The attached spreadsheet is a backtest of the PDH+2.5, PDL-2.5 setup, for the last 6 months. I put this together to look at the effects of partial profile, which can be adjusted in cells D1:O1

I will extend the spreadsheet to cover other setups as time permits, and if interest is shown.

(see post below for corrected sheet)

Really interesting uktrader. I ran some similar tests but used very simple money management and only traded and scaled 1 or 3 units.

My tests showed that this was a losing strategy and one that shouldn't be pursued. However, looking at it using a possibility of 10 scale outs puts a different perspective on things and makes me question the entry techniques and wonder if this is all about trading the right scale outs. The entries, signals and strategies may have a much smaller significance than we realize and should give them.

I remember reading on Woodie's web site and from one of Woodie's followers that you can make money in the markets by just using good money management skills and the entries were insignificant. He said that you could enter a position at any time and in any direction and so long and you used good money management you would make money over the long run.

Now I read this a few years ago and he gave the MM formulae and it was nothing special. He was trading the ES and used something like a 1 or 2 point stop and targeted 5 points. I can't remember if he scaled out of his positions.

Anyway, I went and back tested this across at least 6 years of ES data and found that this was completely false and using a random time and direction entry technique and just the MM rules that he had defined you would have lost money every single month during those 6 years.

So there you have both sides of the coin.

Thanks for doing that bit of research for us - much appreciated.

quote:

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Originally posted by day trading

Really interesting uktrader. I ran some similar tests but used very simple money management and only traded and scaled 1 or 3 units.

My tests showed that this was a losing strategy and one that shouldn't be pursued. However, looking at it using a possibility of 10 scale outs puts a different perspective on things and makes me question the entry techniques and wonder if this is all about trading the right scale outs. The entries, signals and strategies may have a much smaller significance than we realize and should give them.

I remember reading on Woodie's web site and from one of Woodie's followers that you can make money in the markets by just using good money management skills and the entries were insignificant. He said that you could enter a position at any time and in any direction and so long and you used good money management you would make money over the long run.

Now I read this a few years ago and he gave the MM formulae and it was nothing special. He was trading the ES and used something like a 1 or 2 point stop and targeted 5 points. I can't remember if he scaled out of his positions.

Anyway, I went and back tested this across at least 6 years of ES data and found that this was completely false and using a random time and direction entry technique and just the MM rules that he had defined you would have lost money every single month during those 6 years.

So there you have both sides of the coin.

Thanks for doing that bit of research for us - much appreciated.

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I believe that entry is important, but I agree that exits are probably one of the most important components of a successful trader. In fact, there are several arguments for all-in / all-out, but that can create its own issues based on a person's psyche. The largest of which is probably taking everything off at some level and then watching a trade run another 2,3,4,5+ points.

Slow and Steady wins the race though, right?

That said, even using your random entry/direction technique, you were able to produce something that made money every month. I realize you said you lost every month in your note, but if you would have done the opposite, it sounds like you would have made money. IOW: 5pt Stop and 2pt Target.

Just a thot ...

quote:

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Originally posted by uktrader

The attached spreadsheet is a backtest of the PDH+2.5, PDL-2.5 setup, for the last 6 months. I put this together to look at the effects of partial profile, which can be adjusted in cells D1:O1

I will extend the spreadsheet to cover other setups as time permits, and if interest is shown.

Click link to access uploaded file:
jp_setup_analysis.xls

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Very cool! But I don't understand something ... the stop-out trades show a max loss of -19.00, but you have 20c, so shouldn't that be -20.00?

Here's another thought ... change your scale to be all-off @ +5.00 ... that picks up about 680 points over the same period (vs 260-ish) ...

Unless I did something wrong? I just changed the row-2 values to all 0 except for the Column J5.

And ... if I did that correctly, different multiplication strategies would take that 680.00 and make it either 490, 880, 1220 using the same sequences.

3 Winners+ in a Row Pay Significantly ... ;)

quote:

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Originally posted by brokebackbernie
Very cool! But I don't understand something ... the stop-out trades show a max loss of -19.00, but you have 20c, so shouldn't that be -20.00?

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Well spotted The total colum (AC) was not including the 10pt column (O). The attached sheet is corrected.

Yes, different exit strategies can be studied by changing the partial profile across D2:O2. I am not surprised that an all-in, all out strategy works well. Van Tharp covers this point in "Trade your way to financial freedom". He calls it "reverse position sizing". By scaling out, a trader is taking the biggest risk on entry and cutting profit potential as the trade progresses. The net result is a serious detrimental effect on reward v. risk. It is tougher psychologically not to scale out but it frequently gives a much better bottom line.

With only 32% profitable trades, it begs the question "Is it more profitable to go with the breakout at PDH+2.5/PDL-2.5 instead of fading it?".

quote:

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Originally posted by brokebackbernie

...That said, even using your random entry/direction technique, you were able to produce something that made money every month. I realize you said you lost every month in your note, but if you would have done the opposite, it sounds like you would have made money. IOW: 5pt Stop and 2pt Target...

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No - I thought about and tried that but it didn't work. Remember that entry time and direction were random so each time I ran the back test I got a different result and I left this back test running overnight on multiple computers and generated thousands of simulated results if not 10's of thousands.

I admit that every now and then 1 of the results would show up profitable but it was very rare.

