my journal 2

[FXTrend240]

discretion . I'm yet to go live and will have a small account so only option will be retail forex (FXCM), if however i do make money and have enough to trade both i think futures too;it's not that much of a difference anyway but meh.

 

[Yamato]

Then go with FXCM, as you said. It's big so you can trust them better. Of course, after my own failure at discretionary trading, I wouldn't recommend it to anyone. But if you know you're profitable, then you're one of the few profitable discretionary traders and you can afford to do whatever you want. Don't do like me: I thought "if others can do it, I can do it, too". But I was wrong. It doesn't mean someone is stupid. Being profitable at discretionary trading doesn't entirely depend on being intelligent or hard-working. I think I am both, but I never succeeded, so there must be a third ingredient, which is probably what your personality is like.

 

[FXTrend240]

Then go with FXCM, as you said. It's big so you can trust them better. Of course, after my own failure at discretionary trading, I wouldn't recommend it to anyone. But if you know you're profitable, then you're one of the few profitable discretionary traders and you can afford to do whatever you want. Don't do like me: I thought "if others can do it, I can do it, too". But I was wrong. It doesn't mean someone is stupid. Being profitable at discretionary trading doesn't entirely depend on being intelligent or hard-working. I think I am both, but I never succeeded, so there must be a third ingredient, which is probably what your personality is like.

The odds are definitely against me , less than 5% chance i'll succeed; but whatever- better to have an honest attempt and fail rather than never know at all; it's a risk that i'm willing to take. Even if i fail at discretion, i have a mechanical system up my sleeve.....

 

[Yamato]

sharpe ratio

All right, goddamn it... I am studying this sharpe ratio thing. I found a good link:
http://www.thepreparedinvestor.com/2007/06/risk-adjusted-return-sharpe-ratio.html

What kind of pisses me off is that it's basically based on the standard deviation which is yet another formula to deal with (and I never liked its name and concept). Besides, on the numerator I gotta write the Return, which is yet another formula to figure out... because I need to write what? The return based on the maximum loss or the return based on margin required? Or the Return compared to the maximum drawdown? I would feel my "Return" needs to take care of all those things together. So we got a formula based on two different quite complex and debatable formulas, and this is why I guess I've been discarding this Sharpe Ratio formula until now, and I will probably do it again, unless dog4 convinces me otherwise. By "debatable" i mean that the sub-formulas could be done in so many goddamn different ways that I'd risk getting different results... the more variables I have the more things can go wrong... and is this thing that useful to be worth risking so much?

Quoting from the link above:

The Sharpe ratio tells us whether the returns of a portfolio are due to smart investment decisions or a result of excess investor risk. This measurement is very useful because although one portfolio or fund can reap higher returns than its peers, it is only a good investment if those higher returns do not come with too much additional risk.

Ok, this is ****ing hell... no need to quote any further... or let's do it:

Here is an example:

Say you have an investment portfolio, You can calculate the value of your investment account periodically, say every month.

Then calculate the average monthly return over some number of months, by averaging the returns for those months. You also calculate the standard deviation of the monthly returns over the same period. Note that you might need data for few months to calculate the standard deviation.

Then annualize the numbers by:

- Multiplying the average monthly return by 12

- Multiplying the standard deviation of the monthly returns by square root of 12

You also need a number for the "risk-free return" which is the annualized return currently available on "risk-free" investments. This is usually assumed to be the return on a 90-day T-Bill (currently about 5% per year)

You now calculate the "Excess return" which is the annualized return achieved by your investment in excess of the risk-free rate of return available. This is the extra return you receive by assuming some risk. Then the Sharpe Ratio is calculated as:

Sharpe Ratio = [Annualized annual return - Risk free return] / Annualized standard deviation of returns;

Here is how you can use Microsoft Excel to calculate Sharpe Ratio for your portfolio. Fill out each column in the excel sheet as follows:

You can see a sample calculation of Sharpe ratio in excel sheet here.

