Forex Station | Advanced Technical Analysis Forum (2024)

About automated trading, and as a thought experiment, would you prefer having a system with more trades, or a system with less trades but more profit per trade and more DD ?

I think that it would be better to have more trades, for diversification, but both system have their strengths and weaknesses

what do you think ?

Jeff

ionone wrote: Mon Jan 03, 2022 1:13 amwould you prefer having a system with more trades, or a system with less trades but more profit per trade and more DD ?

Every trade produces costs (with your broker); therefore it is obviously better to have fewer trades, if you want to minimize costs.
Diversification can be important in investing (longer term involvement) but doesn't make as much sense in day-trading.

josi wrote: Mon Jan 03, 2022 1:26 amEvery trade produces costs (with your broker); therefore it is obviously better to have fewer trades, if you want to minimize costs.
Diversification can be important in investing (longer term involvement) but doesn't make as much sense in day-trading.

if you just look at the spread then yes it is obviously better to have fewer trades
but if you look at diversification, it's better to have more trades, I think.
how does diversification work ?
well if you trade only one instrument and you have a big losing trade, then the drawdown will be affected directly.
but if you diversify, meaning you trade the same strategy on multiple pairs, one loss will only be 1/N in strength (N being the number of pairs simultaneously traded)
so diversification is used to lower the drawdown, and to smoother equity curve, because there is less chance that you will end up in a loss on ALL pairs traded at the same time.
An you can only do that when you have enough trades
well, this is the theory

Jeff

ionone wrote: Mon Jan 03, 2022 7:41 pmif you just look at the spread then yes it is obviously better to have fewer trades
but if you look at diversification, it's better to have more trades, I think.
how does diversification work ?

I may be totally wrong, of course, and speak only from experience:
Diversification, first of all, is investing in different instruments: you mix currencies; metals; oils; shares; indices, bonds etc (that normally have a very different risk profile)

If you only trade currencies diversification (if this is the correct term at all) is highly problematic:
some are strong, others are weak (for the time being, so despite producing the same entry signal the outcome will vary widely);
the pairings of one currency will behave similar under certain conditions etc

I think your original question is much too general to produce any categorical answers that can be helpful.
There are dozens of "ifs" that would have to be answered before the question can produce sensible answers.

ionone wrote: Mon Jan 03, 2022 7:41 pmbut if you diversify, meaning you trade the same strategy on multiple pairs, one loss will only be 1/N in strength (N being the number of pairs simultaneously traded)
so diversification is used to lower the drawdown, and to smoother equity curve, because there is less chance that you will end up in a loss on ALL pairs traded at the same time.
well, this is the theory

Jeff

When I was testing a strategy for a binary robot, I noticed that out of 25 pairs, the signal is duplicated on three. Now when I'm doing calculations for options, I'm counting not on 25-30 pairs, but 7-8.

andrei-1 wrote: Mon Jan 03, 2022 8:25 pmWhen I was testing a strategy for a binary robot, I noticed that out of 25 pairs, the signal is duplicated on three. Now when I'm doing calculations for options, I'm counting not on 25-30 pairs, but 7-8.

yeah I agree
some forex pairs are positively correlated which makes not 28 different inputs but rather 7-8 as you said

ionone wrote: Mon Jan 03, 2022 1:13 amAbout automated trading, and as a thought experiment, would you prefer having a system with more trades, or a system with less trades but more profit per trade and more DD ?

I think that it would be better to have more trades, for diversification, but both system have their strengths and weaknesses

what do you think ?

Jeff

Probably it doesnt matters much whichever system you choose as long as its profitable. But I guess i will go for a lower DD just because it will increase your overall confidence as a trader and also as a person.