This is a very experimental feature, so I may need to shut it off suddenly if there’s an unexpected problem. But let’s give it a try and see how it works. The feature is a response to a lot of customer requests.
The feature: customize delay time before showing trades
You can now specify a delay time before showing closed trades to non-subscribers. You may recall that, by default, C2 hides all open trades from non-subscribers, but shows them as soon as the trades are closed. There are some cases, however, in which this might be a problem. For example, imagine that you provide a system in which you are always in the market (long or short). In that case, it would be easy to figure out how to follow your system without paying for the trading advice: just look at the most recent closed trade and go the other way.
For this reason, a small percentage of system vendors may want to specify a delay time that C2 will wait before displaying closed trades to non-subscribers.
If there is no logical reason to delay showing trades, I strongly encourage you not to use the delay. I personally feel it is much more compelling to system buyers to get a sense of a trader’s style while the trades are still freshed. Delaying showing trades can only decrease interest level in most systems.
How to use it:
Choose the “Edit System” link beside your system name on the C2 home page. The new setting is at the bottom of the page.
Why there may be problems:
The SQL database queries necessary to display trades of only a certain age are rather “funky” (for your uninitiated, that’s a technical term). There is a possibility that I will discover that these queries somehow report strange trade results. I’ll monitor this, of course, but if you notice strange itemized trade results, please alert me.
Matthew
Thank you for another great feature!
But, this would be less useful if the open equity plot can still reveal what the systems current equity is! Maybe we should also force the same delay the closed trades are subjected to on the open equity plot.
I also wish a closed equity plot is displayed along with the open equity plot which would give a complete picture of the system.
Please also note that as with many systems that go for longer terms moves (although not all trades do this), the open equity plot favoured here at C2 sometimes provides a misleading, or we should say incomplete, picture. The most important negative points are those that involve actual account losses, which is not the same as an open equity drawdown. There is going to be open equity drawdowns. But in order to get the big moves, you have to be willing to give those profits a chance to run. Sometimes it works, sometimes it doesnt. What is not shown here on the C2 graph is the closed equity line. Usually, though not always, it shows a far smoother ride than looking at the open equity plot alone, which does tend to oscillate far more, and also with far larger moves than any day-trading system would permit.
In other words, the open equity plot presently favored at C2, unduly favors the day-trading systems which do not permit large intra-day/intra-trade drawdowns but is a necessity for longer-term (trend-following) systems which have to sit through those drawdowns in order to catch the big moves.
Pal:
I really am perplexed by your assertion that:
"The most important negative points are those that involve actual account losses, which is not the same as an open equity drawdown."
I must respectfully disagree. A drawdown is a drawdown, whether you close the position or not. You’ll still get a margin call if your drawdown is more than your equity. How can you propose that only closed trades should be counted in one’s equity?
No broker in the world follows that methodology, and no trader in the world could last long if he ignored his open-trade equity.
One starts off trading with a finite amount of capital (presumably). When you suffer losses (open or closed), your capital diminishes. If only that were not the case, I’d be much happier. But that’s not the way it is.
Am I misunderstanding you?
MK
Yes you are misunderstanding. In real-world one can add-on to your open equity, either from a wire-transfer from an outside account or from an internal account from the same broker on a margin call, which is not possible at C2.
Also, options on futures and forex are not yet available at C2, so it is not possible to hedge your open positions with options. So please tell me how accurate is C2’s open equity plot in projecting the systems performance in an accurate light.
C2’s world is an ideal, platonic, optimistic world, which would bankrupt a real-world trader, not to mention auto-trading the systems, good grief!
I would not trust my financial future to a computer, nor should any serious trader!
Its a matter of what you call a drawdown. Many consider a drawdown when your REALIZED balance decreases. Otherwise every trade you are in has multiple drawdowns. Consider this. I am in 3 trades for forex. They go up to +300 pips each. Total 900 pips. This gets graphed at C2. Then they turn on me and I get out with 100 pips on each. 300 total. This then gets graphed. The graph now shows a 600 pip drawdown. But it was in UNREALIZED profit, so to me there was NO drawdown. I made 300 pips on that swing of trades.
Maybe that helps. A graph of closed trades shows a rise of 300 pips, as is done at C2, it shows a drawback of 600 pips possibly, depending on when C2 makes their graph update.
So short term systems wouldn’t be affected so much. But someone could hold a trade in profit for a week, and it would show many up and down moves. A potential subscriber could say, look at all the drawdowns, and pass a system by, not realizing they were never in a drawdown position.
Conversly, a system could be down 1000 pips only to finally close at +100 pips. C2 graphs could show this and alert the potential subscriber, whereas a closed trade only graph would hide this.
Solution 1. Two graphs would be needed.
Solution 2. graph only drawdowns that go below account balance when trade(s) are opened.
Solution 3. Have graph update every 10 minutes or so and not 24 hours, so it is the same for all systems, whether short or long term. And gives a more accurate picture of all moves.
Solution 4. Break the graph into different colors for the profit line, a new color for each trade or trade set. (Everytime trader is flat, a new color would start.)
I have no idea if these are feasable or if it would actually solve anything, but someday I will say something useful if I keep talking.
I would also add that even the longer-term (trend-following) systems wouldn’t be affected so much if the open positions are hedged with options (which as I mentioned earlier are not yet available for futures and forex at C2.)
If you had bought options on forex, your 600 pip loss would have been far less than that, and you could have off-loaded your options on evidence of a turn-around and the C2 graph would still show a rise of 300 pips, but this time without the large 600 pip drawdown. The same goes for your 1000 pip drawdown situation. Of course it still requires specialized knowledge and expertise to trade options.
