Leave your rigid trading systems behind........

[kwickwool]

Is a rigid specific trading system the right answer?

No disrespect here meant for your systems trader that use specific rules upon entry and exit but i just do not understand logically how you can ever nail down a system 100% with specific rules?

If this was the case you could then automate it and make a fortune? But logically there is no such thing as a really profitable automated system, is there?

So, the way i see it and always have is that trading with entry and exit points is always a dynamic risk assessment based on all the information that is being absorbed right at that moment from a multitude of places such as technical analysis, news, correlation to other market movement, S/R, recognised patterns, individual statistical analysis etc etc

From years of watching the markets, its movement, correlation etc then your brain can make those decisions that a system could never as would be far too restrictive?

What i am trying to say is that anyone can follow a specific system, specific rules, but the goal should be to be able to dynamically adjust your trading each time based around the behaviour of the markets at that given time and all the information available to you to make that split second decision?

That means a hell of a lot of screen time, the ability to absorb a lot of information and to think outside the box as in what it means at any given moment? I know i am being a bit vague here but that to me is real trading and the ultimate goal in this business? and there is no short cut to getting to that stage, just time and ability.

 

[Hoggums]

So ultimately you are saying that a trading system should be based on emotion and gut feeling?

How can you ever achieve consistency? How can you have confidence in your system if the parameters are not fixed?

Personally I couldn't disagree more with this OP. in order to build confidence in your trading you need a defined set of rules to work under. If you are overriding your system with hunches and external information then your trading system is not complete and you haven't defined all of the rules.

 

[kwickwool]

Hoggums, becuase if it was as simple as a total definition of rules then why not automate it? I am saying that all the many parameters that come into effect when placing a trade cannot ever be summed up in a simple set of rules. If it was a s simple as just finding the right set of rules, you could ultimately get a monkey to trade becuase they would only be in reality following instructions.

I see it as continually and dynamically assessing each situation in its own merits, you say hunches and gut feeling I say experience and skill from years of screen time and the right aptitude to make that split second decision.

The market dynamics are so complicated with so many variables how does anyone think that it can all be summed up by a set of rules for trading?

 

[x4x]

You're absolutely correct kwickwool - the market changes and therefore so must your method or approach. Any fool should be able to work out that what works in a trending market won't work in a choppy market, and what works in a choppy market won't work in a flat market, and so on and so on.

I am a system trader and I have different rules for different conditions.

 

[Shakone]

One issue with the initial post is who it is directed at. If it is directed at new traders, and if they follow your advice, then you've just screwed over a bunch of new traders, because they'll lose their shirt trading by gut. Which is somewhat irresponsible.

If it's directed at experienced pros, then they probably don't need this advice.

If it's just for general abstract discussion, then I disagree with you. Although I agree that trading decisions can take into account much more information than is available from a simple set of rules, nevertheless, that extra information still goes through a simple set of rules and filters in your head and a decision comes out. It's not that it can't be a system, it already is in your head, otherwise hwo do you think you come to the decisions you do? But if you mean:

1) it is incredibly difficult to code up everything to get close to how you want it to trade, and
2) the key insights that form your understanding, and lead to a particular system at a given time, can't be coded, whereas the system can. The system changes over time, but the insights and understanding can still be the same

then I agree with that.

 

[kwickwool]

Firstly, I disagree with the initial point in newbie traders getting burnt, no one trading needs to be spoon fed or wrapped in cotton wool and if they dont work out what is right for them with the mammoth of information available that is their issue, at the start middle or end of their trading life. It is a self fullfilling journey, simples.


If a newbi buys a "make you rich quick" system for £1000 do you have sympathy? A million articles on get rich quick trading that if they do not have the nonce to push all that aside and see the logic behind why it is b*llsh*t then maybe they should not be in the game and find out earlier rather than later?

What I am saying though is to the newbi and all that trading is not just a set of rules to trade by, it is about putting in a hell of a lot of screen time and if you can absorb all of that in the right way you may be okay when it comes to those dynamic trading decisions. In fact i think this is an important point to any newbie and other traders who keep chasing this "holy grail of systems", there is no such thing.

No short cuts, lots of hard work on top of aptitude etc and maybe? That is what I am saying and I think good info for newbies that think they want to try it out, and also like lots of other posts they can totally dismiss.

 

[kwickwool]

Think of it this way, all anyone is ever looking for is an improved probability of price movement one way or the other at any given time?

