my journal 2

[bbmac]

Yes, that's one way of putting it, Lol !

Here's the situation up to yesterday's trades:

It is really interesting, isn't it.

.....

 

[Yamato]

Thank you for your comprehensive response. I understand the emotions you are feeling right now and that it is very disappointing at this stage, particularly given the work you have put into the project and what it represents to you in terms of your personal goals etc. I tend to agree with your summation of the current situation and the effect of a wrong/unlucky choice of system combo , scaling up too fast (insufficient profit cushion ) and general bad luck. I do however think there may be steps you can take to prevent this from happening again over and above not breaking your own rules ['...of only enabling systems that have been good both in back-testing and forward-testing...'] and better money management. There is nothing any of us can do about luck !

I have placed in italics some parts of your reply that I found interesting. My further comments that explain my thoughts in the respect above, are below each point:


I read that you have not seen automated traders being profitable more than discretionary traders. That's interesting because recently an Italian trader, friend of mine, told me that he thinks there are no profitable discretionary traders, while there are a lot of profitable automated traders.

I have personally seen the account statements of profitable discretionay traders but to this date have not seen any from automated/mechanical traders.

Are you saying the large financial institutions can do it?

I have no first hand evidence of this but I assume so given the press it has had ?

I don't understand the concept of "placing the same bet over and over".

What I guess I am getting at here is that you knew of the general correlations effect of your systems portfolio ie that they did better with Eur and Es rising rather than falling. On a basic level, some instruments are correlated either directly or inversely, for eg there exists a high direct correlation between eurusd and gbpusd and an even higher inverse correlation between eurusd and usdchf. Even amongst trading instruments of differing asset classes for eg there exist correlations usdcad and oil for eg.

So, when you have a large portfolio of trading systems trading disparate trading instruments there will be known corelations and unknown/undiscovered correlations and in general you knew that in general the portflio was correlated with Eur and E's fortunes...when these fell, generally speaking, - so did your equity line...any precipitous fall in thesee instruments would therefore result in a correspondingly bad fall in your equity line.

Why then were you happy to continue in this knowledge ? Ie why did you not seek to better hedge your portfolio to result in it being more balanced and therefore be more cushioned against say a 1000+ pip fall in Eur over the last 10 days ? (see pic below.) The fundamental environment re the Eur has been precarious to say the least in this period, what with Sovereign debt problems and contagion etc, was this fall in the Eur more probable than not at some point given this environment ?

I also have to admit: my systems are not that good. And I was not that good at picking a good combination. I was affected by wishful thinking to some extent. I was not expecting the worst of the worst to happen as soon as we started trading the new combination.

This is a startling revelation about your systems. We have disagreed before about whether you are picking the system combo to be traded discretionarilly or as you might prefer to call it - with an evolving intelligent methodology for doing so. It could be argued that the discretionary changing of the system combo - at the new account high has in part done for the then +37k equity line, ie that the old discretionary demon that has blighted your manual trading in the past has struck again.

Whatever the case I understand your point about wishful thinking and it illustrates perfectly why trading is so hard...the emotions required in certain situations often run counter to natural human emotions. In short text; When we need to fear it is the more natural human emotion to hope, and when we need to hope it is the more natural human emotion to fear.

If I were given the opportunity to trade again, with someone else's capital ........The extra thing I know is that my systems suck really bad, and you're never too picky in choosing what you will trade. And that if the past showed a 27k relativized max drawdown, you should be ready to witness a 54k drawdown as soon as you start trading.

I think you are right about the drawdown in the forward sample versus what is seen in any back sample. Before my trading career began in earnest I was involved in horse racing and when I came across a system/methodology that had an LLR (longest losing run) of say 10 I would double it and add 1/2 again (25) and that divided into the available bank would give the new level/unit stakes for laying/backing accordingly. In other words my 'drawdown cushion' was an extra 150% to what had been experienced before in it's known history.

As for the way you pick the actual combination of systems for trading at any given time, notwithstanding the intelligent and well reasoned way you went about this, it probably still requires work and/or more good luck ?

