I made my own scratch built quad copter and it is very stable when flown in stabilised mode. Behaves as anyone would expect. Stays put when you don't touch it and can have a fair turn of speed when flown aggressively.
I have been going around in circles trying to tune the loiter and RTL functions. I just loaded the latest Arducopter firmware and took it out for a play today.
When I select loiter, it starts to lose altitude and slowly wanders around in a 2 to 3 meter circle. I left it and it eventually almost landed. I immediately thought this was a throttle trim issue, but it is set to 717. Maybe not enough?
When I flew it further away and selected RTL, it came back quite nicely, descended to 15 metres in doing so, arrived at the home position and then descended to 2 metres and would have landed if I hand't taken control and put it back to stabilised mode. the settings are standard for the RTL 15 metre approach and 2 metre final height.
So, why does it lose altitude when in loiter and RTL?
The second time I tried to use RTL, it was much higher than 15 metres, but either started to get into vortex ring or just didn't like descending at the rate the APM 2 chose, as it became very wobbly almost to the point that it would crash before I recovered it.
I spent several hours looking at the tweaks section and tried all sorts of settings to try and get it to stop wobbling violently when descending but am having no luck any suggestions?
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As I described somewhere here, when I was testing RTL set for 1 meter (0 for land was not possible to set) I switched to RTL and put throttle to zero to check if it's really in auto mode. Copter was at aprox 10..20 meters. It properly backed to home location and... shut down all engines at that altitude! I managed to switched to stabilize and put throttle up to save it from crash.
So I agree there is some serious bug with RTL final step. If I remember correctly, it was 2.7.1.
It sounds like your quad is a bit underpowered. At least with the throttle trim way up at 717..that's very high and indicates that it needs bigger engines (or a lighter frame). below 550 is good.
In general for tuning, I think you should focus on the Rate parameters. So it sounds like for the altitude hold you might need higher Throttle Rate.