I have a set of rules I have been trading manually that produce good returns for me. Currently I am trying to automate the "system" and am running into an issue. My problem is excessive volatility causes extreme draw-down in my automated system. In a perfect world I would need to identify in some way the volatility that causes my issue and ultimately get a better entry on the trade. My question is how could I go about doing that? Any and all questions or comments are welcome.
Thanks
Tom,
Have you run a full back test, and visually inspected which trades may be causing the volatility in your transaction logs? My uninformed guess is that your algo is holding securities that you thought were sold...boosting leverage, and increasing volatility. But your issue could be caused by many factors, so it is a good idea to dig deep into the transaction logs.
Frank
Frank,
Let me explain a little further. The system is used to trade the DJIA (US30 CFD) Daily time frame. I have run full back tests and visually inspected every single trade. The cause of the excessive draw-down is a Long entry on Aug 24th 2015 that under normal circumstances would be fine. But because of the volatility at that time draws down more than Id like it to. Ultimately the trade is a good one but I want to limit my downside risk. I am looking for ideas on how to recognize the situation earlier and have the system adjust entry accordingly.
Tom
I have some ideas that appear to be helpful and am implementing them now. But I would like some other ways of going about this.
You could have a look at the VIX and use that as a gauge to assess volatility and only place your trade if the volatility is within your criteria.
You would need to build some sort of formula around it but that should be straight forward.
****Mohammad
I find the VIX very helpful in my manual trading. I am thinking of incorporating the "synthetic VIX" as a volitility filter in my automated system. Thanks for the input
****Daniel
The automated system performed perfectly during Brexit.Using my current price & time parameters. It detected the added volitility and lowered my long entry point. The trade was down only about 200 points in total.
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