- Column A: Fill out Month Name
- Column B: Beginning Balance
- Column C: Ending Balance
- Column D: Monthly Returns = ((C/B)-1)*100 (to get %)
- On cell E2: Get the average of all monthly returns. E2 = AVERAGE(populated cells from column D)
- On cell E3: Annualized returns = E2 * 12;
- On cell F2: Get the Standard Deviations for all months. F2 = STDEV(populated cells from column D)
- On cell F3: Annualized standard deviation = F2 * SQRT(12);
- On cell G2: Get the 3 month treasury bill from www.ustreas.gov, lets say it is 5%
- On cell G3: Sharpe Ratio = (E3 - G2)/F3

Given all this data, you can strive to achieve higher Sharpe Ratio for your portfolio. Or if your Sharpe Ratio is low, then you can figure out where to fix it.

This is total crap. **** this crap.

After all, the sharpe ratio basically is nothing but the standard deviation, which I ignore what it is, so let's worry about that. Screw this nobel laureate guy who recycled an existing formula.

And then later I'll screw the standard deviation, once I'll have found out what it's for.

Ok, now don't do like the "look elsewhere" data vendor expert, dog4. Come back and help me make sense out of what you got me started on.

Here's what I've found out. The standard deviation is crap itself so far, because it's not what it pretends to be. They all say it's the average distance of items of a list from the average of the list. Well, it's all ****ed up because that is not what it is.

Look:



View attachment understanding_stdev.xls

I have written down ten items of a hypothetical "crap" list. The total is 55. Their average is 5.5. Their average distance from 5.5 is 2.5 and not 3.02 as the excel formula says. So far so good... So far so bad I mean. So if the standard deviation is... what? You gotta be kidding me.

I was reading wikipedia. Now the Sharpe Ratio mother ****er is based, among other things, on standard deviation. But the mother ****ing standard deviation is based on the variance, and the mother ****ing variance is none other than this crap:
http://en.wikipedia.org/wiki/Variance

Forget this crap. This is definitely NOT worth it. This formula is just as good as the ones I am already using, and it is ten times more complicated and I could go wrong in about 20 places while i calculate it and I wouldn't even notice... pedantic mother ****ing formula. Besides, I'd have to do calculations using each trade, and this would make things even harder and heavier on my excel sheet. May this formula rest in peace.

 

[Yamato]

 

[Yamato]

more reasons for my failure at discretionary trading

Continuing from here:
http://www.trade2win.com/boards/trading-journals/85510-my-journal-2-a-77.html#post1095248

As I said, discretionary trading is not just efforts and intelligence, which I abundantly put into my quest for profit. There's a third ingredient, which is personality and which is responsible for my failure.

Of all the characteristics that kept me (I use the past tense, since I gave up on it) from being a profitable discretionary trader a very important one which I was forgetting is my perfectionism. I was raised this way: if things are not perfect, they're worthless. I just noticed now that I was not going to bed exactly on time, and each time this happens I tend to stay up not just that extra half an hour, but several extra hours. It's as if I said "since the sleep is ruined, the hell with it", "since things are not perfect, let's screw them up completely". In trading this translated into: "since I lost once and I ruined my series of straight wins, let's screw the whole thing, it's all screwed up anyway". Now, with my self-control update, I am realizing that there's several things to keep under control, and that if one day I smoke a cigarette it doesn't mean I will be an addict forever. Or if one day I break a rule, I didn't necessarily screw up the whole day, and don't necessarily have to break all rules". With trading, one loss lead me to think that everything was lost, and then I really proceded to lose everything, because after that one loss, I didn't care any more and didn't try anymore. That's cause my father taught me that if I do things less than perfectly, I have failed. The "either first place, or you lose" philosophy. This is maybe the major aspect of my personality that has kept me from ever becoming profitable.

