mholstius Regular  Posts: 76 Joined: 6/15/2011  User Profile | We all face the question of what is the most useful “target” / goal to give us an edge? Historically, we’ve used HR, PPT, CAR, CALMAR, etc. – with the inherent problem that each can be quite specific and have their own weaknesses. So, for about a year or two I’ve worked on developing a formula that would evaluate a number of different parameters and assign a single number that would correlate with the overall equity performance in the past. I hope I’ve come up with something useful, and Ed’s dedicated a lot of time and resources this year to incorporate it into the updated ATM3. This post is an attempt to show a bit of what it does. I’ve run numerous tests to confirm that the number derived from the formula accurately reflects past performance. One of my more extensive tests involved 500 symbols, and the following snags show the equity curves in the order of the ranking number produced by the formula… The equity curves produced when charting the top 3 of 500; Ranked #50, 100, and 200; Ranked #300, 400, and 500; The theory is that given a choice, we’d rather trade something tomorrow that had a high rank number vs a low one… As Ed said, moving forward on a monthly basis using excel (even with 1M cells) just wasn’t possible – but ATM3 gives us that capability. ATM 3’s only been out for the past week or so, but I’ve been able to run some tests that appear to validate the theory. The formula (rank “Mark II” in ATM3) uses the backtest period to generate the ranking number, and ATM3 uses that number to choose the symbols to trade the following month - calculating a new number each month and then walking forward the following month. I have a very diversified list of 365 symbols that I use for development work. I knew that VBX-3 hadn’t performed well with this list over the past few years, so I figured it would be a good test. I set up ATM3 to trade the top 15% of the ranked symbols (55 of 365), walking forward each month from 1/1/2017 to the present using 10% allocation / trade. It produced the significantly better results you can see in the snag below…. (ATM3 curve in green) Final equity rose from $90,000 to $123,000 Avg Ann MDD fell from 25.3% to 4.6% # of trades fell from 788 to 250 And the Avg % Invested fell from 40% to 12% (considerably less risk) The better, stable, and robust performance got me thinking… What if we allocated more to each trade to more efficiently utilize equity, rather than letting it sit on the sidelines? So… I ran the test again, adding 20% (blue line) and 30% (now the green line) allocations; The performance improvements are impressive, and the equity curves are very similar – they don’t improve just because a particular allocation cherry picked better trades. With 30% allocation; Final equity rises from $90,000 to $161,000 Avg Ann MDD falls from 25.3% to 7.4% # of trades decreases from 788 to 186 And Avg % Invested falls from 40% to 22.8% (again, less risk) While we might not trade at those allocations, it’s a concrete example of what’s possible with ATM3. Just take a minute to reflect on what this demonstrated… I gave ATM3 a big list – and it not only chose the symbols that traded the best with VBX-3 in the past, it repeated that process every month. And then, more importantly, it charted the walk forward, out of sample results of what would’ve happened if I’d been able to use ATM3 in the past. We’ve never had that before – and it’s simply incredible! There are currently 7 different ranking algorithms in ATM3: CAR, HR, Consistency, Stability, Smooth, Mark I, and Mark II. No surprise, I tried “Mark II” for this run - but I’m certainly going to try the others too. Maybe one of them will work even better…??? This was a limited test to simply see if ATM3 could find the best symbols to trade with VBX-3. It can also find the best Market State & Strategy pairings, and even combine those with the Symbol & Strategy pairing capability this test demonstrated. So many outstanding possibilities… I haven’t had time for all that yet – I just wanted to share these early results since they’re a concrete example of what ATM3 can do. Imagine what’ll happen when we pair the improved ARM6 AI capabilities with ATM3…. That thought puts a smile on my face. Mark [Edited by mholstius on 1/22/2020 6:42 AM]  Attached file : 01 Top 3.png (104KB - 2015 downloads) Attached file : 02 Middle 3.png (108KB - 1941 downloads) Attached file : 03 Bottom 3.png (116KB - 1944 downloads) Attached file : 04 VBX3 ATM3 Results.png (174KB - 1904 downloads) Attached file : 05 Higher Allocation vs Risk.png (241KB - 1896 downloads) |
