The Market Bank

Note: The Market Bank is NOT a Bank at all. The name is tongue and cheek for suggesting that by trading the markets you have the potential to be your own “Bank”. Nothing you read on this website should be considered financial or investment advice.

Live Performance To Date

 

TMB.4.5

Performance Targets

When it comes to trading, it is important to have targets, however, targets can only ever be that. Neither past results, nor back-testing results can ever provide a guarantee that future market behaviour will meet these targets. That being said, the intention here is to try and be realistic regarding the type results that may have a fighting chance of withstanding the test of time. Without going into the specifics, this can often be thought of as the strategy’s underlying robustness. Experience has showed us that strategies that attempt to pin-point precise market entries and exits tend to become fragile over-time, and that strategies which assume a little bit of market randomness may perform better over a long period, albeit with perhaps slightly lower results. This is the ultimate focus.

TMB.4.5

Backtesting Information

Backtesting is a great way to assess how a particular strategy would have performed on historic market conditions. It is a way of determining important factors such as hypothetical performance, drawdown, stagnation, profit factor and much more. The emphasis however is as always on historical, because historical data can give us an idea of the strategy’s potential, but it can never guarantee that the markets will repeat itself in exactly he same way again.

   Note:    The backtesting performance shown above is for the strategy (    TMB    ) as to be traded on     Darwinex     post migration. In other words, the more scalable version, and not the scalping based strategy which makes out the majority of the existing live results.

Note: The backtesting performance shown above is for the strategy (TMB) as to be traded on Darwinex post migration. In other words, the more scalable version, and not the scalping based strategy which makes out the majority of the existing live results.

 
   Note   : The above backtesting results shows that the strategy is likely to be exposed to consecutive losing months, and potentially also losing years.

Note: The above backtesting results shows that the strategy is likely to be exposed to consecutive losing months, and potentially also losing years.

 

What are the key takeaways to consider when analysing the above backtesting results?

Stagnation

The Maximum stagnation period is 448 days. This means that at one point or another, a hypothetical investor would have had to wait this long for the strategy to make a new high. This can naturally be a challenge for both the impatient investor or trader. This is a fundamental point where many traders abandon a strategy, only to try and find the next best thing.


AVERAGE ACCOUNT GAIN

The average % account gain over a period of 12 years is roughly 25%+ per year, with an expected drawdown of around 12% to 16% as time progresses, however, there is a common saying that goes: “Your biggest drawdown is the one that is yet to come“, and there is no reason to expect that it would be any different for this strategy.


LOSING PERIODS

There will be consecutive losing months, and there will also be losing years. Although the losing year shown in the backtest was negligible, it should naturally follow that if the strategy can experience a losing year, then it’s plausable to experience consecutive losing years. Once again, this should set some good expectations when assessing performance.


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A LOW WIN RATE - BUT HIGH REWARDS

The above image highlights the amount of winning trades vs the amount of losing trades. It clearly shows that when following the strategy in question, we should fully expect that the majority of trades will end up as losers. This can be a difficult concept for traders and investors alike to come to grips with, and accept. Once you do accept this fact however, it becomes easier to stomach those losing trades as in reality, a losing trade should be the most likely outcome! Now for the positive news, the winning trades on average should be more than twice as large as the losing trades over a large sample of data.

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DIRECTION NEUTRAL

The above image illustrates the strategy’s potential to profit from both bullish as well as bearish market momentum. In summary, during backtesting the strategy has shown only a slight variation between the profitability of BUY trades vs SELL trades, across different currency pairs. This can once again be considered an element that adds to the robustness of the trading strategy. Experience has shown that trading strategies that are predominantly hinged on one market direction tend to be more fragile, or where backtesting is concerned have a greater chance of having been subject to curve-fitting.