Things may well turn around with this investor ie you may not suffer further drawdown below the +37k gains but the probibility now is against that outcome. You are right to plan the future, and learn the lessons of this episode.

BBmac.

I will reply as i read, as usual. And I will try to be short, so this useful exchange between us does not turn into a full time job.

Today the systems did a little better and did not lose money.

Psychologically, I am ok, because i am on vacation. I say this because you and others often bring up your condoleances for how I am feeling, or must be feeling, but I am not feeling anything. Because I am on vacation. Seriously.

Well, I hope I'll be the first exception to prove to you that you can make money with automated trading. I haven't yet, but I am convinced of it. Maybe we dared too much.

We have to separate when you speak of picking a different portfolio. You address two different issues. One is why I keep a large number of systems in my portfolio that are positively correlated to EUR and ES. The reason is that, to put it shortly, my systems seem more likely (not a certainty) to lose when both EUR and ES fall, but that is a rare event and doesn't make it worth it to not use good systems, just because in those rare times, they might lose. The second one is why I am trading systems like that in this economic environment, and I am totally automated so I totally disregard those issues, which are related to fundamental analysis, discretionary trading and all that. Once my algorithm is done, I totally ignore what happens in the world.

Yes, regarding our debate on whether I am a discretionary trader or not, you get the usual answer from me: the selection of systems cannot be automated efficiently (otherwise I would have done it), it is merely a manual selection of the best systems, but it is true that if the premises are wrong, as might have been the case this time, it will kill the account. So maybe we should not debate over the fact that the selection is manual or not, but we should set some requirement to be respected all the time, manually, if it is not possible to do it in an automated way, as you suggested. Furthermore, if we automated the choice of systems right now, we'd end up with a much worse combination. Do we want that for the sake of automation? Certainly not.

Oh, good to hear your horse racing example. It sounds like we really agree on this. To me another good example is soccer. You know brazil, germany and italy have won many world cups, but does that make it safe to predict the next world cup? It is more likely, but it is not 100% as likely as the past. Except for science, predicting the future based on the past, does not have very high accuracy rates.

 

[Yamato]

Travis,

Sorry about your losses, but until this point you were the only member of this forum who changed my opinion about mechanical trading. This equity curve exemplifies my own experience many years ago (though not to the same degree) and what I believe everyone who goes down the mechanical route will experience sooner or later. This is why I am a purely discretionary trader and why I am certain it is the only way to attain true financial success. I have never looked back on mechanical trading and never will. Best of luck whatever you decide.

Thanks for sharing your experience. You share some ideas with bbmac, who on the other hand does not rule out the possibility of my automated trading being profitable. I still believe in automated trading. Especially considering how much money I lost with discretionary trading. I simply cannot handle the emotions involved with discretionary trading, and end up making all those mistakes needed to blow out your account month after month (which I did for the first 10 years of my trading). It will either be automated trading or nothing for me. I am not going back to discretionary trading.

 

[wallstreetwarrior87]

Except for science, predicting the future based on the past, does not have very high accuracy rates.

The problem is, most of the people whom enter this arena never seem to grasp that trading (for a retail trader) is about speculating on future direction based on information about here and now, not based on the past. Backtesting to evaluate parameters with a positive expectancy are doomed to mediocrity at best, due to ever changing market cycles.

Why would you want to carry on using/backtesting mechanical stategies when you have proven they come unstuck when market forces change.

I believe you are heading down the right track, and will come to the conclusion that discretionary trading has the greatest potential.

Whether you can be successful a using you discretion is another matter, and depends on you.

Just a few quick question(s);
- Why would the past have any relevance to the future anyway?
- How far back would you go when testing? and why have you decided that duration to be of importance?

If you can not conclude why something is important, with valid reasoning, its best to stay on the sidelines.

You have been through a lot over the last few years, so you must now be able to create some conclusions based on this. So what have you learnt?

Good luck with your progression:clover:

 

[brettus]

I will reply as i read, as usual. And I will try to be short, so this useful exchange between us does not turn into a full time job.

Today the systems did a little better and did not lose money.

