executed, algorithmically and automatically. The longest-running account, AlgoLabHouse as been live for almost 28 months. Most importantly, live trading data has been consistent with the Performance Viewer modeling estimates thereby reaffirming that AlgoLab software has and will continue to perform as designed.
Based on the results to date, it becomes increasingly apparent that AlgoLab has the potential to play a bigger role for those with larger investment capital. AlgoLab, combined with the new “fixed number of contracts risk setting” allows a client to easily select a risk profile that matches or exceeds the per...
DOUBLE TRIPLE IMPORTANT CHANGE. AGAIN. yes again. As of June 26, 2018 I am REMOVING BOTH THE 1000 PERIOD LOOKBACK TREND FILTER AND THE STDEV 1.1 FILTER. After careful consideration, I feel that stdev was being calculated in real time on the actual entry bar, and may be the reason why so many backtest trades were not duplicated in the real world. After I removed lookahead bias (including the current entry bar in lookback trend calculation), the advantage of the 1000 bar lookback was gone - however... the max drawdown is still lower, so it may be worth offering this as an option.
IMPORTANT CHANGE: As of June 25, 2018, I ADDED TRIANGLESMA back into DifferenceEngine. As well, I changed the symbol set to:
I wanted to compare our current drawdown to the worst drawdown in the backtesting data, just to get an idea of what could happen... not to say that this WILL happen, but it's prudent to be aware and prepared.
This drawdown so far, as of April 3, 2018, according the the AlgoLabHouse account:
.05 risk, $100,000 of capital, SuperSystem -17%
So far has lasted 1 month
The current drawdown of $-16,907 equity reduction based on the original investment capital of $100,000 (The original capital was $55,700, but we are using $100,000 as the current capital setting) is -17%
STUDY 1: Percent winning trades triggering INCREASE / DECREASE IN LEVERAGE (RISK)
A week ago, I published a study that found a weak link between increased AlgoLab performance (decrease in risk/reward ratio (G/P)) and a recent string of both winning trades, and losing trades. if there is a good % of winning trades recently, then GP improves if risk is increased. If there is a large % of losing trades over a much longer period of time, then GP also improves if risk is ALSO increased. This is logical, and basically says that when the % of profitable trades starts to increase, that it will continue. This also says that if we have been going through a long drawdown period, it can make some sense to increase risk to catch the equity "bounce back" when marke...
Is is possible to reduce drawdowns in your account by manually adjusting your AlgoLab settings?
AlgoLab was designed to be fully automatic, but it does offer the some manual controls like using the pause button, adjusting the risk value (leverage), and customizing the symbol portfolio.
Can we improve the results of your AlgoLab by overriding the automatic operation, by using your discretion to apply some of these custom settings? In this blog post I'll attempt to test a theory that I have about using a recent string of winning closed trades as an indicator to improve the risk/reward ratio.
RISK REWARD RATIO (GAIN/PAIN RATIO)
When I measure trading results, I do not like to use profits as the only measure of how well a system performs. What is m...
Human beings with our animal brains are very poor decision makers, and not really suited to making buying or selling decisions based on far more information than our meat computers can process. This is why objective, tested algorithmic trading is always going to be more profitable.
Excerpts from “The Drunkards Walk”
Which is greater: the number of six-letter English words having “n” as their fifth letter, or the number of six-letter English words ending in “ing”? Most people choose the group of words ending in “ing.” Why? Because they’re easier to think of than generic six-letter words. But the group of six-letter words having “n” as their fifth letter includes all six-letter words ending in “ing.” Psychologists call thi...
Yes, we are in a drawdown. Drawdowns have happened before, and they will happen again - I can guarantee that. Be patient. I would like to remind everyone that the AlgoLabHouse account (shown above) has been through quite a few drawdowns since 2016, and has never paused trading, or reduced risk. Of course, many of you do pause or reduce risk during the drawdowns and have avoided some of the losses.
It does appear that the extent of this drawdown is similar to what has occurred in the past. That does not guarantee that we are nearing the end of this drawdown, but that is possible.
Friday was a wild ride for the stock indexes that started first thing in the morning with investors bidding up stocks due to confidence that the tax reform bill will pass. AlgoLab's two main systems "SuperSystem" and "DifferenceEngine" picked up the spike in ES, YM and NQ, then immediately gave it all back when the news about the Michael Flynn arrest hit.
It is Sunday afternoon right now, 10 minutes before the market pre-open, and I'm sort of thinking that the equities markets are starting to act a bit "crashy" with exaggerated fluctuations based on fear and exuberance.
The last major stock market crash in 2008 was a very profitable time for AlgoLab according to the historical back test using Performance Viewer. Below is a screen shot from PV show...
Futures are not like stocks in that you don't actually "buy" or "sell" any number of shares of a futures contract. Futures are CONTRACTS. When you "BUY" a single futures contract for, say, the S&P 500 emini contract (symbol "ES"), you are entering into a contract with a counter party who agrees to take the opposite side of your trade. When you "BUY" a futures contract, you are NOT SPENDING any of your capital. Yes, it is absolutely FREE! When your trade is CLOSED (ie: when you sell your ES futures contract), then if you made a profit, the counter party to your contract must transfer funds to your account equal to the contract specified amount called the "Big Point Value" times the number of points that you made on the trade times the nu...
Here is a scenario that I ran into the other day. AlgoLab customer A was happy with his 100% return on a $50,000 investment after year 1, and was considering adding an additional $50,000 to his account to increase the total investment to $100,000. He wanted to achieve the same percentage return and average percentage drawdown as as he did with the original $50,000.
From a couple of tests using the Performance Viewer, here is how we calculated the new risk value for the new $100,000 amount that would generate similar percentage returns as previously:
Date range = 2009 to 2017 (The big spike in 2008 was removed)
Multisystem = DifferenceEngine
1. Here are the settings and results from the original $50,000 of capital (note that these results are 'raw' hypoth...