[TerryDunne]

My personal view is that there is too much focus on the risk of these trades and not enough on the reward. When more systems choose a stock, that’s the same as more votes for doing the trade.

In a mathematical sense, assuming systems with 60% win ratios, being chosen twice lowers the likelihood of it being a loser from 40% to 16%(?)

[TerryDunne]

Hi Kate,

I’d enjoy having a chat, thanks for the extremely kind offer!

I have to admit though that I’m not sure that fear is such a bad thing. In so many aspects of life, it stops people doing dumbass things. It’s my understanding that this is why young men are more likely to injure or kill themselves, the two parts of the male brain don’t properly connect until we are in our twenties. In a trading sense, fear can be helpful to prevent taking too large/low probability risks. Like everything, I expect it’s having the right mix

But as I said, it would be great to have a chat because it seems like you have some pretty deep knowledge. My email address is

[email protected]

When you get a chance, perhaps you could email me and we can arrange a time for a catch up.

Thanks again,

Terry

[TerryDunne]

Hi Scott,

To make it through my MOC/MR back testing process and be traded live, I use the Monte Carlo Simulation results as follows:

1. The average (of the MCSs) CAGR must be greater than 20% and greater than the average Max DD
2. the worst case (of the MCSs) Sharpe Ratio must exceed 1

I still have some diversification from running 10 systems that have met these criteria, even if they are quite similar, so in a portfolio drawdown I would hope to not go much past 20% allowing for real life to be worse than back tested (they don’t all have their back tested Max DDs in the same year).

Like you, I’m not excited by the idea of a 30% drawdown…in fact, I know from past experience I don’t cope very well once it gets above 20%. When I see a 30% drawdown in back testing, I start thinking about 40% drawdowns in real life.

Best wishes,

Terry

[TerryDunne]

I know that in a slightly different context people didn’t like this idea, but you can leverage MR systems 4:1 if that’s the difference, so long as you have some MOC system as well. At the end of the day, the MOCs will be closed and your overnight leverage will be under the limit. There is some maths to do here, but not very much.

I don’t actually think that this is what makes the difference with MOC, in my view it’s the fact that you’re out of the position in a few hours, so no overnight gaps etc.

[TerryDunne]

Hi Michael,

Yes, it makes tangible that whole idea that you need to find methodologies that suit your personality. When I first read this I thought “blah blah blah, I need to maximise return within drawdown constraints and that’s it”. To some extent I still think this way, but I wonder whether my inability to find longer term systems I’m happy with is a psychological issue.

When my fund went broke back in 2010/11, I was pedal to the metal, no filters, 100% trend following and I know I’ve been scarred by my experience back then.

Do you find that the results of back testing shorter term systems aren’t appealing to you? Or is it having to place trades each day/night? What makes longer term more attractive to you do you think?

[TerryDunne]

August 2021

MOC1000 13.90%
MOC2000 0.47%
MR2000 1.60%

TOTAL 6.01%

A pleasing month, very happy with how things are going.

It feels a little ‘insufficient’ running only very short term systems. But I’m not going to trade longer term systems until I’m happy with their metrics. The question I need to answer is whether my goal metrics are too aspirational, whether the systems I’m running are just better than anything I’m likely to achieve longer term, so I’m looking for something that doesn’t exist.

But aren’t we all

Best wishes to all for the month ahead!

[TerryDunne]

Hi Glenn,

I guess we’ll be able to do this at some point in our lives…I’m looking forward to it too.

Fingers crossed it’s soon!

[TerryDunne]

BTW, reducing max drawdown from 20% to 15% without impacting CAGR is a fantastic result, well done!

[TerryDunne]

Hi Julian,

Given that the ATR automatically adjusts for volatility, is this just stretch or are you capping stock volatility?

Regards,

Terry

[TerryDunne]

People who were on the last group call might remember that I was trying to make this work…I’ve now given up, at least until some other idea occurs to me. I was getting more and more away from a robust structure and even them it didn’t add value.

[TerryDunne]

That will be great Chris…hopefully soon, but I’m not holding my breath!

[TerryDunne]

Yes, it is…bit of a problem though if you don’t like what you discover

[TerryDunne]

July 2021

MOC 1000 1.12%
MOC 2000 8.87%
MR 2000 (2.29%)
Momentum (6.31%)
Total 3.19%

Another relatively quiet month, so I was surprised to be up over 3%, especially as I have been a bit frustrated. I’m working on coming to terms with the fact that I have emotions – I’m not a robot and that’s OK – but I just need to stick to my systems, no matter how I feel about that. The frustration has arisen from setting inappropriate goals – profit based to a large extent instead of process based.

The system culling continues, this month I am closing my momentum system and one of my mean reversion systems. At least I am replacing the mean reversion system with one I’m happier with, so I feel OK about that, but now I don’t have any longer term systems that I’m happy to run with. Coincidentally, the momentum system balance and my expected tax bill are about the same, so…

Best of luck to all for the coming month,

Terry

[TerryDunne]

Thanks Daniel. It’s an interesting area. Maybe I should move to Singapore

[TerryDunne]

Still, a problem

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