Psychologically, I am ok, because i am on vacation. I say this because you and others often bring up your condoleances for how I am feeling, or must be feeling, but I am not feeling anything. Because I am on vacation. Seriously.

Well, I hope I'll be the first exception to prove to you that you can make money with automated trading. I haven't yet, but I am convinced of it. Maybe we dared too much.

We have to separate when you speak of picking a different portfolio. You address two different issues. One is why I keep a large number of systems in my portfolio that are positively correlated to EUR and ES. The reason is that, to put it shortly, my systems seem more likely (not a certainty) to lose when both EUR and ES fall, but that is a rare event and doesn't make it worth it to not use good systems, just because in those rare times, they might lose. The second one is why I am trading systems like that in this economic environment, and I am totally automated so I totally disregard those issues, which are related to fundamental analysis, discretionary trading and all that. Once my algorithm is done, I totally ignore what happens in the world.

Yes, regarding our debate on whether I am a discretionary trader or not, you get the usual answer from me: the selection of systems cannot be automated efficiently (otherwise I would have done it), it is merely a manual selection of the best systems, but it is true that if the premises are wrong, as might have been the case this time, it will kill the account. So maybe we should not debate over the fact that the selection is manual or not, but we should set some requirement to be respected all the time, manually, if it is not possible to do it in an automated way, as you suggested. Furthermore, if we automated the choice of systems right now, we'd end up with a much worse combination. Do we want that for the sake of automation? Certainly not.

Oh, good to hear your horse racing example. It sounds like we really agree on this. To me another good example is soccer. You know brazil, germany and italy have won many world cups, but does that make it safe to predict the next world cup? It is more likely, but it is not 100% as likely as the past. Except for science, predicting the future based on the past, does not have very high accuracy rates.

You say your systems are highly correlated to the S&P and EURO. Do your systems outperform the S&P and euro? If so, would you consider hedging your systems by selling the S&P? I know many equity traders who always hedge their bets by shorting a similar or weaker stock in that sector to protect themselves. If your systems are stronger than the S&P in that they gain more than the S&P when it rises and lose less when the S&P falls, you can not lose.

 

[DDI]

Thanks for sharing your experience. You share some ideas with bbmac, who on the other hand does not rule out the possibility of my automated trading being profitable. I still believe in automated trading. Especially considering how much money I lost with discretionary trading. I simply cannot handle the emotions involved with discretionary trading, and end up making all those mistakes needed to blow out your account month after month (which I did for the first 10 years of my trading). It will either be automated trading or nothing for me. I am not going back to discretionary trading.

I share your view and your experience with discretionary trading providing its based on price action only - like my trades. I am 4 months into programming my system and am determined to complete it.

I too cannot handle the emotions and more so cant stick to the rules when it comes to profit taking so my next step is to give the rules to the computer and let it execute them for me.

Also since my trading is based on price patterns and chart set-ups, if it doesnt succeed mechanically, I cant ever see it succeeding discretionally..However, programming is harder said than done as when you give your rules to the computer, it still picks some trades that one would never have discretionally (allbeit all the given conditions are present!)..thus the amount of extra filters and conditions are endless!!

Best of luck and I hope you recover you losses quick..

 

[Yamato]

The problem is, most of the people whom enter this arena never seem to grasp that trading (for a retail trader) is about speculating on future direction based on information about here and now, not based on the past. Backtesting to evaluate parameters with a positive expectancy are doomed to mediocrity at best, due to ever changing market cycles.

Why would you want to carry on using/backtesting mechanical stategies when you have proven they come unstuck when market forces change.

I believe you are heading down the right track, and will come to the conclusion that discretionary trading has the greatest potential.

Whether you can be successful a using you discretion is another matter, and depends on you.

Just a few quick question(s);
- Why would the past have any relevance to the future anyway?
- How far back would you go when testing? and why have you decided that duration to be of importance?

If you can not conclude why something is important, with valid reasoning, its best to stay on the sidelines.

You have been through a lot over the last few years, so you must now be able to create some conclusions based on this. So what have you learnt?

Good luck with your progression:clover:

Replying as I read.

