Ultimate Algorithmic Trading System

TABLE 3.13
The Best Results for the Donchian Algorithm for In-Sample Time Period
Name
Net
Profit
CAR
Max.
Sys
DD
Profit
Factor
Ulcer
Index
#
Trades
Avg
P/L
Avg
Bars
Held
%
Winners
Entry Exit
Stop
Dollars
Donchian 466438 3.9 −57391 2.21 2.27 324 1439.62 46 40.74 64 26 5000
Donchian 417508 3.55 −55451 2.33 1.72 272 1534.96 45.46 40.07 95 28 3000
Donchian 420843 3.57 −56764 2.36 1.98 262 1606.27 46.6 43.13 99 26 4500
Donchian 421760 3.58 −56764 2.31 1.94 262 1609.77 47.39 43.51 97 26 5500
Donchian 421849 3.58 −56764 2.35 1.98 263 1603.99 46.61 42.97 98 26 4500
Donchian 421762 3.58 −56764 2.34 1.92 260 1622.16 47.47 43.85 98 26 5500
Donchian 420241 3.57 −56764 2.34 1.72 261 1610.12 48.18 41.76 96 28 4000
TABLE 3.14
Results for the Donchian Algorithm when Walked Forward across an
Out-of-Sample (OOS) Time Period
Name
Net
Profit
CAR
Max.
Sys
DD
Profit
Factor
Ulcer
Index
#
Trades
Avg
P/L
Avg
Bars
Held
%
Winners
<Portfolio> 25678 0.45 −166243 1.08 8.2 161 159.49 41.32 32
AD0_E0B −16980 −0.31 −29050 0.61 1.83 20 −849 39 25
C20_E0B −18413 −0.33 −35138 0.53 2.25 21 −876.79 39.14 33
CL20_E0B 11230 0.2 −39180 1.23 1.82 19 591.05 32 26
CU0_E0B 37713 0.66 −24450 2.99 1.14 13 2900.96 51.54 31
HG20_E0B −16438 −0.3 −28638 0.62 1.87 19 −865.13 33.74 32
KW20_E0B 1463 0.03 −14725 1.07 0.54 19 76.97 41.95 32
RB0_E0B −2927 −0.05 −60503 0.96 2.93 21 −139.4 29.9 14
SB20_E0B 15918 0.28 −12749 2.68 0.89 17 936.33 52.59 53
TY0_E0B 14113 0.25 −8084 2.54 0.37 12 1176.05 66.67 50
Well, at least the system made some money. However, the drawdown is just
way too great. What did we do wrong? We did all our homework—picked a fairly
diversified portfolio and a robust parameter set. How could we have been so far off?
Out of pure sick curiosity, I optimized the algorithm across the OOS data to see
how far off we missed the target. Table 3.15 has the best parameters sets for our
small portfolio over the OOS timespan.
Boy, were we way off! A couple of the best parameter sets had the exit length
parameter greater than the entry length—illogical, you say! In these situations, the
system becomes a reversal system until it is stopped out with the money management
stop. I am almost too scared to continue, but like looking at a car accident, let’s
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