Now what if I asked you to list all the variables that can effect price action? How big would that list be?

So what I am trying to say, working within a rigid trading system has its downfalls in regards to all the factors that effect price action? If you can understand this as much as possible, all the many many variables in the equation, then it gives you a better way of trading? And I think this can only be done manually using your brain and can never be 100% encapsulated within a rigid system to trade in? Can it?

 

[robster970]

Say you create a method where you trade reversals off support/resistance and you do ok with that.

Then you start to see information that supports taking a continuation rather than a reversal.

How do you create a rule which says "At a level where a reversal has previously occurred, I will either take a reversal or a continuation based upon price, time, volume and current state of order book/T&S"?

Then you realise that these S/R are only a subset of other levels that are tradeable. Then your ruleset becomes:

"At a level that fits in with my trading opinions, I will either take a reversal or a continuation based upon price, time, volume and current state of order book/T&S"

Personally, I think you get to a point where the rule granularity is littered with so many if/else statements that it becomes 'discretionary' and that discretionary vs rules is entirely personal and subjective.

 

[kwickwool]

I think it is a very good point you make and just trying to explain why a completly rigid system just ultimately will fail. Well, maybe fail is the wrong word here but only take you so far then?

All the hours of screen time etc you are able to seperate the wheat from the chaff and make a decision that is based on experience. Yes maybe a lot of back ground nosie and what if's but being able to understand all that and when and where certain criteria add weight and dont etc in price action movement is what makes the difference.

Which is why I believe that rules can only ever take you so far............

 

[counter_violent]

I believe the OP is talking about market "flow". If that is so, then he is entirely correct.

 

[Liquid validity]

Think of it this way, all anyone is ever looking for is an improved probability of price movement one way or the other at any given time?

Now what if I asked you to list all the variables that can effect price action? How big would that list be?

Huge, especially if you consider every market
participant to be a variable, which of course they are, albeit with weighting.

can never be 100% encapsulated within a rigid system to trade in? Can it?

100% true.

 

[new_trader]

Re: Is a rigid specific trading system the right answer?

No disrespect here meant for your systems trader that use specific rules upon entry and exit but i just do not understand logically how you can ever nail down a system 100% with specific rules?

If this was the case you could then automate it and make a fortune? But logically there is no such thing as a really profitable automated system, is there?

So, the way i see it and always have is that trading with entry and exit points is always a dynamic risk assessment based on all the information that is being absorbed right at that moment from a multitude of places such as technical analysis, news, correlation to other market movement, S/R, recognised patterns, individual statistical analysis etc etc

From years of watching the markets, its movement, correlation etc then your brain can make those decisions that a system could never as would be far too restrictive?

What i am trying to say is that anyone can follow a specific system, specific rules, but the goal should be to be able to dynamically adjust your trading each time based around the behaviour of the markets at that given time and all the information available to you to make that split second decision?

That means a hell of a lot of screen time, the ability to absorb a lot of information and to think outside the box as in what it means at any given moment? I know i am being a bit vague here but that to me is real trading and the ultimate goal in this business? and there is no short cut to getting to that stage, just time and ability.

If what you mean by "Rules" is a set of mechanical thresholds that determine your entries and exits then I agree 100%. But every trader must have a code of conduct that includes rules like:

-Always trade with a stop
-Never overtrade

etc...

 

[kwickwool]

Nice guys, good to hear your comments.

Yes i do mean thresholds that determine entries and exits when i say rules and totally agree that a fundamental group of rules that are a sort of code of conduct for trading are also of paramount importance as in always use a stop, risk, exposure and money management, etc.

 

[Shakone]

Ok, how is a discretionary decision reached do you think? It's fine to say you put in the hours, but what does this give you at the end. Ultimately what are you doing when making the trade?

Is it really any different to a long list of rules, or a long list of if/else as Robster mentioned or a long list of weightings to different variables?

To me it still seems to be systematic. The fact this occurs in the brain, doesn't really matter. The fact it is dynamic doesn't matter either. That doesn't mean the rules for entry or exit are the same all the time. It doesn't mean everything that 'looks' similar is traded the same way, context is used.

There sometimes seems to be an opinion that because all the crappy EAs for sale you see are worthless, that there are no automated systems out there trading the markets successfully. Well of course there are.

 

[robster970]

Is it really any different to a long list of rules, or a long list of if/else as Robster mentioned or a long list of weightings to different variables?