My quote "does not have very high accuracy rates" is misleading, taken out of context, and must be read together with the rest of what I wrote here:
http://www.trade2win.com/boards/trading-journals/85510-my-journal-2-a-293.html#post1673870

What I meant is that the accuracy rates are not 100%, but they're still profitable. It still makes sense to study the past.

I haven't proven automated trading doesn't work. There's much more to it than this possible failure of mine (we're still trading the mentioned combination of systems/contracts). There's systems that have been working for years, and no system has failed yet. What has failed is my combination of systems. It has simply failed to meet our optimistic expectations. I still believe in automated trading.

The past does have a relevance to the future. That's what discretionary traders do as well. They expect the past to repeat itself in the future. You don't expect the past to be completely unknown, or you would not invest your money. The same happens in our daily life, for every aspect of it.

I go back 10 years, because that's the only data I have available (on the 15 minute timeframe I use).

I have decided duration to be important because the past is important, so the more past I have, the better I can predict the future.

Based on the last 14 years of trading, I have learned that I should keep on doing automated trading, but not expect the backtested results to be half as good as the future results. But I will still expect the profitable systems to stay profitable overall.

Maybe the biggest problem, the biggest mistake has been to invest different amount of money, and apply different leverage to the systems we have used.

For example, merely trading silver meant huge leverage on that contract. Ideally one should look at the max loss by all systems/contracts he's trading and make sure they're all the same.

Good luck to you, too.

 

[Yamato]

You say your systems are highly correlated to the S&P and EURO. Do your systems outperform the S&P and euro? If so, would you consider hedging your systems by selling the S&P? I know many equity traders who always hedge their bets by shorting a similar or weaker stock in that sector to protect themselves. If your systems are stronger than the S&P in that they gain more than the S&P when it rises and lose less when the S&P falls, you can not lose.

This concept of yours is new to me, so I might not reply as thoughtfully as you deserve.

What i can do however is to define more in detail, as i have in the past, the correlation of my systems to ES and EUR.

First of all, the reason for this (slight rather than "high") correlation is that, out of 120 systems, 40 of them go only LONG and do so on futures that are themselves the EUR and ES, or that are correlated to those 2 futures.

The consequence is that many of the systems that go LONG only on futures that fall, not always, but might tend to lose more when those underlying assets go down.

But this is not always the case. You could have a system that goes LONG on the ES, and yet makes more money in a period when the ES is in a downtrend. And I do have such systems. This happens because my systems do not stay on a given future for very long but only a few hours, so you could catch a bounce from a future that's been falling.

This explains why I say that there is not a high correlation but only a slight correlation, and that when both the EUR (to which many of my futures are correlated) and the ES (to which other futures I am trading are correlated) fall at the same time, then there's a higher likelihood of my systems losing money. But there's no way to tell when this will happen, there's no way to tell to what extent this has happened, so I feel I cannot devise a strategy to avoid this.

Furthermore, all my trading has to be simple, back-tested and automated and I would not know how to apply this principle to your idea.

 

[Yamato]

I share your view and your experience with discretionary trading providing its based on price action only - like my trades. I am 4 months into programming my system and am determined to complete it.

I too cannot handle the emotions and more so cant stick to the rules when it comes to profit taking so my next step is to give the rules to the computer and let it execute them for me.

Also since my trading is based on price patterns and chart set-ups, if it doesnt succeed mechanically, I cant ever see it succeeding discretionally..However, programming is harder said than done as when you give your rules to the computer, it still picks some trades that one would never have discretionally (allbeit all the given conditions are present!)..thus the amount of extra filters and conditions are endless!!

Best of luck and I hope you recover you losses quick..

Thanks. Good luck to you, too. For my case, though, the conditions are not endless. I created very simple systems with one or two conditions. Each system sees one aspect of the market and by themselves their edge is not very high: on average, given a ratio of avg.win to avg.loss of 1, they have a win rate of 66%. Profit factor of 2. Sharpe ratio of 2.

I do it like this. Let's say you notice that the ES rises more on Wednesdays. Then you create a system that goes long on Wednesdays. Then it's closed. You keep it like that, without adding any more conditions. That applies to a lot of cycles systems i have created.

