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Friday, May 25, 2007

Sticking to the system

Big profits today, courtesy of extreme-os. This system didn't do as well as it was expected to do in the last few months. Some subscribers were asking for modifications to the timing of entries and exits. Because of the losses, some also appeared to be scaling down. One of the benefits of subscribing to systems with a longer history is that it is easier to maintain confidence in the system when it doesn't perform as well as you hope (which can always happen). I didn't have any reason to doubt the system, as most of its performance measures (e.g. rolling 50 day Sharpe ratio, drawdown etc.) did not really exceed their historical lows. So, I was sticking to the system. Today it paid off.

The ability to stick to the system is one of the most important reasons to trade a portfolio of systems. Ideally, the weight of each system in the portfolio should be small enough that a total blow up of one system would not destroy the entire portfolio. This is obviously not the case in my current portfolio, but we'll get there over time. At the end of this month I'm planning to increase the weight of Trend Plays #1 from 10 to 20 percent and make some changes to the weights of Weekend Trader and extreme-os as well.

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