No it's not but the granularity you are operating at diminishes as you try to maximise your profit.

Also a systematic approach to trading does not recognise anomalous scenarios which in themselves give a huge informational advantage over systematic participants.

Look at the US election and associated pump and dump off the back of the Obama win. I cannot have been the only person to see that a systematic rise on index futures throughout the whole of the Asian session off 120k contracts on ES into the European session was a strong signal to participate. If you thought Obama winning was reason enough to go long, well......

This is a nice thread btw.

 

[kwickwool]

Shakone,

Each trade is different in its own right to a certain degree and to try and lump each trade into some rigid system for exit and entry is almost impossible to maximise your profit or minimise your loss.

Also, your point in regards to successful automated systems out there, please name one and give some stats on its performance if you feel they are out there? How much is an automated system worth in the hands of seriously wealthy individuals that could ensure returns of say 20% pa, how much would you say that would be worth? It is always that logic that makes me think no they do not exist as their value is worth millions in reality? Maybe I am wrong here?

 

[Shakone]

Shakone,

Each trade is different in its own right to a certain degree and to try and lump each trade into some rigid system for exit and entry is almost impossible to maximise your profit or minimise your loss.

Also, your point in regards to successful automated systems out there, please name one and give some stats on its performance if you feel they are out there? How much is an automated system worth in the hands of seriously wealthy individuals that could ensure returns of say 20% pa, how much would you say that would be worth? It is always that logic that makes me think no they do not exist as their value is worth millions in reality? Maybe I am wrong here?

HFT and Algorithmic trading are automated systems. These make up the majority of equity trading now, and are pretty prevalent in other markets too. Millions is spent on developing these, so are you suggesting none of these is regularly profitable, and all these hedge funds and banks throwing money at them is just them wasting all their money?

I don't really think it is up for debate that there are successful automated systems out there, is it? It is obviously true. There are billions made from automated systems.

 

[Shakone]

Also a systematic approach to trading does not recognise anomalous scenarios which in themselves give a huge informational advantage over systematic participants.

This is true if the anomalous scenario is not visible from observing the price and/or volume. If there is a price volume anomaly, then it could be incorporated into the system.

 

[kwickwool]

HFT and Algorithmic trading are automated systems. These make up the majority of equity trading now, and are pretty prevalent in other markets too. Millions is spent on developing these, so are you suggesting none of these is regularly profitable, and all these hedge funds and banks throwing money at them is just them wasting all their money?

I don't really think it is up for debate that there are successful automated systems out there, is it? It is obviously true. There are billions made from automated systems.

Fair enough in that regard, and the same automated systems responsible for some of the big sell off's and market movements also when they are not operating correctly.

The big guns spending millions on this no doubt with a bunch of the brightest sparks around.........

 

[D70]

Re: Is a rigid specific trading system the right answer?

No disrespect here meant for your systems trader that use specific rules upon entry and exit but i just do not understand logically how you can ever nail down a system 100% with specific rules?

If this was the case you could then automate it and make a fortune? But logically there is no such thing as a really profitable automated system, is there?

So, the way i see it and always have is that trading with entry and exit points is always a dynamic risk assessment based on all the information that is being absorbed right at that moment from a multitude of places such as technical analysis, news, correlation to other market movement, S/R, recognised patterns, individual statistical analysis etc etc

From years of watching the markets, its movement, correlation etc then your brain can make those decisions that a system could never as would be far too restrictive?

What i am trying to say is that anyone can follow a specific system, specific rules, but the goal should be to be able to dynamically adjust your trading each time based around the behaviour of the markets at that given time and all the information available to you to make that split second decision?

That means a hell of a lot of screen time, the ability to absorb a lot of information and to think outside the box as in what it means at any given moment? I know i am being a bit vague here but that to me is real trading and the ultimate goal in this business? and there is no short cut to getting to that stage, just time and ability.

I am not sure but i have been coming round to the opposite conclusion.

Namely that an objective trading strategy. Like you suggest. Is always going to fail because humans are programmed to make the worst decision when under stress.

An 'automated system' can be dynamic if you go about it in the right way and does not suffer any objectivity. There are also many many automated systems that by all accounts never have losing days. aka. Algoz.

I think when people try to learn to trade if they cant make a particular approach work, you tell yourself it's rubbish. So that you dont feel bad. So that you dont feel stupid. That if you try another method, you WILL BE successful. Again. Another human emotion.