How I optimize

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sbank
Posts: 174
Joined: Tue Jul 21, 2015 9:35 pm
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How I optimize

Post by sbank » Wed Dec 07, 2022 3:39 pm

Hi All,

I would like to share my approach in how I think about optimizing my day-to-day activities.

I trade 99% as a mechanical/system trader these days. Like most of you I trade only the Futures markets. I am currently trading 9 different markets. I also try very hard not to touch my setup for 3 months. I work 1 quarter ahead. (Right now it is December, so I am working on my strategies for Jan-Mar.)

Question: how do I know what to focus my priorities on for next quarter?
Answer: I am using the Kelly Criterion number in conjunction with stats pulled from Wave59's system report.

The Kelly Criterion number (https://en.wikipedia.org/wiki/Kelly_criterion)
In probability theory, the Kelly criterion, is a formula that determines the optimal theoretical size for a bet. It is valid when the expected returns are known. The Kelly bet size is found by maximizing the expected value of the logarithm of wealth, which is equivalent to maximizing the expected geometric growth rate.
I then take said number and multiply this by the Total Profit from the Wave59 system report and divide by the Max Drawdown. The result of all of this gives me a nice number that I can compare with potential changes. (I like to have my result be greater than 1, btw.)

Here is a screenshot of a simple spreadsheet:
2022-12-07_10-20-29.png
2022-12-07_10-20-29.png (67.2 KiB) Viewed 6062 times
My Gold strategy (GC back in FY22Q3) has a resultant number of 0.91 (column M). I want to see if I can improve this number to be greater than 1. I am working on some tweaks and additions to my code (rows 15 and 16). Clearly my changes were detrimental as the number in column M is worse.

Like system trading, doing things in these methodical ways helps me to take some emotion out of trading. I hope this discussion helps you with your trading decisions!
Last edited by sbank on Wed Dec 07, 2022 4:43 pm, edited 2 times in total.

sbank
Posts: 174
Joined: Tue Jul 21, 2015 9:35 pm
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Re: How I optimize

Post by sbank » Wed Dec 07, 2022 3:45 pm

To add some more color to my initial post. Here is the full spreadsheet I was looking at:
2022-12-07_10-40-24.png
2022-12-07_10-40-24.png (147.04 KiB) Viewed 6061 times
On row 6 (ES), I had a resultant number of 0.84, it was my worse performer (per the System Report results from Wave59). So this was my focus before Q1 begins. After relooking at my strategies' strengths and weaknesses (looking at you giant drawdown), I came up with what is seen on row 4. Not much in the way of increasing profits, but drawdown came down, and if I shared the equity curve it looks much smoother.

catharticlapse
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Re: How I optimize

Post by catharticlapse » Thu Dec 15, 2022 1:32 am

Looks like a solid improvement. Thanks for sharing sbank.

sbank
Posts: 174
Joined: Tue Jul 21, 2015 9:35 pm
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Re: How I optimize

Post by sbank » Thu Dec 15, 2022 1:43 am

There is always the "Am I overfitting?" in the back of my head. I try my darnedest to not overfit. ¯\_(ツ)_/¯

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