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Hello, everyone. First, let me ask the question (so you know where I'm
going) and then I'll give some background. . . .
In a trend-following system, how can you best determine when there is more
likely to be follow-through (i.e. for a long trade , when to buy the rally
vs. sell it)?
I trade the NQ on 5 minute bars, with some filters for 15 minute data. In
my system, when there is a confluence of price and market dynamics
indicators that point long or short, I get a signal. I have back-tested
this trend-following system in depth back to the beginning of 2000 and in
slightly less depth back to the inception of the NQ in 4/96. While my
drawdown in the last few mostly range-bound months has not reached historic
levels, it is the first time I have lived through such drawdown and it
prompts my question. I have watched my % winners drop to 25% since August,
which is below what is emotionally comfortable for me, and my expectancy for
the period is now below zero (obviously, unacceptable).
If you have addressed this issue to your satisfaction, I am curious. . . .
-Are there particular market dynamics/price levels you use as filters
(e.g., to stay out of the market, to trade less size)?
-Do you just live with it, because you know that if you change your
system (e.g., trade less size) you will
miss fully capitalizing on the trades that will bring you out of the
drawdown (i.e., every trade is an independent event)?
-Do you trade a counter-trend system as well to smooth your equity
curve?
I welcome your input, questions and discussion.
Thank you.
Michael Taylor
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