Drawdown reduction by almost 70% in 7 minutes

In today’s article, I will show you, step by step, how effective work with Market Internals can lead to a reduction of drawdown of up to 70%, with just seven minutes of work (on a normal PC, using a laptop it would take a little more time). Let’s go for it.

In this example, we will work with an extremely simple idea, which is to buy EMD.D (15 minute chart), when the first bar closes above yesterday’s close (i.e. breakout at 8:45 trading time or more). well at 15:45). local time for me in Spain).

This simple idea does not look bad at all; it looks like it has decent potential, although there is still a long way to go to get to a complete and successful system.

There is definitely a need to decrease the number of trades, filter out the “bad ones”, increase the average profit per trade, and most importantly, substantially reduce the drawdown. It is not even important to present complete statistics: the first look at equity already shows what we are talking about. And how do we achieve such an improvement? That is exactly the task of Market Internals!

First of all, I have put the above code in my Market Internals smart code and have prepared a special chart/workspace for it.

This smart MI code contains some of my own MI conditions (it took me 6 months to put them all together) and now I let TradeStation run all these conditions and let it find the most suitable one. To avoid the danger of over-optimization from the start, we should apply this process on 70% of the sampled data and keep the remaining 30% as out-of-sample data.

Now we run the optimization, which will take about 2 minutes on an average PC (about 6 minutes on a laptop).

As soon as the optimization is finished, I stage the In-Sample data using the fitness function. In this case, it was a TS index.

Now is the time to choose only one of the TOP solutions. Most of the time there is more than one usable solution. One that we can find approximately in the top 5-10 of the best results (this is not a classic optimization of systems, but rather a search for the most suitable switches, that is, internal market conditions, there are many of these conditions in clever code, so more than one can work really well). In this case, the solution that I like the most this time came up in row number two. So I’ll choose this solution and take a look at the In-Sample data.

The result looks great, so I’ll check it against the out-of-sample data.

Everything is looking good here as well, so I’ll quickly review the overall fairness.

A look at general fairness tells me that OOS is not much different from IS. This means that everything is perfectly fine. You could of course do some more robustness testing etc. – but that depends on each trader individually.

The entire procedure took me less than 7 minutes, and I’m done.

Below are the results AFTER applying the MI condition.

Drawdown improved by 69%, NP/DD ratio improved by 120%, AVG Trade improved by 65% ​​– what more could you want after just 7 minutes of work?

This is just another demonstration of the application and power of Market Internals.

Happy trading!

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