December and January were extremely unkind to me. I took a huge loss on 12 月 9 that coincided with the Fed meeting and another big punch in January. In total, I went from a 28% profit to a ~4% net loss.
Deservedly, my inbox quickly flooded with comments and suggestions on the drawdown. The most common of those was to stop trading during news events.
だから… why am I still trading during news events? There are a few answers to that question.
It’s not like the strategy loses money on every single news event. それは、します。 100% true that news events like the Fed meeting can and badly hurt. Say that I’m determined to exclude news events in the future. I’d have to
- Collect historical news event data
- Create a second algorithm, which selects the news events that forbid and allow trading to continue
- Test how the news algorithm interacts with Dominari
- Repeat this many times until I’m happy with the final result
Due to the tiny number of news events that impact the markets like the December 9th announcement, my data set is miniature. The risk of overfitting to historical news events is huge.
Working with tiny amounts of data provides little in the way of long run confidence. Focusing my efforts elsewhere is far more likely to improve performance and requires much less work.
Too many trades
Too many trades sounds a bit naive, so let’s dig into what that means. Dominari trades a portfolio of 7 異なる機器. All instruments cross with USD.
Many subscribers correctly observed that the major losses occurred with trades open on all 7 pairs in the portfolio at the same time. A good predictor of trade performance is the number of trades open simultaneously.
1-3 trades seems to be consistently profitable
4-5 trades leads to biting my nails
6-7 trades is neutral to disastrous
Testing and confirming the max open trades rule was quick and easy. 5+ trades is very dangerous.
Accordingly, Dominari now exits all open trades if there are 5 or more trades open at any given time.
The next feature of Dominari will be a reversal strategy. Dominari was clearly prone to sudden equity changes if 5+ trades were open at the same time.
Make the losses work for us
An obvious counter strategy is to open trades in the opposite direction whenever Dominari would otherwise open too many trades. Testing the idea is very easy.
Coding a Dominari reversal strategy, しかし, would require a major reprogramming of the expert advisor’s code.
The number of trades per year would be miniscule. I doubt that it would average even 1 trade per month.
The idea is that Dominari can be the normal trading strategy. Whenever Dominari opens too many trades, the strategy then switches into reversal mode and trend trades with a simple trailing stop.
Switching direction should mostly reverse the negative trade skewness back in the positive direction. Almost all of the offending trades open at exactly the same time.
If the biggest losing trades opened at different times, there would be the risk of being too late to the party. All blowout trades opening at the same time means that the strategy can realistically reverse 100% of would-be losses into profits.
Sitting at the top of the docket are changes to Pilum. You can expect to hear about those soon so that I can incorporate Pilum into the Dominari signals. Once that and 2 other internal projects are finished, I’ll be able to dedicate the time required to fully implement the Dominari Reversal System.
Equity stop loss
Dominari uses emergency stop losses on all tickets. That is appropriate 99% of the time for individual trades. Those emergency losses reset once per hour in line with the concept of the TODS.
A little of the problem was bad luck. My stops came within a handful of pips of being triggered. Then they reset even further away, which made a bad problem worse.
When all trades move at the same time, then clearly the strategy could suffer extreme losses.
The first attempted solution after the Fed announcement was to add a portfolio level stop loss. The way that I wrote it also updated once per hour. When a second negative movement came in January, I stopped trying to be clever. It’s a flat, 単純です, stupid stop loss. If I lose more than 4% on all open trades, the entire Dominari portfolio goes flat.
I’m still trading Dominari
I still have my money trading the Dominari system; my confidence in the long term performance hasn’t changed, but it obviously requires safeguards. The max number of trades and the portfolio level stop loss will go a long way to limiting the impact of big moves in the future. AND, I should get the counter-strategy developed relatively soon to turn potential frowns upside down.
最後に, many of you questioned why I’ve been so quiet. The honest answer is that I needed some time to process what happened. It’s easy to feel overwhelmed and discouraged when you get knocked down. I needed some time to process what happened.
I also needed time to double check the changes that I made to the portfolio were actually beneficial. It’s very easy to appease traders when they’re upset by rushing out features before they’re thoughtfully considered.
My money is on the line (私は失いました 2,000 euros between the two moves). What hurt my subscribers hurt me, あまりにも.
ali yamma 言う
Welcome to real life trading Shaun; it’s part of business. Sometimes strategies dies; and we need to invent new ones.
In my opinion this strategy has shown it has died; due to unusual drawdown; and lengthy recovery time
I disagree for a lot of reasons. Namely, the fundamental inputs into Dominari haven’t lost their predictive value. 言うまでもなく, the particular combination of those individual inputs hasn’t done well over the past 2 ヶ月.
Food for thoughts:
こんにちはショーン – I like your Blog –
Regarding your expensive experience:
In case the overall USD markets/pairs reasons to trigger all of your allowed pairs – Why then
、) you change to open half-sized clip from position 4 up to 7 … と
b) you implement an “Overall_Stop-Loss” 宛先 50% of your already banked profits.
This allows that you can hold wider ranges and you only risk 50% of your already banked profit.
The next logic is that your Overall_Stop-Loss is trailing as well as the clipsizes.
On #1, there’s nothing positive about having lots of open trades with this strategy. It’s usually a sign of impending stress. If they work out profitably, it’s usually with a minimum of profit.
On #2, I think that’s far wider than is necessary. また, the situation doesn’t happen often enough for me to test adequately. I appreciate the suggestion, but I think the percentage is the safest and easiest to model.
art cardi 言う
you are always very honest—-such a good trait–
See this one
That major drawdown in November is a major hint of strategy weakness. The same danger in my own strategy, the biggest loss being so much larger than the biggest gain, is the same on you’re looking at.
Thanks for the information and your candor. Fortunately, I’ve only been trading in a demo account…. FXCM no less. I was contemplating trading live but given your admission that there is still more work to do, I will delay live Dominari trading. Especially since I now have to transition to Forex,com. Which begs the question, will Dominari work on Metatrader4 on Forex.com?
Is there something we need to download to update our current Dominari robot?
There’s always more work to do ;-).
[はい], Dominari will work on Forex.com. It’s my preferred option over Oanda. It really stinks that US customers have such a death of options when it comes to choosing a broker.
You won’t need to modify anything with your Simple Trader account. Your account number shouldn’t change with the move.
Simon Platt 言う
Thanks for the update Shaun!
I owed it to you.
ショーン, I respect your experience and ambition towards trading and your clients but I have a feeling that Dominari has been released a bit early to the clients. Hope you can figure out what went wrong and optimize Dominari for consistent and profitable trades
Hindsight is 20/20. I only released Dominari after I had 6 months of live trading, which matched the backtests.