In this issue:
I. Commentary by Marge Sherald, CEO
II. Commentary by Denham Ward, Lead Developer of NeuroShell Trader
III. Save 20% on NeuroShell Trader Add-ons and upgrades to Power User
IV. Version 1.8 of mYFeed now available
V. One way to stop this newsletter
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I. Commentary by Marge Sherald, CEO
Here’s a sample of recent business headlines: Housing in Early Stages of Recovery, Commodities Down but Drought to Lead to Higher Food Prices, Stocks Slip Following Weak Retail Sales Data, and Will the Markets Follow the Usual Pattern and Rise in This Presidential Election Year? The headlines are all over the map. Volatility seems to be the name of the game for the remainder of 2012.
So how do you make these markets work for you? One trick I’ve found that improves my charts is to first build either a neural network prediction or a trading strategy, and then add Position Sizing from the Power User versions. Position sizing can make decent results even better. Instead of trading a fixed number of shares or contracts, you start trading more and more as you increase your account size by previous trades. Some of the position sizing methods scale back trade size if you start to lose money. Some methods are more risk adverse than others. There’s a help topic that briefly explains each method, but if you don’t know which method to use, you can let the optimizer pick a method and the amount you want to risk on each trade.
I created a sample chart called “Harmony Gold fixed shares vs position sizing 2.cht” that you can download from www.ward.net in the New and Updated Examples section.
The first Trading Strategy on the chart uses some traditional RSI trading rules for a stock named Harmony Gold, which has been showing some nice regular patterns over the past few years. (With all of the talk about gold possibly losing value, these patterns may not persist but the model held up over the past year out-of-sample. Use the chart for educational purposes, but there is no guarantee the results will continue into the future.) The trading strategy was set up to trade a fixed number of shares, with the number of shares being determined by the optimizer. The system ended up trading 192 shares on each trade, with a Return on Account of 13.1% for the out-of-sample period.
The second Trading Strategy starts with the same rules and then includes several different position sizing methods. After I added the rules, I chose the Modify Trading Strategy Parameters in the Trading Strategy wizard, and then went to the Sizing tab. This time I added Margin & Drawdown Sizing, Fixed Dollar Amount per Unit, and Fixed Dollar Risk and left the final choice up to the optimizer. I also let the optimizer find the parameters for each sizing method. The optimizer chose the Fixed Dollar Risk method. The Return on Account went up to 44.3% for the one year out-of-sample period, a significant increase from the original system return of 13.1%.
2. If you’ve called our sales department, you might have realized that the sales team is not trying to sell you all of the bells and whistles when you first buy NeuroShell Trader. I’m talking about the add-ons developed by Ward Systems Group and the Power User versions. The main reason is that we believe the NeuroShell Trader is a comprehensive software program and that you should learn that first and be comfortable with it before deciding which add-ons make the most sense for your trading style. Having said that, we’ve noticed a lot of you purchased the NeuroShell Trader over the last several months and might be ready for the next step. That is why we are putting the WSG add-ons on sale. We’ll also extend the 20% discount if anyone wants to upgrade to the NeuroShell Trader® Power User or the NeuroShell DayTrader® Power User. See the article below for details on how to order with the discount.
3. We have decided to close on Friday afternoons until the end of August in order to give our employees some more time with their families. So if you have any questions or need to place an order, please call by 11:30 am eastern time so we can get you an answer.
II. Commentary by Denham Ward, Lead Developer of NeuroShell Trader
One of the main reasons we developed the Power User version of NeuroShell Trader was to give users advanced techniques and tools to further improve their trading systems. The Power User version adds the ability to combine multiple data frequencies into one model so both the large and small market picture can be combined in one decision making process. Walkforward optimization was included to provide insight into the future stability of a model that captures recent market movements through regular re-optimization. But perhaps most importantly, we added advanced position sizing and pyramiding of positions to better address the age old trading axiom of “How much to buy or sell is the single most important aspect of trading”.
Many successful traders have attributed their success to the use of position sizing. In 1987 Larry Williams took $10,000 to $1.1 million over 12 months in the World Cup Championships and has said the gains were largely due to the position sizing he used. In 1983, Richard Dennis and Bill Eckhardt decided to see if trading was something that could be trained or was an innate ability by giving 13 beginner traders a set of rules to follow and a large trading account to trade. The “Turtle Traders” as they became known, earned a compound rate of over 80% over the next four years by following a strict set of rules in which position sizing and pyramiding played an integral role. NeuroShell Trader Power User versions include most of the popular position sizing methods, including the ‘Kelly Formula’ used by Larry Williams in his championship and the Average True Range based ‘Volatility Risk’ used by the Turtle Traders.
Unfortunately there is no magic position sizing method and trying to decide which position sizing method is best depends a lot upon the characteristics of your trading system. A Trading system that makes frequent small trades with a large percentage of winners will likely benefit from a different position sizing method than a system that has a large number of small losing trades but hits huge home runs on an infrequent number of winning trades. Although the Power User version can choose the best position sizing method for a particular system during optimization if multiple position sizing methods are selected, it is important to make sure you compare apples to apples by selecting the appropriate performance statistic for comparison. Obviously a system which simply trades a couple of shares through consecutive winning trades will not have as large a net profit as a system which trades hundreds of shares through the same consecutive winning trades. Since position sizing methods are all about varying trading size based upon performance, you should choose a statistic which minimizes the impact of the average shares traded and instead focuses on the growth of money provided by each position sizing method. For this reason, I recommend using ‘Return on Account’ or ‘Return * Equity Curve Correlation’ instead of ‘Net Profit’ when comparing and optimizing different position sizing methods.
It should be noted that the position sizing methods found in the Power User version generally can’t turn a losing system into a winning system. However, as highlighted by Marge’s example above, position sizing is a valuable tool that can improve the performance of a system with moderate returns into a system with much better returns.
III. Save 20% on NeuroShell Trader Add-ons and upgrades to Power User
We’re offering a 20% discount on any of the following WSG add-ons:
-Adaptive Net Indicators
-Adaptive TurboProp2
-Advanced Indicator Set 1
-Advanced Indicator Set 2
-Advanced Indicator Set 3
-Cluster Indicators
-Fuzzy Pattern Recognizer
-Fuzzy Sets
-Neural Indicators
-Pattern Matcher
-Turning Points
We’ll also extend the 20% discount if anyone wants to upgrade to the NeuroShell Trader® Power User or the NeuroShell DayTrader® Power User. This offer expires on July 31, 2012. Use the following order link to receive the discount: www.ward.net/60.asp . The prices on the order form will reflect the discount.
IV. Version 1.8 of mYFeed now available
Bowfort Technologies recently released version 1.8 of mYFeed that provides a work around for the recent change by Yahoo where they began sending duplicate data for the current day at some points during the day, and at other times, intraday data. (Yahoo supplies the data for mYFeed.)
According to developer Mark Simpson, “how mYFeed now works is when it sees duplicate data, it picks the older data (which we’ve figured out is the official close), and when it sees intraday data on the same day, it ignores it. This should result in the exact same result / behavior that you saw before Yahoo created the issue.”
Simpson advises that you use the Software Delivery message you received from Bowfort when you ordered the software to download the latest version. “Also, you may need to clear historical data you’ve downloaded since the issue arose. Please visit \NeuroShell Trader 6\Servers\Data and clear the .wsg files contained within. To install the software, please do not uninstall the old software, just install this new version.”
V. One way to stop this newsletter
It is really easy. Just change your email address and don’t tell us.
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