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Here's a picture:
Thin charts (5 pieces) are balances of systems included in the portfolio. Trade volume in each system is always equal to 1. Total - 330 trades.
The thin blue line is a result of diversification, i.e. averaging of all 5 deals at each moment of time. This is the sum of all thin lines divided by 5. The volume of each trade here is also 1.
The balance is conventionally shown with 0, although it would probably be better with some non-zero.
We can see that relative drawdowns of the thick line are evidently smoothed in comparison to drawdowns of each "elementary" pro-rectangle system.
The result of the trade was modelled as 1 + (rand()-0.5)*50. Here rand() is a random variable uniformly distributed from 0 to 1.
I didn't make more lines, but the more there are, the better the result.
So it turns out that "the portfolio drawdown increases by less than the total profit"??? is that it? I don't get it...?
Yes, it turns out that way. I don't know how it is proved in the terverse, but this is the main effect of diversification: the portfolio recovery factor is higher than the "average FS" if the number of systems in the portfolio is large enough (say, from 10) (it seems to be about the root of 10 times, if there are 10 systems; of course, it's a statistic). The more constituent systems in the portfolio, the better the diversification result, on average.
The main conditions are the positivity of the m.o.s. systems (not necessarily all, but most) and the independence of trades of each from the others.
We can see that the m.o. of a trade is 1, but the trade result of each system is evenly distributed on the interval [-24;25]. In other words, the s.r.o. of each trade is much larger than its m.o. This is a typical situation in trading. But the result of a "diversified" trade has a smaller scatter relative to the m.o. (here - somewhere in 2.2 times, i.e., roughly speaking, on the interval [-12;13]).
Hopefully, this result will give further impetus to the villagers to develop a truly robust system with giant FS :)
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I didn't make more lines, but the more there are, the better the result.
I wish I could explain it as well as you do. :) Here's the result with more lines (12 pairs). Forward test. 8 weeks optimization - 2 weeks OOS. In pips and using money management:
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I have conducted this test one year ago. Still haven't implemented it. :) Still working on it...
I wish I could explain it as well as you do. :) Here's the result with more lines (12 pairs). Forward test. 8 weeks of optimization - 2 weeks of OOS. In pips and using money management:
---
I have conducted this test one year ago. Still haven't implemented it. :) Still working on it...
Is it possible to draw such a beauty in Excel?
Yes, it turns out that way. I don't know how it is proved in terver, but this is the main effect of diversification: the portfolio recovery factor with a sufficiently large number of constituent systems (say, from 10) is higher than the "average FS" (I think about the root of 10 times, if there are 10 systems; of course, it's not a case-by-case basis, this is a statistic). The more constituent systems in a portfolio, the better the diversification result, on average.
The main conditions are the positivity of the m.o.s. of the systems (not necessarily all, but most) and the independence of the trades of each from the others.
It can be seen that the m.o. of a trade is 1, but the result of the trade is evenly distributed on the interval [-24;25]. In other words, the s.r.o. of the trade is much larger than its m.o. This is a typical situation in trading.
Is it possible to draw such beauty in Excel?
I guess you can do anything in Excel. :) And in MT4/5 even more...
In Excel, I guess you can do everything. :)
So you also set the background colour, lines and everything else, right?
I know how to work in excel, but my graphs are plain on the white background of an excel grid... :-)
So you also set the background colour, lines and everything else, right?
I know how to work in excel, but my graphs are plain on the white background of an excel grid... :-)
That's enough in principle. :) Everything else is for those who like to draw beautifully. I got this from my computer graphics class. :)
I see. :-)