Money Management Algorithms
Our money management algorithms are designed to trade the equity curve. Equity curve management can improve risk management and reduce draw downs so that less capital is required to trade a strategy or portfolio.
Some of our latest money management research and strategies include systematic equity curve management strategies such as letting the basic system trade in simulation mode so that it will continue to generate an equity curve. The money management algorithm will only allocate real trades when the trend of the equity curve is up. Another example of one of our systematic money management algorithms is to stop trading at a pre-defined draw down and then to start again once there has been a run up of a predetermined amount from the equity curve lows.
Hypothetical Performance Summary
The Money Management Algorithms (also referred to as Equity Curve Algorithms) are a trading system for your trading system. This tool allows you to apply common technical analysis techniques, normally applied to the market, to the equity curve of your trading system to determine if and when you want to trade your strategy or algo. You can backtest and then automate the same setup so there are no manual processes or calculations to match the historical with the real time walk forward results.
The Money Management Algorithms include a members area with open code examples of some of our best strategies. Here are some examples of some of the strategies that you get with the Money Management Algorithms.
VIX Swing E-mini S&P
This is a raw strategy that trades without a stop loss. In theory this is nice but in reality, we don't participate in leveraged short term trading without stop losses. The two performance summaries below show the original strategy results on the left (without a stop loss), followed by the money management algorithm version on the right. You can see the worse case drawdown is reduced by a factor of more than 3 while the average trade profit is increased by $60. The equity curve on the left may look smoother but there is no stop loss and would include $15,000 intra-trade drawdown. The Money Management Algorithm finds the right time to trade based on the equity curve and strategy results on the left to triple the Net Profit as a % of Drawdown.
Hypothetical Performance Summary
Cobra CT Vb E-mini S&P
Cobra CT Vb E-mini S&P is one of our top strategies that trades the E-mini S&P. Straight line equity curves can only be improved slightly. In this case we boost the average trade profit of this counter trend day trade strategy by $7 and increase the Net Profit as a % of Drawdown from 1072% to 1457%. In this case, we are using both the closed equity curve and open equity curve moving average, Rules 1 and 10.
Hypothetical Performance Summary
Note that the second equity curve also requires the moving average of the equity curve to be in an uptrend. To accomplish these equity curve management strategies successfully we use DLL’s to generate the trades in one window, and then pass the information from the trading to a second window that has a strategy that uses the original rules in addition to the equity curve management rules.
This is the only product that I have found that will allow real-time analysis and automation of equity curve and money management algorithms instead of just an end of day calculations that need to be manually implemented.
Our equity curve money management strategies currently include Thirteen different equity curve strategies (8,192 combinations):
1.) Trade the strategy only if the two period moving average of its equity curve is up.
2.) Trade the strategy only if the ADX of the closed trade equity curve is above the ADX Threshold.
3.) Trade the strategy only if the Stochastic of the closed trade equity curve is above the Stochastic Threshold.
4.) Trade the strategy only if the RSI of the closed trade equity curve is above the RSI Threshold.
5.) Trade the strategy only if the Average Trade Profit of the last 10 trades is with the specified average trade profit range, typically above 0.
6.) Improve entry efficiency by entering at better prices by looking at the base strategies marketposition and entry price and placing limit orders to improve on that price by a specified dollar amount.
7.) Stop trading the equity curve if it goes into a pre-defined drawdown (set as an input) and then start trading if it goes into a run up of a pre-defined amount from equity valley lows.
8.) Require the Drawdown be greater than the Average Drawdown of the last 100 bars.
9.) Require the Drawdown be less than the Average Drawdown of the last 100 bars.
10.) Require the open equity curve two period moving average be up.
11.) RSI of the open equity curve of the last L1 bars be greater than the RSI Threshold.
12.) Enter the strategy on a drawdown by “buying dips” of a specified amount/input.
13.) Consecutive Losers algorithms lets us start after a specified number of losers.
In our latest Revision 5.0, released in August 2013, we introduce a sub set of rules to Rule 13 that allows us to use a Martingale position sizing algorithm to double the contracts after each losing trade until there is a winning trade.
Each of these “Rules” or Algorithms can be traded individually or in any combination with the other “Rules” or Algorithms.
In Revision 5.0 we add a new entry technique so that there are four different entry techniques, Pinpoint Entry II, Stop, Market, or Limit order entry techniques. This can change the way a trade is entered from the original strategy.
The new Pinpoint Entry II, entry technique allows us to place a limit order a better price (defined in points) from the Original systems entry. Using this entry technique alone can improve a strategies results. The good news is that we can also combine this entry with any of the 13 Algorithm Rules or combination of Algorithm Rules listed above. Pinpoint Entry II is slightly different that the Pinpoint Entry Algorithm defined below.
The Stop, Limit, and Market Entry technique can be applied from the current bars closing price once the Algorithm Rules are met. These three entry techniques could also be used alone if all Algorithm Rules were turned Off.
Money Management Algorithm Inputs
We include our Pinpoint Entry Algorithm
(also known as the Better Entry Algorithm)
Most of the time a trade does not immediately go in our favor and we experience some adversity in the trade. Many times we wonder how we could make our system better or what rules we can add to improve our entry. The Pinpoint Entry Algorithm allows us to watch our original strategy trade and then get in at a better price on a one minute chart. We can test for the best entry point by changing or optimizing the EntryLoss input parameter. This value is set to a dollar amount of loss for us to wait for in order to begin trading our original system. It updates on a closed bar basis instead of an intra-bar basis like the PinPont Entry II technique. This algorithm is used to improve our entry efficiency.
We include our Consecutive Losing Series Algorithm
The Consecutive Losing Series Algorithm includes an algorithm to start trading a trading system only after x consecutive losers and then stop trading after a winner. The “x consecutive losers” is an input called “LossesToStart” that can be modified and optimized. This strategy will allow you to test perceived opportunities of wanting to start trading after a losing streak of x losers and the stop trading after a winner.
This is similar to a martingale strategy of doubling down after a loser except we are trading zero contract until we get the number of losers that we want. This algorithm is recommended to be tested and traded with more high frequency approaches of at least 250 trades per year.
The Optimization Algorithm
In Revision 4.1 of the Money Management Algorithms, we add the optimization tool. The optimization tool allows us to quickly rank the best rules for each strategy by optimizing the Rules from 1-13. Once we rank the best rules we can determine how to combine the rules or then test different entry techniques. This is quicker than optimizing the original strategy inputs from 0-1 for 13 different inputs. This is 8,192 combinations instead of just 13. The optimization tool only tests each rule separately and not the combination of rules.
These Money Management Algorithms allow you to test and automate ideas based on stopping and starting a strategy by keeping the base strategy running to make calculations and then take trades based on the calculations in a new window by using a DLL, dynamic link library.
You can quickly test our algorithms on your current trading systems. You will insert the indicator we provide into your base strategy window and then use the Money Management Algorithm Trading System (that we also provide) that will read the Marketposition and Open Equity of the base system to take trades using rules from any of our Algorithms including the Equity Curve Management Rules, Pinpoint Entry Algorithm, Consecutive Losing Series Algorithm, and more.
You don’t have to re-program any of your strategies. It will allow you to test closed code systems that you own or lease and allow you to have a more “unique” entry price (in the case of the Pinpoint Entry Algorithm) from other subscribers if you are leasing a closed code trading system.
The open code is included so that if you do want to customize the strategy or algorithm, it is will be possible.
We have spent many years and dollars developing these algorithms. Our Equity Curve and Money Management Algorithms provide a quick short cut to have a real time approach to backtesting and automating “A Trading System for your Trading System”.