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MRCI's Stop Analysis

MRCI's Stop Analysis

In 2001 MRCI published an article titled "Evaluating Seasonal Strategies" (located here) in which we discussed processes by which a trader could evaluate seasonal strategies. One methodology discussed was to incorporate volatility-based stops on a strategy-by-strategy basis.

Utilizing one particular strategy as an example, a December British Pound, we discussed a methodology for evaluating the individual years "Worst Equity Amount " to determine on a by-strategy basis how much movement had to be allowed in order to maximize potential profitability for a strategy.

We have been asked periodically to update that particular article; but, while evaluating it, we elected to go one better. For a full discussion of the methodology, refer to the article listed above. But starting in October 2014, a stop analysis graph is available for each strategy published on MRCI's web-site.

When viewing the detail of any Futures or Spread strategy, the title of the final column "Worst Equity Amount" is now a hyperlink to a graphical representation of the analysis.

Soybean Meal(CBOT)-December
Buy on approximately 10/06 - Exit on approximately 10/25 Contract Size: 100 tons

Cont
Year

Buy
Date

Buy
Price

Exit
Date

Exit
Price


Profit

Profit
Amount
Best
Equity
Date
Best
Equity
Amount
Worst
Equity
Date
Worst
Equity
Amount
2013 10/07/13 420.70 10/25/13 423.50 2.80 280.00 10/24/13 530.00 10/15/13 -1830.00
2012 10/08/12 472.60 10/25/12 481.40 8.80 880.00 10/24/12 930.00 10/16/12 -1980.00
2011 10/06/11 304.10 10/25/11 322.20 18.10 1810.00 10/14/11 2350.00    
2010 10/06/10 295.80 10/25/10 334.60 38.80 3880.00 10/20/10 4200.00    
2009 10/06/09 277.50 10/23/09 303.30 25.80 2580.00 10/12/09 2980.00    
2008 10/06/08 249.90 10/24/08 268.30 18.40 1840.00 10/09/08 2610.00 10/15/08 -540.00
2007 10/08/07 260.50 10/25/07 279.50 19.00 1900.00 10/15/07 2070.00    
2006 10/06/06 167.80 10/25/06 185.20 17.40 1740.00 10/24/06 1780.00 10/10/06 -100.00
2005 10/06/05 167.30 10/25/05 170.90 3.60 360.00 10/13/05 1030.00 10/10/05 -70.00
2004 10/06/04 156.70 10/25/04 158.40 1.70 170.00 10/11/04 660.00 10/14/04 -420.00
2003 10/06/03 201.10 10/24/03 240.30 39.20 3920.00 10/24/03 3920.00    
2002 10/07/02 171.00 10/25/02 169.90 -1.10 -110.00 10/21/02 140.00 10/09/02 -620.00
2001 10/08/01 166.70 10/25/01 161.30 -5.40 -540.00     10/22/01 -1050.00
2000 10/06/00 167.90 10/25/00 170.00 2.10 210.00 10/19/00 370.00 10/13/00 -520.00
1999 10/06/99 149.80 10/25/99 150.40 0.60 60.00 10/13/99 710.00 10/22/99 -240.00
Percentage Correct 87      
Average Profit on Winning Trades 15.10 1510.00   Winners 13
Average Loss on Trades -3.25 -325.00   Losers 2
Average Net Profit Per Trade 12.65 1265.33   Total trades 15
SEASONAL TENDENCIES ARE A COMPOSITE OF SOME OF THE MORE CONSISTENT COMMODITY FUTURES SEASONALS THAT HAVE OCCURRED OVER THE PAST 15 YEARS. THERE ARE USUALLY UNDERLYING FUNDAMENTAL CIRCUMSTANCES THAT OCCUR ANNUALLY THAT TEND TO CAUSE THE FUTURES MARKETS TO REACT IN A SIMILAR DIRECTIONAL MANNER DURING A CERTAIN CALENDAR PERIOD OF THE YEAR. EVEN IF A SEASONAL TENDENCY OCCURS IN THE FUTURE, IT MAY NOT RESULT IN A PROFITABLE TRANSACTION AS FEES, AND THE TIMING OF THE ENTRY AND LIQUIDATION MAY IMPACT ON THE RESULTS. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT HAS IN THE PAST OR WILL IN THE FUTURE ACHIEVE PROFITS UTILIZING THESE STRATEGIES. NO REPRESENTATION IS BEING MADE THAT PRICE PATTERNS WILL RECUR IN THE FUTURE. HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS. RESULTS NOT ADJUSTED FOR COMMISSION AND SLIPPAGE.

When that hyperlink is selected, a new window will open depicting hypothetical stop-loss returns. Per the article previously discussed, the total hypothetical results are evaluated using stops in $50 increments from $0 to the first amount above the largest drawdown experienced by the strategy. In this particular case, reading down the "Worst Equity Amount" column you see that this Soybean Meal strategy saw its largest drawdown in 2012 at $1980 which makes the last stop evaluated $2000. A green bar represents the optimal historical stop amount for that particular strategy. The red bar(s) highlight where the MRCI common 130%-of-net-equity stop would reside.

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