Then let's say you notice that the opening gap strategy works, given some extreme situations, on a given market. You don't care that it only trades 3 times a year. You automate it. But if you put together a basket of 120 such systems, you will have something that produces several trades per day. I

t's ok if they're simple, it's ok if their edge is low, and it's ok even if they trade rarely. The fact that I just lost all the profit made in a year doesn't matter. I am confident about this.

 

[bbmac]

Whilst I remain very open minded about the potential for automated trading, this statement is surprising about your own. We are mid way thru the 9th month and something caused this catastrophic loss of all profits made in a year to happen. You have identified the following:

a. adding systems to the combo traded against yuour own rules of those showing robust back and forward tested results
b. possibly over leveraging and different leveraging applied to different systems
c. insufficient profit cushion to accomdate the above (ie b. and c. are money managemnet issues)
d. bad luck to a greater or lesser degree (impossible to know.)

These, a.-d. may or may not be the case to whatever extent but I would still urge you to look at the general correlations again within the portfolio. Ie Notwithstanding what you have already said in the post above and others, I think you may still be under-estimating thier importance? There may be other factors too more closely related to the systems that so far have not been considered ?

G/L

'....The fact that I just lost all the profit made in a year doesn't matter. I am confident about this. '

 

[Yamato]

Replying as I read.

Like others before, you're quoting me out of context and showing a misleading picture. Don't forget we quadrupled invested capital. That means potential losses and drawdown also increase.

We have been trading since June 2010, so it's not the 10th month.

a. those were some principles: not solid rules that could not be broken. You make it sound as if I were a discretionary trader who didn't apply the stoploss. This is very different. I didn't "break" any rules.
b. there's no over leveraging: there's just the problem of not being ready to accept the bigger drawdown.
c. correct
d. correct

You are more or less correct on everything, but cannot sound so drastic, because that is not a fair description of reality. In fact, we're very disciplined and very scientific about everything. Yes, there can be mistakes, but not the way you make it sound: as if they were blatant and apparent.

I am starting to think that you are right about the need for fixed rules to select new systems, but, as I said, I haven't been able to automate systems' selection efficiently. So, what do you suggest we do? We stop trading until I automate systems' selection? How do I automate it?

It's a long story. This method had worked so far, but now you may have been proven right by the last month. Maybe, if we had automated it, this would not have happened.

But it's very hard. There's so many metrics involved, that it's hard to rule out some discretion in making the final decision on what systems to enable, and how many contracts to allocate them.

Probably we could start with a few fixed requirements, which are not enough to enable a system, but are needed to enable it. I am tired. I have been working too hard on everything else (creation, automation, maintenance of the 7 workbooks I have created), and this caused me to overlook this aspect, which was the next most important aspect, after everything else I had done.

So, yes, you had a point. But I do not have the ability to implement your solution. So let me know if you have any ideas, but keep your posts short, or this will become a full time job (answering to your posts).

 

[bbmac]

I accept the point that there was quadrupling of margin at the last a/c hi...but the 'context' remains that the decisions made have wiped out all profits since inception - at the lowest valley of the current d/down.

I also hear what you say about not currently having the required skills to automate the selection of systems that should trade from the system portfolio, let alone knowing what criteria should be included to trigger such a change.

When changing the systems combo you should probably think more about why you are changing it - ie what triggers the change and up to now this has been (correct me if I am wrong,) because through your intelligenent analysis you thought you had found a more effecient combo - ie a greater sharpe ratio or whatever...whereas perhaps there should be a different reason - more performance related (as opposed to a theorteical reason,) eg that the prevailing combo has suffered a 50% loss of total profits or that the d/down has hit 100% of the historical drawdown for that combo - or whatever - ie a hard and fast rule.

G/L

 

[JRP2891]

- Why would the past have any relevance to the future anyway?

Humans are the market (yes, even the black boxes were programmed by humans), and humans don't change.

 

[Yamato]

I accept the point that there was quadrupling of margin at the last a/c hi...but the 'context' remains that the decisions made have wiped out all profits since inception - at the lowest valley of the current d/down.

