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Finding Good Points of Entry into PAMM/MAM Accounts



All investors dream about a good profit from their investments into PAMM/MAM accounts. And no one would like to see losses. Unfortunately even if the investor has chosen a good and stable PAMM/MAM account he always has a possibility to enter into it not in time and to get some losses due to the trading system being at "the profit correction phase".

This is the main reason for why investors are loosing their money even on the profitable trading system. They just invest their money when the trading system has recently refreshed its profit maximum and withdraw money when the trading system is at "the profit correction phase" or in the other words in a drawdown.


So to make a profit on a stable PAMM/MAM account investors need to do reverse things. They should invest when the trading system is in its "profit correction phase" and withdraw a profit after the account value exceeds its previous high. In that case investors will maximize possibility to get a good return of investments and to reduce time of being in the initial drawdown at the begin of investments.


But the question is how to define such good points of entry/exit to/from PAMM/MAM accounts?

It is really not so simple question as it may look at first glance. There are several reasons for it. Let's list some of them here:

1. On profitable system each next "profit correction phase" has a profit minimum which is higher then the profit minimum reached previously in the drawdown. And it is not so easy to understand visually whether now it is time to start investments or not.

2. On profitable system each next profit maximum is higher then the previouse one. And it is also difficult to understand looking at the chart that now it is time to fix a part of profit for personal usage or for reinvestment in the same account in the future at the right moment of time.

3. Finding of good points to enter/exit PAMM/MAM accounts is even more complicated due to the possible big digits of profit percents especially when profit is counting as several thousand percents. But in all cases the main profit evaluation for investors is a relative profit for example for 1 month.


It is reasonable to use mathematics to overcome difficulties listed above. If we have a stable trading system which works on all historical and forward test periods then usually the profit function will be fluctuating around uptrend with some deviation. That deviation is approximately the same in percentage or can vary in some values from time to time.


So we just need to transform the existing profit function into the function which is more suitable for making investment decision. That transformation is a first derivative of profit function. Detailed explanations of a first derivative is here: https://en.wikipedia.org/wiki/Derivative

According to it a first derivative is a rate of change. If we are aware (or just think) that we have a stable profitable trading system then the profit function are fluctuating around uptrend with some deviation. And we just need to see on a chart the moments when the profit function is very likely going to change its direction from increase to descent and vice versa to keep its movement around uptrend.


To apply the first derivative idea to the PAMM/MAM profit function I used the following equation (I used the same mathematics sense but did some amendments to make the equation appropriate for our purposes):




As you can see it is a relative profit for period of 23 days. 23 days of trading days are in a calendar month. Normally the most part of investors are interested in how much profit they can get within 1 month time. If you have some other investment horisont (e.g. a quarter) you can amend this equation accordingly (68 trading days).


Example of calculation according to this equation can be found in the attached excel file. A diagram is below.




There are 2 lines there. The first one (blue) is for an original monitoring of Solandr Test Drive PAMM account profit (right axis).

The second one (brown) is for Interval Profit (left axis). All values are percents.

Some other examples of calculations can be found here. You can look only at pictures without reading the content in Russian language.


I have already started to use this 'Interval Profit' indicator for informing my investors about good points to enter/exit my PAMM/MAM accounts. See link1 and link2.

The diagram on the first link was calculated on 9 Apr. That time there was some drawdown but Interval Profit was near its historical minimum. And I informed investors about possibility of the nearest profit raising. And that suggestion was confirmed by the further profit. There were only 2 losing trades and 8 winning trades since 9 Apr.


Now the system is near the last profit maximum. There is a small possibility of profit growth in the nearest future but there are much more chances to get some losing trades soon. And this will be a NORMAL BEHAIVIOUR of the trading system! So it looks like currently it is not the best moment to invest into my system. And it is better to wait when the Interval Profit returns to the negative values before making an investment decision.

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