Finding a Trading System

[Joe Ross]

Here's a question that came in the mail.."Joe! Have you ever found a system that really works?"

Most traders move from trading system to trading system, and trading method to trading method. Over a period of time, they may find one that suits them--one that is comfortable to run, and tests well either via back-testing, or in real-time. Some traders never stop looking for the “right” method or system. THAT is a problem. There are many systems or methods that can generate nice profits over time. To settle on a trading system or method that’s right for you:

First, you have to believe in the process by which the system or method generates trades.

Then you have feel comfortable that the method or system is right for you.

But do not delude yourself into thinking any method or system will work forever. You will always have to change and adapt to the realities of the market. And very IMPORTANT: Trading a method or a system you will never really learn how to trade. You will always depend on the method or system as a crutch and you will find yourself having to adapt and adjust it to the realities of the market.

Maybe you’re a visual sort of person and you are drawn to Candlestick charting. Take the time to understand why the patterns mean what they portend to mean. Do not just accept the “picture,” as it appears on the chart. Go deep.

If you choose a money manager to do your trading for you, realize that the manager has actually become your trading system. In that case you will need to trust his/her judgment 100%. This can be a dangerous choice in that you are giving up control to another. Choose wisely.

If you choose to take your trades by following a trading guru, understand where his or her "godliness" is coming from. Again, be sure to choose carefully.

Whichever system or method you decide to go with, back-test it. In today’s modern world of software, there’s no excuse not to run all the back data you can through your system to see what the results would have been. Pay the most attention to how the system has worked in the last 2-3 months. Don’t overly rely on the on backtesting. Backtesting is no match for real trading.

 

[morgan_edge]

But do not delude yourself into thinking any method or system will work forever. You will always have to change and adapt to the realities of the market. And very IMPORTANT: Trading a method or a system you will never really learn how to trade. You will always depend on the method or system as a crutch and you will find yourself having to adapt and adjust it to the realities of the market.

There are traders on this site who have used the same method for years and years and I expect they plan to use it until they retire, are there not? Maybe Mr.charts as an example, trading his price patterns on US stocks? I traded my 'method' on a very choppy day last week and done pretty well, and I traded it this week on a very trendy day, and it done ok. Its been this way for a while now. How much more can the market change as a whole?

You say trading a method or a system, you will never really learn how to trade?...
Is say that one has learnt to trade when they find a method/system that keeps working.
How do you suggest one trades without having a method or system?

Are you just saying one needs to learn to trade with just using price action? Volume?
If so, you could call that a 'method' or a 'system'.
You say to 'understand why the chart patterns mean what they mean'. Why does that even matter? I guess I could type in 'head an shuolders pattern' into a google search and probably find an answer to that question....now what?

Also, how would you suggest one backtests a method using just price action patterns (that aren't in any books etc) without being a complete computer programming genius?
That last one is just a question out of curiosity as I have enough live trading hours behind me to elimnate the need for a backtest.
cheers

 

[alexander]

Whichever system or method you decide to go with, back-test it. In today’s modern world of software, there’s no excuse not to run all the back data you can through your system to see what the results would have been. Pay the most attention to how the system has worked in the last 2-3 months. Don’t overly rely on the on backtesting. Backtesting is no match for real trading.

Good advice with the caveat that there are some systems that are either very hard or impossible to backtest.

For example, systems for high frequency statistical arbitrage are almost impossible to backtest.

 

[Joe Ross]

There are traders on this site who have used the same method for years and years and I expect they plan to use it until they retire, are there not? Maybe Mr.charts as an example, trading his price patterns on US stocks? I traded my 'method' on a very choppy day last week and done pretty well, and I traded it this week on a very trendy day, and it done ok. Its been this way for a while now. How much more can the market change as a whole?

You say trading a method or a system, you will never really learn how to trade?...
Is say that one has learnt to trade when they find a method/system that keeps working.
How do you suggest one trades without having a method or system?

Are you just saying one needs to learn to trade with just using price action? Volume?
If so, you could call that a 'method' or a 'system'.
You say to 'understand why the chart patterns mean what they mean'. Why does that even matter? I guess I could type in 'head an shuolders pattern' into a google search and probably find an answer to that question....now what?