Automated trading doesn't have this problem. My excel workbook doesn't get discouraged if it just lost. Let alone of course all the other human difficulties (being tired, impatient, and so on). Pride is maybe the biggest problem I've had, along with impatience. The feeling that after a single loss, my trading career was ruined. The feeling that a 20 dollars loss was as bad as a 10k loss, and which made me risk everything to not lose that 20 dollars, losing my focus on risk/reward, and entirely focusing on the mere winning a trade, even with just 1 dollar profit. Thanks, father. Thanks for this problem as well. Thanks for all the times I came home with a pretty good grade, and you didn't ever congratulate me (ever) because it wasn't the highest grade. It was either A+, or it was worthless, and I should have been ashamed. Everyone tells me what a great man you are, but I see more problems than anything deriving from having been your son.

 

[Yamato]

"Respecting Risk"

Schwager titled his interview to Larry Hite "Respecting Risk", and not just this title but many things Hite said about Risk stuck with me. Because I have the tendency to do the contrary. For example, I remember how he said "if you don't respect risk, risk will get you sooner or later"...

So the very first rule we live by at Mint is: Never risk more than 1 percent of total equity on any trade. By only risking 1 percent, I am indifferent to any individual trade. Keeping your risk small and constant is absolutely critical. For example, one manager I know had a large account that withdrew half the money he was trading. Instead of cutting his position size in half, this manager kept trading the same number of contracts. Eventually, that half of the original money became 10 percent of the money. Risk is a no-fooling-around game; it does not allow for mistakes. If you do not manage the risk, eventually they will carry you out.

Right now I need to keep busy while my system will slowly compound my capital. There's no way to rush it, because if I do, I am not respecting risk, and if that happens, one day a drawdown will happen and will wipe me out. But even before being wiped out, I will incur a big loss and stop trading one or more good systems because I wasn't ready for that loss. In fact, what is important is not just what losses can your system take but also what losses you can mentally take before disabling the system that caused them (mistake because next it probably would have won).

If i lived at the beach, I could more easily respect risk, because my life would be happy otherwise. I am now thinking of ways to make my life full and happy without having to quit my job. But if I don't find any good ways to fill my life while at my job, I might be better off quitting my job anyway, because otherwise boredom will motivate me to push risk further and further, inadvertently. On the other hand, quitting my job will make me more serene, but it will also add financial pressure on me. So... besides I still have to pay my debt back. So I have to stick with my job at least until I have 50k and paid the debt back. So it will be a while, and I need to do relax and take it easy, or I'll never get there.

If I don't create a happy life for myself while at work, I also will keep my excessive behaviours, which damage me further, such as: eating too much, staying up late, staying too much at the computer, and so on.

One thing I could definitely do in the meanwhile is work on those 20 extra systems, on the AUD, CAD, CHF and also DX, now that I think of it.

Now, the DX is the only future not traded on the CME or CME Group, unlike all other currency futures. Yeah, because it's not a currency anyway.

http://futuresource.quote.com/charts/charts.jsp?s=DX M0&o=&a=D&z=800x550&d=LOW&b=CANDLE&st=VOI(1,1);

Not good enough volumes, and not exactly a currency. However, as I was looking at ICE's futures, I came across Sugar, which has huge volumes.

https://www.theice.com/marketdata/reports/ReportCenter.shtml?reportId=25&productId=608&hubId=743

If I add sugar, I will have 13 markets, which is good enough.

http://futuresource.quote.com/charts/charts.jsp?s=SB 1!&o=&a=D&z=800x550&d=LOW&b=CANDLE&st=VOI(1,1);

https://www.theice.com/productguide/ProductDetails.shtml?specId=23

Ok, I bought the sugar data as well. In hindsight maybe I had the AUD, but for 20 dollars there's no point in cancelling my order.

Anyway, this should keep me busy for a while. Now I'll be trading the most liquid future contracts there are, within currencies, stock indexes, commodities, interest rate. Maybe I have crappy systems, but at least they have a little edge. I'm gonna have over 60 systems now, just like Larry Hite. Well, no, he traded 60 markets. Maybe he had over 100 systems.

