Follow Up on Which Version of this Strategy Do You Like Best
By Dave Mabe
Earlier this week, I shared a suggestion from the Cruncher for a strategy I'm working on.
Several readers responded with comments I thought I'd share with the group. (Shared with permission, lightly edited for clarity.)
Matt H:
This one is super tough! I might look for a different filter with a more obvious separation, since both sets are good. Having to choose, I think I'd go with the red line because of the much smoother curve.
Martin A:
It seems like the green strategy has a deeper drawdown, but I would go with it anyway, without doubt, since I will have other strategies that make money during the time this one is in drawdown. And since it is more efficient, I can put more money in other strategies as well. Seems like a no-brainer to me to go with the green one, maybe I am missing something.
Glenn B:
I guess the curve that's better is the one that's more tradable. 10 vs 30 trades per day-ish, right? If you can get those 30 trades off, no problem, red line all the way, and just keep sizing up. I'm guessing 30 gives you some leeway to miss sometimes, too? What if you slip out of those big green home runs? You're in the same spot and dealt with more pain. Suppose the slippage analysis you mentioned would come in handy here. Frankly, I think anyone would take either of these curves if they didn't have them to begin with. Still, in a vacuum, I'm going red since the behaviour is more predictable.
Andy:
I like the red one. It is more stable. The green one seems to be driven by recent good trades and may not be sustainable.
Fereidoun:
I think either strategy could work for me, mainly because I wouldn’t expect to place that many trades between 2021 and 2026 anyway. That said, I do have a few questions: were these trades in options or equities, and were they applied to the same set of stocks?
One thing that stands out is that the green strategy has a slightly higher win rate—about 1.5% higher—which could help explain its stronger overall performance despite having far fewer trades. Still, I’d expect a more meaningful improvement than just a 1.5% edge if I’m taking on a strategy that executes only a third as many trades.
The green strategy’s compounding appears less smooth and possibly driven by a few strong periods. If those don’t repeat, the real-world compounding rate could be lower than it looks. The red strategy, while slower, shows a steadier and more consistent growth path, which may translate into more reliable compounding.
Thanks to all who responded - some good takes here!
-Dave
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