Also, how would you suggest one backtests a method using just price action patterns (that aren't in any books etc) without being a complete computer programming genius?
That last one is just a question out of curiosity as I have enough live trading hours behind me to elimnate the need for a backtest.
cheers

I suspect we have different meanings for the word "method." When I used that word in the context of what I wrote, I meant a mechanical method, one with no discretion. One where you never change what you do--one that mechanically works forever. If you have such a method, I would be greatly impressed. In over 50 years of trading, I have never heard of or seen one.

 

[morgan_edge]

I suspect we have different meanings for the word "method." When I used that word in the context of what I wrote, I meant a mechanical method, one with no discretion. One where you never change what you do--one that mechanically works forever. If you have such a method, I would be greatly impressed. In over 50 years of trading, I have never heard of or seen one.

ok, thanks.

In terms of 'having to change and adapt to market realities', Would you say that this doesn't apply to someone using a discretionary, price action based 'method' then?

when you say "Trading a method or a system you will never really learn how to trade" are you just talking in terms of, like you say, someone using a 'very mechanical system, like "when price goes above this EMA and the adx is below this number go long" for example? Otherwise, your statement confuses me.

Im not trying to give you a hard time by the way. Just trying to get answers to statements that seem to pop up quite alot, but which never really lead to any meaningful discussion.

you said "If you have such a method, I would be greatly impressed. In over 50 years of trading, I have never heard of or seen one"

Well, now that we are on similar pages, I suspect you wouldn't call my way of trading a 'system' (?), and so you STILL haven't heard of or seen one .
I mainly trade off of price actions concepts / some indicators in certain situations /price patterns that Ihave personally found through lots of screentime. Not much else.

Regards.

 

[Joe Ross]

"In term of 'having to change and adapt to market realities', Would you say that this doesn't apply to someone using a discretionary, price action based 'method' then? " I WOULD SAY THAT HAVING TO ADAPT TO MARKET REALITIES APPLIES TO EVERY SUCCESSFUL WAY OF TRADING I HAVE EVER SEEN.

"when you say "Trading a method or a system you will never really learn how to trade" are you just talking in terms of, like you say, someone using a 'very mecanical system, like "when price goes above this EMA and the adx is below this number go long" for example? " YES! TRADING MECHANICALLY KEEPS YOU FROM SEEING WHAT'S REALLY GOING ON.

 

[amnonco]

"In term of 'having to change and adapt to market realities', Would you say that this doesn't apply to someone using a discretionary, price action based 'method' then? " I WOULD SAY THAT HAVING TO ADAPT TO MARKET REALITIES APPLIES TO EVERY SUCCESSFUL WAY OF TRADING I HAVE EVER SEEN.

"when you say "Trading a method or a system you will never really learn how to trade" are you just talking in terms of, like you say, someone using a 'very mecanical system, like "when price goes above this EMA and the adx is below this number go long" for example? " YES! TRADING MECHANICALLY KEEPS YOU FROM SEEING WHAT'S REALLY GOING ON.

here's a quote for ya:
"we began trading our first program in 1981 and this was after quite a bit of research into the practical aspects of a basic philosophy of waht drives markets. the world was frighteningly different in those days than it is today when I was designing what turned out to be a trend following system. that aproach - a mechanical and mathematical system - has not really changed at all. yet the system continues to be successful today, even though there has been virtually no change to it over the last 18 years".

John W Henry.

what's your take on that?

 

[Joe Ross]

If it works, great, but I would have to see proof!

 

[BSD]

If it works, great, but I would have to see proof!

Err, John Henry is a trading legend, one of the longest lived money managers who has been at it since 1982, and one of the largest players right behind Tudor Jones to boot.

Trader John Henry is Featured in Institutional Investor Article at StreetStories.com

Coopers & Lybrand audit his returns, so proof exists, and for decades at that.

http://www.jwh.com/Documents/disclosure.pdf

 

[Claudia123]

Err, John Henry is a trading legend, one of the longest lived money managers who has been at it since 1982, and one of the largest players right behind Tudor Jones to boot.

Trader John Henry is Featured in Institutional Investor Article at StreetStories.com

Coopers & Lybrand audit his returns, so proof exists, and for decades at that.

http://www.jwh.com/Documents/disclosure.pdf

No no no - his real name is Depth Charge when will you learn :smart::smart::smart:

 

[BSD]

Haha Claudia.

Hope you had fun.

Looks like it.

 

[Claudia123]

ja ja ja

 

[Claudia123]

Have some I shorting cable at 17 looking for a quick 20 pips - this is not my style must be the wine but here we go

 

[BSD]

ja ja ja

Cheers to that.



Good luck with the short, nice potential pullback trade.