What was in fact being demonstrated by this random technique was the bid/ask disadvantage and the commission costs. Otherwise I think that the strategy should have been a break even one. i.e. if the bid/ask disadvantage and commissions were not there then it "should" have broken even. I say "should" because I never tested this and I believe that if you are randomly entering then you have a 50/50 chance of either direction.

Here is an article that I wrote on the Bid/Ask Disadvantage:
Bid/Ask Disadvantage

quote:

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Originally posted by uktrader

...I am not surprised that an all-in, all out strategy works well...

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I was chatting to someone who did a similar analysis of another trader in the #emini chat room. The star trader (very similar to JP) would use a tight stop and then exit in thirds and publish his exact entries, stops and exits. I always assumed that the thirds were the same size but I can't be for certain.

Anyway, the guy that did the analysis worked out that he would have been way more profitable if he'd just had 1 exit at his last exit and did not take the other 2 exits. Yes, he would have been stopped at break-even a lot more and his number of winning trades would have been much smaller but when he hit them they would have been enormous.

The simple example is to consider a 20% win ratio. If you hit 10 points per win and lose 1 point per loss then you will win 20 points for every 8 points that you lose.

quote:

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Originally posted by uktrader

quote:

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Originally posted by brokebackbernie
Very cool! But I don't understand something ... the stop-out trades show a max loss of -19.00, but you have 20c, so shouldn't that be -20.00?

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Well spotted

The total colum (AC) was not including the 10pt column (O). The attached sheet is corrected.

Yes, different exit strategies can be studied by changing the partial profile across D2:O2. I am not surprised that an all-in, all out strategy works well. Van Tharp covers this point in "Trade your way to financial freedom". He calls it "reverse position sizing". By scaling out, a trader is taking the biggest risk on entry and cutting profit potential as the trade progresses. The net result is a serious detrimental effect on reward v. risk. It is tougher psychologically not to scale out but it frequently gives a much better bottom line.

With only 32% profitable trades, it begs the question "Is it more profitable to go with the breakout at PDH+2.5/PDL-2.5 instead of fading it?".

Click link to access uploaded file:
jp_setup_analysis.xls

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I dunno ... even with a 68/32 W/L Ratio, you still were positive over the period. Some things to consider would be if a Protection mode would have saved you on some of the stop outs without causing a largely negative effect on the winners?

quote:

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Originally posted by day trading

quote:

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Originally posted by uktrader

...I am not surprised that an all-in, all out strategy works well...

---

I was chatting to someone who did a similar analysis of another trader in the #emini chat room. The star trader (very similar to JP) would use a tight stop and then exit in thirds and publish his exact entries, stops and exits. I always assumed that the thirds were the same size but I can't be for certain.

Anyway, the guy that did the analysis worked out that he would have been way more profitable if he'd just had 1 exit at his last exit and did not take the other 2 exits. Yes, he would have been stopped at break-even a lot more and his number of winning trades would have been much smaller but when he hit them they would have been enormous.

The simple example is to consider a 20% win ratio. If you hit 10 points per win and lose 1 point per loss then you will win 20 points for every 8 points that you lose.

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That is based on an assumption that 1/5 will make it to 10 points though ... the stop is pretty much going to hit, but you may not get your full target ... so what is that considered? a BE?

Using the Matrix as a Guide, I've tried to establish a proper W/L Ratio and am having a difficult time. For example, let's assume:

Stop: 2.50
Target: 1.00

74.2% of Trades Would Win for (74.2 points)
7.5% Would Scratch for (1.875 points)
18.3% would lose for (48.25 points)

So you'd end up positive in the long run by 26 points or so ... minus Commissions ... even though the Target is Smaller than the Stop.

To Further complicate ... let's try this:

Stop: 2.50
Target: 3.00

46.2% of Trades Would Win for (127.05 points)
7.5% Would Scratch for (1.875 points)
18.3% would lose for (48.25 points)

That leaves us with 28% of the Trades that do ... what? They don't lose, but they don't make it to the target before stopping out BE+1 tick. The Matrix is based on a Protection Mode of BE+0.25 after a target of 1.00 is reached (whether or not you take something off).

28% is a nice slice of trades, and would cover almost 50% of the commissions overall.

This is all 'easy' to figure out in an all on/off scenario, but how to we go about figuring this out based on a scaled scenario?

Again, using the Matrix, 74.2% make it to T1, and 61.3% make it to T2 and, etc, etc ... very few make it to the full 10, so that last contract is almost always 'wasted' and about 1/6 make it to 7.00.

My brain hurts at this point ... but even if we could figure out a way to determine (based on the %'s in the Matrix) what the point results would be when scaling out on 100 trades it, it still would vary depending on how many contracts and where you scaled heaviest.

Thanks uktrader. I played around with the numbers and agree that I could not get the strategy to be profitable either. While playing with the numbers I suddenly realized that I was doing manual linear programming.

I'm not sure if you've used this in Excel and it's a while since I last used it. There is some functionality (it might now be called Goal Seek but when I checked that out it looked too simple) that allows you to say: "Maximize/minimize this cell's value by changing the value(s) of this/these cells."

The operation loops around and varies the values in one set of cells until it can get the lowest or highest value in the target cell. This is used for the maximize profits or minimize cost scenarios that businesses use each day and is very apropos for trade optimization. These tools are in fact often called optimizers.

I don't have the time to do it now but this might be the best way to work out where to take the partials off...