Im no expert and quite a beginner but I believe that you can generate the stocks to be picked in the before_trading_start part of the source code and then use an SQL query to sift through them and then update_universe based on the parameters you set. Hope this somewhat helped.

https://www.quantopian.com/help#api-order

You will need a screener to select your candidate stocks. Your screening can be based on trading volumes, valuation ....whatever. It will make your life easy. Once you have screened the stocks, one way to reduce max drawdown is to have a set of performing strategies but with uncorrelated drawdowns. You can let a neural net or any regressor find the weights by itself. But be sure to check the output of your ai algorithm on unseen (out of sample). Hope this helps. Wish you luck.

Great Work, im trying to use this strategy LIVE by hand on an BULL OMX30 X18 derivate for the stockholm OMX30 index.. damn hard the analog way.

I think what you are trying to do is to risk-manage your strategy. Many strategies work alright on average, but using a little overlay of risk management will go a long way in improving your returns and reducing your drawdowns (volatility).

One way to reduce your drawn downs is to use optimization, instead of hard-coding your stop-loss or using moving averages as indicators, why not target a volatility, and scale your strategy weights in conjunction with your target volatility?

A good example will be this (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2371227)

The authors found that using a dynamic weighted momentum strategy by optimizing the returns using a target volatility of 12% doubles the sharpe ratio of a traditional dual momentum strategy.

I've tried this cloned algo with a few different RSI and MA criteria but it doesent want to sell the shares once it reaches the point where the Combo becomes negative (it just holds them). Is there something that needs to be added to the close section once combo score becomes negative?

The backtest does show it sells shares.
Thanks guys for the suggestions on stock picking and volatility. I might work on it more this week.

I'm a new user, please forgive me if I understand your question incorrectly... I don't know why you only pick a few stocks as below
MMM', 'GOOG_L', 'PG', 'DIA', 'AAPL', 'TSLA', 'NFLX', 'SPY' which might be a reason to get high max drawdown. Since, GOOG, TSLA, AAPL are volatile stocks. Can you have a dynamic list of stocks based on ATR and price ratios?
Does Quantopian support dynamic list of stock?

Isn't this a bug?

order_target_percent(stock, context.pct_per_stock, style=StopLimitOrder(price*context.STOP_LOSS, price*context.STOP_LOSS))  

Should probably be:
order_target_percent(stock, 0, style=StopLimitOrder(price*context.STOP_LOSS, price*context.STOP_LOSS))

(Or your leverage will explode)

@Weimin, yes you can create a dynamic stock list using the set_universe() function or fundamental data. There's more info (and examples) in the API documentation.

We're working right now to allow you to create dynamic universes using any custom criteria (like indicators and price ratios). The high level details were laid out in this thread. Check it out!