I also hear what you say about not currently having the required skills to automate the selection of systems that should trade from the system portfolio, let alone knowing what criteria should be included to trigger such a change.

When changing the systems combo you should probably think more about why you are changing it - ie what triggers the change and up to now this has been (correct me if I am wrong,) because through your intelligenent analysis you thought you had found a more effecient combo - ie a greater sharpe ratio or whatever...whereas perhaps there should be a different reason - more performance related (as opposed to a theorteical reason,) eg that the prevailing combo has suffered a 50% loss of total profits or that the d/down has hit 100% of the historical drawdown for that combo - or whatever - ie a hard and fast rule.

G/L

I told you I am not changing the present combination: I am adding more systems as more capital becomes available. It's not a process of dropping the present combination, but rather one of adding more systems, that were not tradable before due to lack of margin.

Regarding the fact that we "wiped out" all profit made to date, that is a misrepresentation, like many I find in your posts.

Now I am not saying you're an asshole for your many misrepresentations, but I need to point it out when I see one.

We have not "wiped out" the profit made. It was lost as a consequence of the drawdown caused by much more capital invested. We have simply enabled a combination with a bigger drawdown, which was covered by the entire profit we have made until here. We knew from the start that if we had incurred a bad drawdown, the profit would have been momentarily "wiped out", as you say. What we did not know, and this is where we went wrong, is that the profit made would have been exceeded and eroded so quickly.

If things picked up and the equity line started rising again from today, everything would still be according to plans.

What went wrong is that we did underestimate the drawdown. It happened faster than we expected. Yes, this much is true. Saying we "wiped out" all profits is a misrepresentation.

Regarding your contribution on how to automate selection of systems, it is a start but it's not enough, considering you've been bringing it up for dozens of posts. You were useful to me for the fact that you brought it up, and evidenced this flaw in our automated trading. You will be useful by reminding me again and again about this problem, that sooner or later should be solved (maybe even before we ever do any further scaling up, or before I invest other people's money in case this partnership ends).

But we (you and I) need to spend more time and put more energy into finding ideas for automating the selection of systems, rather than just saying over and over again that "i am a discretionary trader" because this 1% of my trading is not automated.

We both agree that it would be better if this thing, too, were automated. Now let's stop arguing about this, and focus on how to automate it.

This is something very complex. The things we look at, when we decide what to enable are:

1) sharpe ratio (combined and individual)
2) drawdown (combined and individual)
3) relativized drawdown (combined and individual)
4) back-tested performance
5) forward-tested performance
6) maximum loss
7) number of forward-tested trades
8) number of back-tested trades

Now, can you find a way to put together a reliable formula and automate all the implications deriving from the 8 factors (and their interactions, e.g.: very good at one and very bad at another one)? It's not easy. If it's not done properly, it is simply dangerous or at best a waste of time.

Maybe an easier approach would be to have a few requirements, and still keep a discretionary approach to enabling systems - provided that those requirements are met.

 

[wallstreetwarrior87]

Humans are the market (yes, even the black boxes were programmed by humans), and humans don't change.

Hi JRP,


So what is it about the past that humans can use to make relevant trading decisions?

How do you prove this to be correct/valid?

For example how does a black box programmer decide whats important for the system? All they do is change the parameters until they get a desired outcome. This is based on quicksand and will have no value as the "humans" become wise. Can anyone seriously state they use/know a system that has stood the test of time?

Yes, humans are indeed the market, but they DO change, they evolve, the only thing that stays constant is their genetic make up. You need to split the human element up into 2 categories. This is why black box systems always have a shelf life. Ask Richard Dennis, all the turtles are drowning

 

[Liquid validity]

Don't forget we quadrupled invested capital. That means potential losses and drawdown also increase.

Not sure why everyone else thinks there is any other issue that caused this drawdown.
From what I can see its a system basket with an upside bias that quadrupled
risk just before the assets it tracks had a large downturn.
Without the additional capital, the drawdown would probably be 9k ish.

Maybe BB and NT are hinting at the flaws of a high sharpe ratio - LCM is probably a better example
than Talebs turkey, then again it could also be said that LCM was largely due to unhedged exposure...

