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Aceoface

Pyramid Positions

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I made countless simulations of a version of the turtles trading system with pyramining positions but could not get better equity curve statistics than the non pyramiding version. When pyramiding with a risk of say, 0.90% per ATR, i could get the same CAGR% with better stats (better sharpe, info ratio, MAR, less trades) with 1.3% risk per ATR and no-pyramid. The risk per trade is the same because pyramiding means a higher number of ATRs at risk. Yet non pyramiding looks better.

Anyone has a contrarian view on this?

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I don't believe the Turtle strategy was ever meant to be traded systematically. I highly recommend picking up a copy of "Way of The Turtle" by original Turtle Curtis Faith if you have not done so already. I believe there is a lot more "art" to trading than "science." You learn the art part through experience. With that in mind, sometimes it is a good idea to pyramid, and sometimes it's a lousy idea. I've done plenty of backtesting over time, and the Turtle system is really not that great as a mechanical system. However, it is good basic plan that can be improved upon with discretion.

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I also ran many tests and variations on the turtle ideas a few years back.....our conclusion was that it worked really well for a period, and may work really well again at some other period in the future. Overall with variations it can be profitable as a portfolio, with a long enough time frame and providing an adequate return

As for pyramiding we came to the conclusion that pyramiding 1-2 times extra was all that was required to get adequate value out of it, beyond that it just added to the PL volatility.

Much as Eigergroup - discretion - unable to be backtested really well can help (or hinder ) the system.

Others have made mention they believe the system works mainly as it gets on board the outlier moves. There is also the additional element of it being able to compound returns.

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I made countless simulations of a version of the turtles trading system with pyramining positions but could not get better equity curve statistics than the non pyramiding version. When pyramiding with a risk of say, 0.90% per ATR, i could get the same CAGR% with better stats (better sharpe, info ratio, MAR, less trades) with 1.3% risk per ATR and no-pyramid. The risk per trade is the same because pyramiding means a higher number of ATRs at risk. Yet non pyramiding looks better.

Anyone has a contrarian view on this?

 

Hi Aceoface,

 

It's a long time since I tested anything trend-following related, but here are a few thoughts that might possibly be useful:

 

Have you tried testing the system without the more complicated trailing of stops that it originally entailed? What happens if you just add to your exposure as you add each contract. If you're limiting the 1 contract risk to 2N each time, instead of trailing the stop to mantain that, limit the 1 contract risk to 2N/Max Possible contracts. This should at least give you an idea of how much the performance is linked to pyramiding per se, and how much it is linked to the associated trailing of stops.

 

Generally, I would try disregarding risk in the backtesting and see where that leads you. Quite often you can do this and it will lead you towards a more optimal approach, and then you can start dialling the risk management back in.

 

Have a look at what happens when you use a different measure to the Average True Range: Newsletter 1211

 

Finally, I'll just mention that Eckhardt's fund continues to trade as a trend-following operation, so some variation on all of this continues to work, which should be encouragement if you're finding yourself doubting the whole thing.

 

Hope that's some help.

 

BlueHorseshoe

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Hi,

 

Pyramiding can work, and can beat a non-pyramid version (during a trend). So the issue becomes manifold:

1 - How good is your trend ID? How many stop outs are part of trading trend situations that work? How many stop outs indicate the trend ID setup is probably going to fail? This can be a money mgmt stop loss/stop trading factor

2 - What timeframe is your trend on? Are you using multiple timeframes? For example this morning in the EURUSD, using currency strength to identify up and down swings on 15m data, there were 3 trade worthy swings from 315 EST. Pyramiding entries on a 20 tick chart gave about 3% return on capital on each one potential. The buy and hold was around 1/10th of that.

3 - On what basis are you pyramiding? Meaning, what is your edge? If you are just pyramiding off ATR entries, what kind of stop loss range are we talking about? It is preferable to buy low and sell high, you want each entry to have built in reward to risk advantage in pyramiding. If your reward to risk is no better with pyramiding, then there is no point, which may explain the OP's findings

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I have been trading Forex for a number of years now and I am convinced that pyramiding is the way to go. It is as easy to find a good Forex trade as it is to find a trade worth adding lots to. The trick I have found is to be able to add to your position on a risk free basis and at the same time giving your stop the maximum amount of space. When this happens you are stopped out at breakeven at worst but you have the opportunity to add considerably to your deal pushing your risk return ratio through the roof.

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