Fixing a Simple System

Fixing a Simple System

May 10, 2023

This week we’re looking at the problem with simple systems.

While great in so many ways, simple methodologies have a major achilles heel.

They don’t work sometimes.

They can’t.

Simple systems aren’t designed to adapt, so they don’t. This un-adaptability is the reason they’re so robust.

And it’s the reason they can be so hard to trade in the short-term.

Is there anything we can do to mitigate these guaranteed bad times?

Yes.

We can fix it–by not fixing it.

Fixing a flailing simple system defeats its purpose. If we optimize it, it’s not simple anymore.

But what we can do is add a friend.

We can add another simple system to our original simple system. This way, we can lessen drawdown and keep all the robustness.

Hopefully.

Let’s check it out.

Here are the hypothetical Annual Returns of our Master Trend BB 1H robot on the GBPJPY Only:

It actually looks just like a simple system should. But 2023 looks bad.

That would be very tough to go through.

So here’s what we’ll do.

We’ll add another simple robot. Our choice will be the 3 MA 30-Minute GBPJPY Only robot and you can get all the details and settings in this video: https://www.youtube.com/watch?v=wRxMDMEH-G4&t=2s

Here’s what we’ve done by adding this robot.

First, we’ve changed timeframes. That is a surprisingly effective tactic.

Second, we’ve changed entry types. The BB robot waits for price to get extreme. By the time price gets outside of the extreme Band, it’s already moved. A twitchy market might spin it around. The 3 MA robot gets in right when the trend is hit.

Third, we’ve added a different exit. The 3 MA robot stays in until the trend is over. The BB 1H robot has stops and targets.

On paper, it seems like our two simple robots should work well together. Do they?

Here are the new hypothetical Annual Returns (using Portfolio Architect):

Much better.

We’ve “fixed” our problematic simple system by adding another basic system.

The losing years have either been eliminated or reduced down to tiny levels.

For me, I would classify that as “problem solved”. This year could end up being profitable and the losing year was small.

But traders are greedy people. They always want more.

Can we do better?

We’ll take a look in the next Newsletter.

 

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.