To still stay in the game for the long-term, one has to hedge with options when the inevitable short-term counter-trend move comes along.
The stop loss is the core of any system. If the stop is vulnerable, then so is the entire system. Revealing your stop-loss is similar to revealing your card in a poker game.
That is why, I prefer to use options to hedge your positions and to preserve my capital instead of using stops. Options may cost less and give you more flexibility than outright stops.
I have some articles (which I will re-post there shortly) in my systems (Midas Long-Term) message board, which discusses how to choose between options and stops and some ways of using both throughout the life of the trade.
A fair and easier solution now would be to have 2 graphs; one with closed-equity and another with open-equity. A final solution would be to include options on futures and forex at C2 and I would not care less when the graphs are updating and whether they are displaying closed-equity or open-equity.
I like the idea of having two graphs in different colors on the same chart. One showing the intra-trade equity as it currently does, and the other showing only closed-trade equity.
Of course this might sound like a good idea, but the chart might look cluttered.
Regards
- Fanus
It would be nice to let the user display on the same graph, either the closed-equity or open-equity or both by using toggles and also a default display set by the system vendor who may want to reduce clutter if there is too much of it.
MK,
I hope it is clear by now. I’m sure you are keeing silent just so as not to interrupt the discussion of this issue.
To re-iterate: Because the C2 open equity plot is showing only end of day drawdowns and not intra-day drawdowns, the intra-day drawdowns encountered by day-trading systems (most of which close or reverse their positions within 2 days after opening a trade) are not visible dramatically, while those longer-term (trend-following) systems which hold their positions for greater than 2 days, are having those drawdowns displayed. This is not fair for the longer-term systems.
So, it seems that the day-trading systems have very low drawdowns, but in reality they also have lots of drawdowns, though intra-day, but is not visible because the open-equity plot is only showing end-of-day drawdowns!
All this only proves what the old bard (William Shakespeare) said centuries ago: "All that glisters is not Gold"
The only true solution is to display only the closed-equity plot for all systems. Also, the Sharpe Ratio, W:L ratio, P:L per unit, worst-case drawdown % etc., should be calculated from closed trades, not open trades. Displaying only the closed-equity plot would also hide the current positions for those system vendors who are having always-in-the-market positions.
I hope and trust that C2 would seriously consider this and live up to its reputation as a fair and just, 3rd party, independent company.
Matthew you say a drawdown is a drawdown, whether you close the position or not. You’ll still get a margin call if your drawdown is more than your equity. Right and this applies to daytrading as well, which you do not show.
Actually the software takes snapshots of equity during the course of the day at random times and displays that data (with some granularity) in the equity charts. Thus, the actual data captured in the C2 database is far more detailed than the data shown on the charts. This means at a later time, I may be able to make the charting ‘smarter’ in order to highlight maximum intraday drawdown.
The thing I want to point out regarding this point is that the system currently does show intraday drawdowns in the chart (but not the maximum intraday drawdowns). It simply picks random datapoints with which to compose the equity charts.
To answer your point, Pal (and others), I’ll take this issue under advisement. I have a ton of stuff to do, and I am not ignoring your suggestions. I just want this discussion to continue (if necessary) because it is not clear to me where this fits on the priority list. I’m hoping that - with a little more time for me to digest things, and more posts here - I’ll come to a sensible conclusion about how (whether?) to prioritize this issue.
Truthfully, I’m not convinced this is a priority. A drawdown is a drawdown is a drawdown. It doesn’t matter to me whether a trade is open or closed. To reiterate: the equity charts are composed of random snapshots of drawdowns – but intraday and end-of-day datapoints. Perhaps the answer is to make the algorithm for composing charts a little less random, in order to highlight maximum and minimum intraday equity.
MK
Here is an example of where a big “drawdown” will not result in a margin call which is based on a real system I am currently trading myself.
The system have $2000 initial stops and a wide trailing stop. Assuming one start with a $20,000 account, a series of trades can be as follows:
Trade 1: Stopped out with a $2000 loss. Account value $18,000.
Trade 2: Have a good run and at one stage show $10,000 open profit with an account value of $28,000, but due to the wide trailing stop, exit at the end with a $5000 profit which leave the account at $23,000.
The only “real” drawdown on the starting account was the inital $2000 loss and this is the only real drawdown which will be possible per trade (ignoring any extreme market moves). But by showing intra trade equity, the drawdown would look as if this was $5000, which is more than twice the real drawdown.
I think a case for two viewpoints can be made. The first, that open equity is considered real money in your account and as such that intra trade equity graph is the correct way of displaying. The second viewpoint only consider money in the account after the trade is closed which should be reflected in closed trade drawdown.
For all practical purposes, day trading systems equity graphs are based on closed trades since the graphs are only updated once a day after all trades for the day are closed. Longer term systems graphs are based on intra trade equity, so they are not treated the same. For the sake of fairness, I think longer term systems should be treated the same to also only update the graph based on closed trade equity, or at least display both graphs.
Regards
- Fanus
How about changing the format of the charts from a simple line chart, to a high-low-close chart? (i.e. high portfolio value for the day, low portfolio value for the day, and closing portfolio value for the day). This would in-effect show the intra-day volatility and drawdowns
Brian
This would be still unfair for the longer-term systems because options are not yet available on forex and futures at C2 with the result that the longer-term systems encounter more drawdowns than the day-trading systems.
The only true solution is to show the closed trades plot.
I might add that this would level the playing field between these two types of systems, until atleast options on futures and options are made available at C2 ( which by the way made me curious to ask, when the heck are these options going to be made available at C2?.)
I have been seldom wrong with deep-in-the money options, which essentially substitute for stops.
I’m sorry I meant to say deep out-of-money options, not deep-in-the money options.
