The Mudder Report 3.0: 1/01/23 - 1/06/23 (Week 1)
Last week was a bad week for the ego, but a big win for lessons learned.
Important: There is no guarantee that our strategies will have the same performance in the future. We use backtests to compare historical strategy performance. Backtests are based on historical data, not real-time data so the results we share are hypothetical, not real. There are no guarantees that this performance will continue in the future. Trading futures is extremely risky. If you trade futures live, be prepared to lose your entire account. We recommend using our strategies in simulated trading until you/we find the holy grail of trade strategy.
“The phoenix must burn to emerge.” -Janet Fitch
I’ve decided to make this Mudder Report update public because it’s important to share our losses as well as our wins. This is especially for anyone that’s thinking about purchasing a subscription to ATS. Again, we recommend trading in a simulated environment until you/we find the holy grail of automated trade strategy. But, if you’re like me and you want to start testing strategy performance live as soon as possible, give it at least three months in a simulated environment before you actually go live.
What happened in our live test?
For an overview of how we got here, read the most recent January 2023 update:
Results of the live test were good for the first two weeks, but last week’s performance tanked. All three strategy variations went sideways. As a result, all three prop accounts and several evaluation accounts blew up. It is important to note that the issue was in the drawdown, not the strategy. The strategy performed as expected given the model, but the account did not allow for the drawdown required from the strategy.
So why did I run the strategy to begin with?
I’m not sure where the breakdown in logic was here: lack of clarity on a plan of action, lack of self-discipline, perhaps I didn’t really think we were going to pass the evaluation? I’m still meditating on the answer to this question.
What I do know for certain, however, is the angst that comes along with watching an account dive and not be able to do anything about it. It’s a bit like being in the passenger seat while a unicorn drives you both off a cliff. The good news is that:
hopefully you were wearing a seat belt (read: simulation account)
your reincarnation will learn from your mistakes.
Of course it’s not just about getting back up again, it’s about reflecting on what went wrong. It’s driving off the cliff over and over again in your mind until you can come up with a solution.
So, I’m sharing these results for many reasons, but among the most salient are:
I hope it prevents you from making some of the same mistakes we’ve made — you can read more about my personal journey with trading here.
The only way to turn a failure into a success is to address the gap between your expectation and reality. Take real steps to change it now before it happens again tomorrow.
We haven’t quite found the holy grail yet, but we’re at a point where I think live, objective testing can help speed the learning process and I believe funded trader accounts are going to be a tool to help us get there. We’ll also be using these accounts as a way to share trade info during live tests since Collective2 isn’t working. The plan was to use Collective2 as a way to keep an objective record of trade performance outside of NT8, but for whatever reason Collective2 does not work for us. So evaluation accounts will also serve as a way to provide an objective overview of trade activity during our live tests going forward.
So What?
“Failure is only the opportunity to begin again more intelligently.”
-Henry Ford
Failure is part of the process. Expect it. Develop a plan to learn from it.
What can we learn from this?
Focus on the forward test. We’re working on ways to make the real-time test better. For starters, I’ve asked for a weekly and cumulative net profit tally going forward. This makes all the sense in the world (thanks for suggesting it Kurt). The goal is to have a running tally of strategy performance that updates from week to week instead of a report that only compares weekly results. Given our lessons learned, I think the former adds more value to the hunt; whereas the latter could actually be a distraction without the proper context.
Use the best performing strategies from the live test to run in the evaluation. This means all new strategies must trade for at least 3 months in real-time before running them live.
Never use luck as a guidepost. Use the model. If your model requires a $25K drawdown, you should expect a $25K drawdown. Using a strategy with a backtested drawdown of $25K on an evaluation that only allows for a $5K trailing drawdown is asking for failure. You may get lucky once or twice, but the numbers are not on your side. The best way to face this challenge is to focus on strategies with a low MAE and ETD. I’ll be developing this concept more in the weeks ahead.
Never change strategies mid-way in a test. It taints the quality of results.
Dance with the guy/gal that brought you. If you use a strategy for an evaluation, use the same one for the prop account.
The Plan
“Many of life’s failures are people who did not realize how close they were to success when they gave up.”
-Thomas Edison
The best advice I’ve ever received is to: ‘take your own advice’. It comes off sounding a bit pejorative and self-absorbed, but the ability to turn the advice you feel inclined to give others on yourself is a powerful thing, especially if your interactions are reflective of your own perceptions.
With that in mind, I need to take my own advice: if we’re going to test with live dollars before we find the holy grail, we need to test the strategy for at least three months. I didn’t do that with the three prop accounts we secured in December. Instead, if I’m honest, I went against my own advice and ran three strategies that had never been tested. They were variations on a strategy that we had some faith in, but only three weeks of live results for.
What I do know is that the live test started and ended, earlier and faster than expected, but we’ve learned a lot and we’ll be applying that knowledge to our next live test in April as well as the development of better strategies. Meanwhile, we’re going to take the next three months to prepare for that test.
I also want to say thank you to those of you that have offered to fund these tests, but if I’m not ready to risk my own capital, there’s something karmically wrong about asking someone else to, so I’ve turned down all requests (for now). That said, funded trader accounts present a viable alternative. The business model uses the upfront cost of applying for funding as a way to compensate for the risk, so I don’t have the same hangups about using those funds. It’s also important to remember that the prop accounts awarded by Apex are not really live — they continue as simulated until they feel you can transition over to a real prop account. Apex is contractually obligated to pay you in the same way they would if it were a live account, but it’s not. This only adds to my view that it provides a nice sandbox for those of us on the hunt.
I’ve also had a few of you make the bold (yet totally appropriate) suggestion that I use subscription revenue to fund the live test and I am considering that as an option in April to avoid the drawdown limitations that come with funded accounts.
Longevity In Trading And Health
"Live to trade another day."
-Michael Patak
The most important thing anyone in trading can teach you is how to get back up; how to trade for the following day. That is the key to longevity in trading.
I’m a big fan of longevity studies in general, especially as it pertains to health. Longevity is arguably the best performance indicator of long-term health success. I’m also convinced that there’s a link between longevity and self-discipline, which is to say, the lessons you must learn to be successful at trading may also help to unlock some of the mysteries of life.
I’m currently reading anything I can find by Mario Martinez who has made a study of centenarians and the Blue Zones in which they live. Blue Zones are regions of the world where people live longer than average. What is it about these geographic areas that facilitates long life; is it the genes, the culture, the environment? Outside of the obvious — food, exercise and family — centenarians share a common philosophy on life: they find meaning in what they do. It’s so simple, so it’s often overlooked or under-cited, but the ability to find meaning in your life, however mundane, appears to be some sort of life hack.
With that in mind, I find meaning in trading because it provides revelations and insights about life and requires constant development of the mind. It is impossible to develop an aspect of the mind in isolation — sooner or later the revelations learned in trading; the self-discipline and self-mastery required to improve your trading, trickles out into other areas of life. It enhances your will to power. It changes your perception. And since perception is reality, your reality shifts as well.
“I learned that success or failure grew from a schedule…and I gained direction when my hours were more valuable.”
- John Soforic
I can’t believe how lucky I am to be able to trade for a living. I truly believe trading has made me a better person and so it gives meaning to my life to not only develop the skill for myself, but share it with others.
Please let me know if you have any ideas on ways to improve this effort.
Housekeeping
Strategy 60 will be published on January 15.
Since we didn’t publish a strategy on January 1, all current subscribers have received 14 days added to your subscription. If you have not received this comp, please let me know and I will handle it directly.
Contact: AutomatedTradingStrategies@protonmail.com.