Following yesterday’s post, here’s the equity curve of the TLT 3 Day Tripper. Regular readers know I typically utilize an adaptive approach to modelling with a rolling 16 month lookback (backtest) period. Why? Market dynamics are constantly in flux due to unpredictable micro and macro forces as well as technological developments such as HFT and order masking. Detecting the impact of such forces on the markets is more than a daunting task for traders. Making money from the markets in the face of such changes is even harder.
For our current study I’ve focused on TLT for multiple reasons: demonstrated linearity with other market components, penny spreads, robust option chain and the presence of TBT, the leveraged inverse that actually trades twice the daily volume of TLT and at less than half the price. Part of the problem with being a risk adverse trader is that you tend to leave a lot of money on the table. This is often called opportunity cost. Nevertheless, I do sleep pretty well. One way to manage risk is by reducing exposure time. Daytrading is obviously the classic tactic to attain that goal but many big moves happen overnight and at least part of one’s trading capital should be deployed over a somewhat longer time frame to capture such moves with good risk controls still in effect. In the case of the 3 Day Tripper we analyze the existing chart dynamics over 3 days and then enter either Long or Short for a position duration not to exceed 5 days. The Tripper’s % of successful longs and shorts is very similar and the drawdown on both sides is very low. For risk control we engage a simple breakeven stop. I like to see and equity curve that’s consistently upslope. When it falters I abstain from further trading than system until I determine the cause. That’s another reason I prefer a basket of non-correlated systems . . there should still be positive equity curve trading opportunities contained in other systems in the basket.
Related posts:
