Again, Matt and Jules and whoever works on this site- my thanks to you. It is great that this website does not rest on its laurels… but continues to look for improvement.
Ross’s everpresent suggestion of the “hold and hope” indicator is being realized.
I am sure Ross will post next and be elated.
Nice job collective2.
p.s. My hold and hope # is 1.77 : )
-David Odle
Bottoms Up
I completely understand the purpose and intent of the “hold and hope” indicator even though my system “Reversion to the Mean” will likely be negatively impacted by its rating.
Reversion to the Mean is completely mechanical and in it’s purest form, does not rely on stop losses or profit targets. It enters and exits purely on technical signals. That being said, it has a tendency to take the occasional large drawdown while waiting for the technical exit signal, this is to be expected and is factored in to the system and is one of the reasons the system uses relatively low margin for its trades.
Reversion to the Mean has a 70% profitability percentage for its first 30 trades. It’s average winner is greater than its average loser. Thus, despite a low “Hold and Hope” score, it’s performing pretty much as described and as expected. I have no real complaints about my rating other than to say that the hold and hope indicator does not just catch those systems that hold onto trades solely for the purpose of refusing to take a loss, it also negatively impacts those who are designed and expected to take the occasional larger drawdown but have postive performance. In that sense it can be misinterpreted.
As a suggestion, I’d really like to see a system’s “Profit Factor” and its “Expectancy” (ala Alexander Elder)…
Could someone kindly explain the calculations used in the Hold & Hope indicator? Thank you!
mostly (from track record):
1) eliminate all rows with "No Calc" in max DD
2) Summation of max drawdown column
3) Summation of net profit column
4) H&H indicator = #3 / #2
Systems that average down or hold a position will become very apparent. They improve net profit at the cost of increased or exploding drawdown. A value of 0.2 would approximate an average $200 net profit at the cost of $1000 average max Drawdown (in other words, trash). Usually systems that time better, have higher H&H value
I find it the best indicator of a good timing system in C2. I have been manually calculating all this time, and rather tedious, since it is a moving target…
Ross
Interesting… Can your indicator grab not an individual trade, but performance of time frame?
(I’m not joking or advertising myself. I’m really curious.)
From your words I understand that the indicator is position based and just averages the positions data. Am I correct?
Eu
P.S. Anyway, it’s interesting idea.
I find the explanation and title of this “indicator” to be extremely unprofessional and insulting.
Hold and Hope - "It is designed to show which systems hold on to their LOSING TRADES longer than THEY SHOULD, IN ORDER TO BOOST their winning-trade statistics, AT THE EXPENSE of a drawdown and margin-call risk."
First, who the hell decides what is a losing trade until the trade is completed? There are many fine and profitable systems that buy volatilty with time stops, that have no business being labled “Hold and Hope”.
Second, as it is written this explanation proposes that unless the indicator “ratio” is high, there is something underhanded being done on the part of the trader to boost a winning trade statistic.
The value of this indicator is questionable at best, and presumes that someone considering an investment in a system can’t find the information they need with a quick glance at each trade’s “drawdown and risk”.
But to then label this “Hold and Hope”, presuming that this is what a professional trader is doing, is simply insulting and strongly detracts this site and system developers.
summation of rows with calculated max DDs compared to summation of those net profits (ie, ignore all rows with "No calc")
Only makes sense when totalling everything. Otherwise, how do you compare when you have $2 net profit against $4000 drawdown for a row?
This is a blunt instrument, not so useful when you get to a single or few trades.
David,
There are a lot of vendors on C2 who do exactly “hold and hope” or worse… “Avg Down, Avg. Down, Avg. Down… Hold and Hope” so I personally don’t have a problem with the intent of the indicator.
I do wish that the description would be changed to include a disclaimer that "It is designed to show which systems “may be” holding on to LOSING TRADES longer than THEY SHOULD, IN ORDER TO BOOST their winning-trade statistics, AT THE EXPENSE of a drawdown and margin-call risk."
Some systems manage risk, not with stop losses, but with limited margin use, etc… and those and others may get dinged by this indicator possibly inadvertently.
Still, as the vendor of a system with a relatively low H&H score, I think it can give a potential subscriber a heads up to potential large drawdowns in a system and that’s not a bad heads up to have. I’m not offended by my low score or the name of the indicator, but I do think it could be misused or mislead. That being said, overall, I still think its positive info to have.
Ross
Thank you for your explanation.
This is a blunt instrument, not so useful when you get to a single or few trades.
Agree. “Nobody is perfect” © 
Only makes sense when totalling everything. Otherwise, how do you compare when you have $2 net profit against $4000 drawdown for a row?
Personally, I would compare recovery ratio if we have a deal with more than one instrument/position. E.g. If you have 4K DD in one month for one position and 2K $2 profitable trades you’re at BE, even if the trades have their DD as well. The problem is to figure out when recovery rate becomes negative. From the point we starts speaking about time frame. IMHO of course.
In general it might be useful. I agree with you. If you don’t mind why you don’t give your permission to MK to put your formula in description? It’ll be more useful than “Ross said”.
David Lindq
I find the explanation and title of this “indicator” to be extremely unprofessional and insulting.
Well… At the point I have ~2K of indicators in my software. All of the indicators insult me I don’t see any reason why C2’s subscribers cannot have their own, additional indicator.
I totally agree with C2’s approach. More info is better than no info. So I’m not insulted
Eu
When you go to hot list and then click on best systems. The signal that comes in second using the all systems tab is Big Cat. This leads me to believe Big Cat is the second best signal on the whole web site according to Collective2 criteria. Then you look at their hold and hope indicator and find it is ranked .09? So how can the second best signal on the whole site have such a low hold and hope rating?
I don’t see what’s wrong with that if the system makes a lot of trades in a short time frame.
Suppose I have a $100k account and the system you describe (with H&H = 0.2) makes 200 trades in a month.
On each trade I risk 1% of my account on average.
My profit after a month equals 200 x $200 = 40,000.
Now compare this to a system that averages $5,000 net profit for a $10,000 average max dd. and makes 5 trades a month (H&H = 0.5, more than double the previous one)
On each trade I risk 10% of my account on average.
My profit after a month equals 5 x $5000 = 25,000.
This example becomes even stronger if the former system would have only winning trades. In that case the overall drawdown on equity would never exceed 1% on average. Suppose further that the second system has 4 losing trades in a row (-/- $10,000 each) and one winner of $65,000 (after a $10,000 drawdown). I guess you get the point…
As I explain in issue 2 of my newsletter, comparing average returns and drawdowns per trade can be useful, but it should always be done in the context of other parameters, such as the number of trades.
extreme-os is a very good example of a nice system (as measured by the Sharpe ratio) that does really bad on the Hold & Hope indicator.
Finally, for systems that compound, people should realize that more recent returns and drawdowns are weighted heavier than past ones.
I agree the intent of H&H is good, and applaud Ross for his work, but IMO H&H can give the wrong picture if not put in context. My long term system, Sand 2 Pirls 652015, is new at C2, just over a month old, and I have not closed any trades. The market has been trading in a fairly narrow range since my system began, and my draw down is less than 4%. I hold over 20 position purposely chosen across a variety of industries to keep over all draw down low. My H&H score is currently just below the low end of “tradable.” Yet, in the context of a faily diverse portfolio in a trading range, this score IMO doesn’t in itself provide an accurate picture.
I would suggest that weighting the H&H indicator by %DD would be more helpful.
I am happy with this indicator, as it summarizes nicely what I can find in the trade details.
But I agree that the name and description may need some work. For example, extreme-os has a H&H of 0.35, which according to the description indicates that this system tends to hold positions longer than it should “at the expense of drawdown and margin call risk”. But this system always sells within 2 days, as it is supposed to do according to its description. This is not longer than it “should” and I don’t think that it is accurate to descibe this as a hold & hope system.
Furthermore, being a long stock system with at most 20% on one position, it is hard to see how this system can generate a margin call in any plausible scenario, and if you see the equity curve then the words “drawdown and margin call risk” don’t come to my mind.
However, it is true that the profit per trade is relatively small, and that the intratrade drawdowns can be much larger than the profit. But the drawdowns are small in comparison to the account value, and often compensated by another open position that has a profit. So there are some limitations in this statistics. This is probably true for every statistic, and I definitely don’t blame Ross for it, but it implies that the interpretation is not always as straightforward as one might hope (or hold).
So I suggest that it is perhaps better to call it the “profit on intratrade drawdown” indicator, which is more neutral, and to weaken some sentences in the explanation that is given in the grey box.
PS being a slow writer, I could have saved myself the time, because meanwhile others have said essentially the same 
Remember, this is not on a particular trade basis. This is the behavior of the system over its entire history. Secondly, the description left out that it also supposed to expose systems that average down.
Systems, on average, with high levels of drawdown do not have a whole lot of value, frankly. The point of trading is to cut losses short and let winners run. The worse the drawdown, the higher the risk. This is one of the basics of trading.
How does a system with a high total of drawdown compared to net profit merit much consideration? Then why not just triple beta the S&P to outperform the market by a factor of three?
Anyone can bank profits, if they refuse to cut their losses or keep averaging down. MidMay shattererd a number of these systems, when the market went into a steep drop.
margin call was not my wording. This is a strict relationship between net profit and drawdown. It gives the potential subscriber an idea about how much max drawdown a system usually experiences in relation to a net profit
I was referring to the wording in the grey box that you see when you move the mouse over the question mark. If this is not your wording, then there is even less reason to keep these words exactly as they are now. I’m only commenting about a too simple interpretation; the statistic itself is fine.
that is what I meant…
I agree in that I find the use of the Hold and Hope indicator completely useless and insulting. I find it insulting and wrong for someone else to dictate to me how I should operate my system based on a strict definiton of trading. Bottom line is that there is no single right way to trade and this indicator essentially penalizes one for adding to a position which is a completely legitimate way of trading. This is basically saying that it is more correct to simply take a loss rather than use any other method available to bring a trade back to positive. Ineffectively using stop losses or consistantly exiting a ‘losing’ trade can do just as much damage as ineffectively adding to positions. There is NO difference in the outcome when either method is used ineffectively. However, BOTH methods can be constructive when used correctly and I find it offensive to be penalized for what is a legitimate technique.
Further, I find it appaling that select individuals think they have the right to define how everyone else should trade. I re-iterate that there is NO SINGLE CORRECT way to trade and many different methods and techniques are EQUALLY viable. In the long run, those who use ineffective techniques, regardless of what they are will eventually self destruct, but those that manage trades effectively, regardless of technique will do well.
Hell, why dond’t we call the win/loss percentage the dumbass indicator because it shows how many times you do get it right overall. Maybe one should be penalized like this for stopping out of or closing losers a lot. If you don’t have a high percentage of winners, then maybe you don’t have a clue what you’re doing and are likely to pre-maturely bail out on a trade that could have pulled a profit.
I should also add that the hold and hope has zero value if a system uses hedging as part of the trade management process. Let’s say I short the market 1 position and it draws down. However, during the process, I initiated an equal long hedge for whatever reason. If I make a profit on my long and then add to my short position when I exit my long which also then moves into profit, then I am effectively penalized for a drawdown on a single trade while the net drawdown overall was minimal or none due to the hedging. Each trade carries its own statistics but only represents the true nature of the account management process when looked at as a whole.
The Hold and Hope indicator would be useless in these systems and in fact would be a complete misrepresentation of the system. It all boils down to someone telling me how to trade and I find THAT completely wrong.
