Thanks for the suggestion. Yes, financial trading can indeed result in a loss even when you invested the recommended capital. I'm not sure whether you really did not know that before, but I'll mention this more clearly in the manual.

I've also put your suggested emergency flag on the list.

Hi all,

I think we might be confusing different things, trading for income and trading for capital appreciation. The z strategies appear to be trading for income. In that context, it would be unwise to invest 100% of your capital in any z strategy considering the risk of full drawdown of CR on bar 1.

The decision is more like:
In backtests of this strategy $Y bought a cashflow of $x per month over z years. Can I tolerate risking $Y to buy the Net Present Value of the cash flow of $x per month over z years. Considering the z strategies do not reinvest and are designed for income, I would withdraw the monthly income while maintaining the CR (+ possibly a buffer built up out of profits).

I'm not convinced analyzing drawdown as if using a traditional capital appreciation model looking at % risk per trade, and return and drawdowns as a % of overall capital works in this context.

Thanks jcl, and now swingtraderkk!

jcl, yes, I realized from the start that 100% loss was possible, and didn't start trading Real until I'd Demo'd to a point of some satisfaction. However, I'm still uncomfortable because I don't feel I yet have a good understanding of the likelihood of that 100% loss, or 50%, or even 25%, nor how to best protect against it, preferably in an automated way consistent with the theme of Zorro.

swingtraderkk, I think your distinction is somewhat useful. On the flip side, though, there need to be ways to determine and manage the risks - I don't see that as any less necessary because of an income vs. capital distinction. I hope no one is putting 100% of their capital into any single thing - be it a Zorro strategy or whatever! Whether for capapp or income, we're putting some portion of our capital at risk. Without RM as acidburn tried to point out we're gambling - worse even, 'cause at least with gambling you can compute the odds.

Thanks.

Ddlv,

In my income view, the risk is fully managed, it is the initial CR, all of it. It is the amount I fully tolerate to lose and I set my margin and risk sliders appropriately. I tolerate that risk on the basis that the potential return is worth it, the NPV of the monthly income cash flows over the period of backtest (adjusted down naturally on the sensible basis that real diverges from backtest results). If everything stays within parameters I'm happy to let it run.

Things I would find useful are an ability to see Monte Carlo simulations of the test trades, but anyone who can program could do this from the testrades.csv. Someone programatically challenged like me would also like to be able to custom select a timeperiod for running the test, but I think that may be possible by using the simulate script on the testrades.csv edited to remove time periods not of interest.

Thanks swingtraderkk.

It seems our areas of potential divergence are:

I don't consider "fully tolerate" to be equivalent to "fully managed".

I don't see how "everything stays within parameters" is being determined, or even that the tools to determine it exist.

So, as you point out re. MC, etc., there's yet room for improvement!

Thanks.

I am late to this party. Certainly not qualified to discuss any high-level math here.

But I do have a (stupid?) question: why has nobody mentioned the MAE%? I prefer to use that as my gauge. As I understand, it is the most pessimistic measure of "what could happen" with regard to drawdown. Is that incorrect to think that way?

My rudimentary trigger, to know when a bot has gone haywire would be either:
1) exceeds or approaches simulated MAE% drawdown, as measured from highest balance peak;
or possibly 2) exceeds the Capital Required figure

There may be other measures that could more proactively "red flag" a problem with a bot, but certainly those 2 above are definite.

What am I missing here?

Yes, using the MAE is not good IMO. The MAE is normally higher and thus using it as a DD limit is a bit more risky.

There is no simple formula for a red flag. A system can exceed its historical MaxDD anytime and can still be profitable and recover. But you have to draw a border somewhere.

In the end it comes to personal outlook at what is lose'able or how much are you are ready to risk to make a given amount of money. CR, 1.5*CR or higher. personal lenses.

I use MAE% more as a comfort measure when designing the bot. If the MAE% during simulation makes my stomach turn, then I know the bot is too risky.

On the other hand, if I look at the MAE% during rigorous simulation and I think "pfffftt!" then I know the bot is for me.

How's that for scientific?

Hi all. Another thought has occurred that I'd like to run by jcl & you all. If the objective is Income, how does removing profits change the measures of risk, etc.?

Obviously one can't remove the MI each month, since the equity curve isn't linear and that would definitely risk margin call. But how about the limit case where one removes any net profit after every trade is closed such that the account balance is never more than CR? (Equity might be due to open trades...)

Wouldn't this change DDmax (based on account balance), CR (recursion, anyone? ), UI, & everything else? I.e., removing profits increases risk, doesn't it? Are the current measurements adequate for the stated Income objective?

Thanks.