MultiStage Exit Analysis… more…

In a past post I discussed the various profit exits and how they impact overall results.  We also use a 200 day simple moving average as an exit, which I wanted to look at this time.  As with the 5% profit exit, there is no magic in the specific MA200 number.  In fact, a good robust trading system should still work with slight variations to parameters like this.  Below is a table showing some basic results for a 200 day SMA, as well as a 100 and 50 day stop.

MA Exit	200	100	50
ROI	265%	237%	205%
Max Drawdown	30.71%	33.32%	35.32%
Sharpe	1.92	1.90	1.97
UPI	45.36	40.09	41.65
Worst Month	-18.6%	-16.7%	-12.5%
2nd Worst Mo.	-15.7%	-15.0%	-7.6%
3rd Worst Mo.	-9.0%	-13.4%	-5.6%

As you can see, there are clear trade-offs with these different parameters.  One is not necessarily better than another, as it depends on an individuals performance requirements or metrics.  For example, if pure ROI is the most important thing then the MA200 has performed the best historically.  But if the worst case losses in a given month are important (a way of measuring drawdown) then the MA50 has performed much better.  These sorts of trade-offs are typical in trading systems. 

Good Trading…

Correction to January Results!!!

I posted the January results earlier today, and discovered that I made a mistake… oops!  The modifications I made to the trading system weren’t put into the daily scan cycle until January 3, but January 2 was the first trading day of the year. 

Put simply, trades from the 2nd were based on the previous version of the model, and I don’t think any were generated.  This might all sound confusing, so let me just net it out for you.  The results were less than what I provided in my earlier post.  Here are the stats based on starting the updated system on the 3rd.

Net profit for the month	9.67%
Total number of trades	34
Average return per trade	1.71%
Win ratio	76.47%
Exposure	24.37%

I apologize for the earlier post, and should have caught this earlier.  9.67% is still a great return for the month, but a far cry from 14%.

Good Trading…

January Trading System Results

I hope everyone had a great trading month!  January was really a breakout month for the MultiStage Trading System.  The two newest modifications have worked out quite well. 

First, we are seeing a lot more trades.  To a certain extent, trading is a numbers game.  If we can identify trades with an “edge”, then more trades is better. And that’s what we are now seeing.

Second, using the 200SMA as a soft stop has also help control some runaway trades. Out of the 41 trades it was only triggered a very few times, but it contained a couple runaway losers, thereby reducing drawdowns.

It’s still very early with the modifications, but so far they seem to be working.  As you can see, 41 trades is a nice amount of exposure, and therefore it really improved the overall model results.  Not everyone will see 14% returns for the month, but I know of some that got very close.  I’m interested in hearing from any of you that care to share your real results. Below are a few of the key statistics:

 

Net profit for the month	14.70%
Total number of trades	41
Average return per trade	2.11%
Win ratio	78.05%
Exposure	20.27%
Total time invested	Less than 10 minutes a day!

Now might be a good time to comment on why our real trading results don’t match the model exactly.  I did an article a while back that is still accurate.  The one category I didn’t mention was “execution”.  Sometimes there are simply execution differences with brokers that cause us to get in and out of trades at different prices.  Aside from that, as the article says, Commissions, Sequencing, Liquidity, and Mistakes are the other biggest culprits.  That said, it’s been my experience that you can get pretty close.

Good Trading…

Exits for the MultiStage Trading System revisited

For subscribers and followers of the MultiStage Trading System (currently version 9 on CalculatedReturns.com), you will remember that one of our three exit types is a profit stop at 5%.  It’s worth noting that 5% is no magic number.  Take a look at the following short study:

As you can see, there are trade offs to moving this exit, and “better” is a function of what you are trying to accomplish.  If getting the highest percentage of winners is important a 3% stop has historically worked out “better”.  If Sharpe ratios are important to you, then higher exits work out better. 

I personally look closely at the Ulcer Performance Index.  This is a number which rewards bigger returns and penalizes drawdowns.  For this number a higher exit, like 6% or 7%, is better.  And for those of you bent on absolute optimization runs, the very best was 7% for short positions, and 6% for long positions.  I suspect that’s a little curve-fit, however, as there really is no “magic number”.

Good Trading…

November Trading System Results

I hope everyone had a great Thanksgiving holiday!  The end of another year is rapidly approaching.

November started our by teasing us a little with some increasing volatility, but things rapidly settled down after the elections and the VIX fell back into the mid-teens.  If you follow the MultiStage Trading System, you know that this makes for some boring trading and very little activity.  Consquently, the majority of our trades (in fact, all but one) were initiated before mid-month. 

As boring as the second half of the month was, we still were able to get exposure up to 19% given the action in the first two weeks.  This enabled the system to turn in a respectable result.  Below are a few of the key statistics:

Net profit for the month	4.83%
Total number of trades	23
Average return per trade	1.47%
Win ratio	65.22%
Exposure	19.44%
Total time invested	Less than 10 minutes a day!

Beginning immediately (first trading day of December… the 3rd) we have modified the system to a new version.  The selection criteria has been improved a bit, but the most important part of the approach is a new exit based on the 200-day simple moving average.  If you don’t follow this new exit your results will not match the back-tested results of the system, although they should be very close to the version 8 results. You can read more about that in the recent posts from last week.

Good Trading…