On the whole though, I think this is mostly due to quadrupling risk at an inopportune moment.
Hindsight is a wonderful thing.

 

[bbmac]

Please answer my posts at your leisure- ie when you have time - enjoy your holiday !!

Yeh, semantics probably - 'wiped out' is an emotive phrase probably not best suited to the current situation - apologies, but strictly speaking at the lowest point of the current drwadown that is what happened - call it what you will. I am not knowingly misrepresenting in any of my discussions here. I suspect it is an issue more of interpretation from the standpoint of some one intricately involved (you) and the casual but interested observer (me.) I suspect also and there is much evidence in your postings to suggest this, that you are a 'difficult' guy to know - Lol ! This is an observation not a critisism so don't fly off the deep end and thereby prove the hypothesis further !!

The current drawdown I think you said was around 150% of the historical d/down for the prevailing systems combo and yes with a quadrupling of margin traded - a bigger monetary d/down and conversely bigger gains can be expected. You have already said that the past (back tests) seem better than the future (forward live test) and that this should be accomodated more robustly into the money management.

At what point then do you consider that the prevailing systems combo 'stopped working' ie it is clearly not @ 150% of historical drawdown ?

Incidentally, Do you actually change the systems combo being traded or simply add more systems to the existing combo traded as implied by your last post ?

Re the automation or manual fixed rule set for changing the systems traded combo, I just read your edit to the original post re the 8 x factors and will reply at another time - need to have a think about this to come up with anything that may be useful.

G/L

 

[Liquid validity]

Hi JRP,


So what is it about the past that humans can use to make relevant trading decisions?

How do you prove this to be correct/valid?

For example how does a black box programmer decide whats important for the system? All they do is change the parameters until they get a desired outcome. This is based on quicksand and will have no value as the "humans" become wise. Can anyone seriously state they use/know a system that has stood the test of time?

Yes, humans are indeed the market, but they DO change, they evolve, the only thing that stays constant is their genetic make up. You need to split the human element up into 2 categories. This is why black box systems always have a shelf life. Ask Richard Dennis, all the turtles are drowning

I agree with both of you in a way, people don't change, but levels of fear and
greed do change causing market conditions to change.

Automated trading does work - HFT algos prove that as does their uptake:
http://www.conatum.com/presscites/HFTMMI.pdf
They also evolve a lot, so in terms of standing the test of time, probably not

 

[wallstreetwarrior87]

There's systems that have been working for years, and no system has failed yet. What has failed is my combination of systems. It has simply failed to meet our optimistic expectations. I still believe in automated trading.

Hi Travis,

What are these systems that have been working for years, and which system has not failed yet?

What is your definition of failing? Is it the that the system loses all of your trading capital?

I genuinely have no knowledge of what these systems are, but they must make a constant return in all market conditions to be valid. You are trading, not investing, so its no good if the system performs well in 2011 and 2012, but loses 20% in 2013.

The only people who benefit from using a system like this are heavily backed fund managers, those who get a massive bonus, or percentage of profits when the times are good, and are out of the business at the first year of negative returns, never to return as they realise they have no clue as to what they are doing.

They are of no benefit to someone whom has an account of $10,000.

You seem to want to develop a way to elimate all that the market is; emotion, impatience, boredom etc. You dont need to develop a system, you need to develop yourself.

I believe you will get there, youve shown that you are persistent, so you have that major quality. Dont hide behind a system.

 

[JRP2891]

Hi JRP,


So what is it about the past that humans can use to make relevant trading decisions?

That's for your own research to uncover. One thing i know for sure is that market participants change their perceptions at differing rates, always have done, always will. Therefore part of my edge lies in exploiting this market phenomenon.


How do you prove this to be correct/valid?

Backtesting and my own live trading records.

For example how does a black box programmer decide whats important for the system? All they do is change the parameters until they get a desired outcome. This is based on quicksand and will have no value as the "humans" become wise. Can anyone seriously state they use/know a system that has stood the test of time?

There are many out there, the Turtles being one of them. Don't expect a nice steady quarterly return though...the most robust systems are volatile in nature.

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