[ScottMcNab]

I’m not sure Len..suspect would involve addtocomposite to count buysignals

[ScottMcNab]

I think most try for win rate over 55%, profit factor>1.5 and payoff ratio >1…ave profit/loss prob want 0.3% or higher over longer backtest (can vary significantly short term)…is this what you were wondering Zach ?

[ScottMcNab]

Len Zir wrote:

Scott,
I agree with you. I am trading my MOC with 4:1 leverage and sometimes I think I am hiding my head in the sand when it comes to thinking about potential catastrophic losses.

Thanks Len…interesting and reassuring .. I have had exactly the same image in my mind with respect to how I have been “dealing” with 4:1 leverage…it bubbles to the surface periodically as the subconscious finally gets through

[ScottMcNab]

Was just a thought about a possible low cost hedge Len…can’t hurt to explore the possibilities. If the flash crash had occurred 60 min later it may well have been a very different scenario for MOC systems.. Still the old vanilla style ’87 crashes etc in the future to be expected…

simplest solution is probably not to be leveraged to the stage where an ’87 style crash would be catastrophic…I might break my MOC system from a combined US/AUS account into two separate accounts and accept reduced cagr….at least I know that only 50% of MOC account exposed at any one time…

[ScottMcNab]

Brent Hause wrote:

Hey guys –

A bit of thought on this discussion – when I see you guys talking about the “worst case scenario” for a MOC system and stating that as a situation in which the worst trades of every day are selected, I think you are looking at the worst case in the wrong way. While it is important to look at these metrics and judge their probability, I think the “worst case scenario” is indeed much worse.

When I think of the worst case scenario, I don’t envision a slow bleed of the equity curve over time as the system slowly diverges from test results, what I imagine is a large gap lower when I have lot of orders staged.

E.g. Say I have a system that only sees selection bias on 5% of days. That said, there are still days when I put in 200 limit orders ahead of the open. My API is set to cancel all remaining orders as soon as 40 are filled, if more than 40 are filled, immediately sell any positions over the 40 threshold.

The nightmare scenario is when the market gaps lower aggressively (think flash crash), way more than 40 positions are bought, but due to volatility and race markets, there is no real bid and the positions over 40 get sold for pennies on the dollar. The likelihood of this scenario is admittedly small, but this is the type of event that could literally wipe out a trading account. This type of scenario could have happened during the ’87 crash, the flash crash of 2010, and Knight’s flash crash in 2012 – I don’t know and I don’t think we have anyone here who traded a MOC system in those markets.

In order to control this risk I am doing two things:

1) Trade my MOC system in a separate account with as much margin as possible. This way if things get real nasty, the bulk of my trading capital will not be exposed. I would rather have my account go negative and be a creditor to my broker (and hence have negotiation options) than see all of my cash get vaporized and have no options.

2) I am considering slicing out orders in batches when I have more than 40 orders. Using the API I can set batches of orders to route, say every 3 seconds. E.g. have first 40 orders in on the open, and slices of 40 orders set every 3 seconds thereafter. This will reduce my risk if there is a big gap on the open (if more than 40 orders get triggered, the remaining batches will not route). Of course I cannot test this, so there may be some performance lag – something I am weighing.

Also, I am trying to decide if this risk just simply rules out MOC systems for me, and I will work to develop short term non-MOC systems to balance out the long term systems (3+ day mean reversion strategies without stops). While the likelihood of this type of scenario playing out is very small, the ramifications are extremely large. My thought is that I want to do everything I can to minimize risk of ruin – that said, I don’t know what the answer is to be honest.

Just my two cents.

I wonder if buying a long dated put options on index 20% below current price would be cheap enough to be a viable insurance policy for those ’87/flash crash scenarios ? Not to make money but simply avoid ruin…

[ScottMcNab]

Great results…Index ETF’s sound intriguing…

[ScottMcNab]

Is there any reason the position score code will not work on an MR system too? I can’t see why not but just checking[/quote]

Not sure…maybe worth trialling in MR system over a month or two when there is NO selection bias and seeing if it at least gives the same results as positionscore = random….if it does that then can progress on to trying results when it some SB …t

[ScottMcNab]

Aug MOC combo: – 0.58%

[ScottMcNab]

The positionscore formula gives the same results as Said’s exploration/excel combo so I now have confidence in it. The only question it answers is what is the worst possible outcome (due to SB). It is just a quicker way and gives results in a format I am used to seeing in Amibroker. I think it still prudent to treat it with some caution/skepticism though.

I am not saying it is the correct way to go for everyone but I wanted to know what the worst could be. It was something I felt I needed to know in order to keep trading it live. As long as I was ok with the worst possible result, then I felt I could move on.

As it turns out, if I had not done these tests and had kept using my previous system it seems likely I would have experienced results over the next few years well below the expectations I had formed from my backtesting (due to the SB in my US systems) once volatility picked up. It is possible (likely perhaps) that your system does not even suffer from the same SB issue mine had.

[ScottMcNab]

Why not test it Rob and remove the uncertainty ?

[ScottMcNab]

ps…those were the results with the SB worse case positionscore

[ScottMcNab]

Julian Cohen wrote:

Scott McNab wrote:

What dates are the cagr/mdd/MC stats for Julian ? Are they for the same dates as the selection bias ? I can then throw up some stats for this period.

Its interesting comparing apples with apples….once selection bias is accounted for then the apparent advantage or attraction of the MRV/MOC over the rotational systems starts to fade

Dates are 1/1/2012 to today

I’d be interested to see how you go

OK…on thos dates:

ASX: 16.73% / -13% (ASX didnt need any changes as no real SB)
US: 24.46% / -6.63%

So ideally (if ASX doesn’t turn out to be dud with missed trades) would combine in day/night sessions to give CAGR high 30%

I am thinking of what you did and taking the pain and going back to scratch for a re-design

[ScottMcNab]

I just ran a quick test looking at results from your excel file verses the position score formula I was using (over a random 8 year period):

first figure is from Said’s exel/second is from Amibroker backtest using positionscore formula:

trades: 5407/5407
winning 2816/2805
losers 2591/2602
win% 52.1/51.88
av win 1.55%/1.53%
av loss -1.30%/-1.33%
win loss 1.19/1.20

I now have more confidence in using that positionscore formula for designing and testing a system with low SB.
Many thanks again Said

[ScottMcNab]

Missed AWC.asx on 29…buy limit was at the low of day (in Amibroker) at 2.07…time and sales indicated that this occurred at 9.59

[ScottMcNab]

Suspended MOC system until get selection bias to where I like it…while the results with the changes in the last week are ok , it feels like I am sailing in a boat with my fingers plugging the holes…system has too many moving parts and feels overly complex

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