Topic: 1H EURUSD - Huge Profit with Huge Drawdown

Dear Zenoni and SpiderMan,

I'm newbie and I came across your post regarding your comments that higher time frame having higher reliability. I therefore tried to create a higher time frame startegies, i.e. 1 hour of EURUSD.

Initial account = USD2k
Date range = 23 Jan 09 to 02 Sept 11
Leverage = 1/50
Strategy as attached.

The account balance is USD 352k with profit per day = USD 372. Unfortunately the Max drawdown is USD 30k and Max Equity drawdown = 80%... I tried to fiddle around with the strategies and tried to generate new ones base on existing setting, but I can't seem to change the drawdown much. I can only reduce the drawdown by reducing the profit.

Does it mean that higher profit comes with higher drawdown? What can be done to reduce the drawdown without affecting the profit significantly?

Thanks for your help ^_^

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1H_HugeDrawdown_80percent.xml 9.2 kb, 61 downloads since 2011-09-04 

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Re: 1H EURUSD - Huge Profit with Huge Drawdown

Risk is the only thing that we can control, and therefore has to be limited, I am wondering if there is not a better strategy that will reduce your risk significantly.

As an aside, you are using quite a lengthy period for your data, breaking that up into smaller periods may reveal something that you can modify to reduce your exposure

My 'secret' goal is to push EA Studio until I can net 3000 pips per day....

Re: 1H EURUSD - Huge Profit with Huge Drawdown

I think you have over-optimized your strategy. Don't optimize to curve fit the strategy for the past data. On the generator turn on "Only use default numeric indicator values." If you still optimise then use no more than the recommended value limits of the optimizer and don't optimize more than 1-2 key indicators.

On the exit side try to use different exit conditions. Use OR condition instead of AND condidition.

Backtested drawdown over 5-6% is very risky, in forward text the drawdown will be even bigger. Use 1-2 pip slippage to get more realistic expectations.

Larger time frames has an advantage because there are much less noise, moves are bigger (also the profits) and the chance to catch the right trend direction is more probable. I noticed this when I forward tested 5min, 15min, 1h and 4h strategies. 5min strategies are only suitable for short term scalping with very limited profits and a huge commissions.

On the 1h/4h it's possible to catch a real move, but the trade needs the room to develope. So limit your position size and work a lot with the exit conditions so that when you are wrong the strategy is closing the position before hitting the stop-loss. I try to build a strategies where a stop-loss is only for the unpredictable situations when everything else has failed already.

Re: 1H EURUSD - Huge Profit with Huge Drawdown

zenoni wrote:

On the exit side try to use different exit conditions. Use OR condition instead of AND condidition.

Can you clarify as to how to do that........?  That would benefit me a lot.

Thanks

My 'secret' goal is to push EA Studio until I can net 3000 pips per day....

Re: 1H EURUSD - Huge Profit with Huge Drawdown

Thank you Zenoni and Blaiserboy. I will try out your suggestions.

For exit conditions to use OR, I believe we need to specify which "Group" does the closing logic belongs to.

If all logics belong to "Group a", it will be the AND condition.
If each logic belongs to different "Group", it will be OR conditions.

Hope my understanding is correct.

http://s1.postimage.org/33ieavqkk/Logical_Groups.jpg

Re: 1H EURUSD - Huge Profit with Huge Drawdown

Blaiserboy wrote:
zenoni wrote:

On the exit side try to use different exit conditions. Use OR condition instead of AND condidition.

Can you clarify as to how to do that........?  That would benefit me a lot.

Thanks

Assign different logical groups.

Lets say you have 2 indis as closing conditions with a log.group (LG) "A", this means both conditions have to be satisfied for closing.

If you assign different LG's, "A&B" for each, then only one of two conditions has to be satisfied for position closing.

Hope this helps.

EDIT:
I see Wilson beat me by a minute  tongue Well done!

Re: 1H EURUSD - Huge Profit with Huge Drawdown

When I optimise any particular strategy I try to get a nice smooth equity curve that starts at the bottom left and ends at the top right. Anything other than this will result in damage to your account when you try to trade it and preserving capital, even though it may be risk capital, is most important. If a strategy has a drawdown of 80% it doesn't matter how much profit it makes I wouldn't even think of trading it.

The question as to if a higher profit comes with a higher drawdown I don't think is true. For example, if you have a successful strategy with a low drawdown and you slowly increase your lot size as the equity builds, then your drawdown should remain roughly the same but your profit will be much higher.

8 (edited by altamar 2011-09-13 07:16:58)

Re: 1H EURUSD - Huge Profit with Huge Drawdown

dear Zenoni,

When you say:
Backtested drawdown over 5-6% is very risky,
what do you mean:
- on the stategy overview>statistic information>Max equity drawdown, or
-  strategy overview>additional statistics>Maximum drawdown?

Thanks, great advice!
smile)