What next? I can't sleep. I passed the deadline and now I want to stay up all night or close to.

My next obsession will be sugar I guess.

 

[dog4]

Re: sharpe ratio

All right, goddamn it... I am studying this sharpe ratio thing. I found a good link:
http://www.thepreparedinvestor.com/2007/06/risk-adjusted-return-sharpe-ratio.html

After all, the sharpe ratio basically is nothing but the standard deviation, which I ignore what it is, so let's worry about that. Screw this nobel laureate guy who recycled an existing formula.

And then later I'll screw the standard deviation, once I'll have found out what it's for.

Ok, now don't do like the "look elsewhere" data vendor expert, dog4. Come back and help me make sense out of what you got me started on.

Here's what I've found out. The standard deviation is crap itself so far, because it's not what it pretends to be. They all say it's the average distance of items of a list from the average of the list. Well, it's all ****ed up because that is not what it is.

Look:

View attachment 80218

View attachment 80220

I have written down ten items of a hypothetical "crap" list. The total is 55. Their average is 5.5. Their average distance from 5.5 is 2.5 and not 3.02 as the excel formula says. So far so good... So far so bad I mean. So if the standard deviation is... what? You gotta be kidding me.

I was reading wikipedia. Now the Sharpe Ratio mother ****er is based, among other things, on standard deviation. But the mother ****ing standard deviation is based on the variance, and the mother ****ing variance is none other than this crap:
http://en.wikipedia.org/wiki/Variance

Forget this crap. This is definitely NOT worth it. This formula is just as good as the ones I am already using, and it is ten times more complicated and I could go wrong in about 20 places while i calculate it and I wouldn't even notice... pedantic mother ****ing formula. Besides, I'd have to do calculations using each trade, and this would make things even harder and heavier on my excel sheet. May this formula rest in peace.

Travis - your simple spreadsheet actually shows a fair bit. The average is 5.5 as calculated. A standard deviation is a measure of the "spread" of data in a normal distribution, easiest seen here:

http://en.wikipedia.org/wiki/File:Standard_deviation_diagram.svg

So 68.2% of all normally distributed events are within +/- 1 std deviation. Two std devs include roughly 96% of all events. By 3, it is 99%. More than this and we are talking very rare events. Which of course could, and do, happen.

For your spreadsheet, you get a std deviation of 3.03. In other words, values +/- 3.03 from the average of 5.5 will encompass 68% of all values if the data were normally distributed. The std deviation is just a measure of spread in the data. If its low, you will get a higher Sharpe ratio because you have less extreme returns.

When you hear articles talking about "fat tail" events they are saying that there are more extreme events (along each tail) than predicted by the normal distribution (and hence its measure of standard deviation). You don't need to worry about this as far as ranking systems is required... a good Sharpe ratio means you will have an equity curve going from the lower left corner up to the upper right with few bad drawdowns.

A system with a Sharpe ratio >2 is becoming the sort of thing a bank would trade (combined with other systems). Once you are above 4-5, you have something pretty special.

Yes it is a bit of a pain to calculate the first time, but it looks like you have done it right. The idea is not to calculate this on-th-fly, but rather when evaluating and selecting systems. Regarding the t-bill rate, I just ignore it (set to zero)... it will give a different answer, but means of course that you don't need to worry about how high or low that rate is. After all, you are just using the sharpe ratio to compare systems (evaluated as 'returns after risks taken') to be able to compare very different systems on the same scale.

Finally, I would continue to look at things like Number of trades, profit factor etc. Doesn't hurt at all. Do let me know if you learn anything from combining systems in this way... I think you may learn gain valuable insights.

PS I don't mind having a review if that helps.

 

[Yamato]

Thanks for your patience and kindness in showing me the sharpe ratio made simple, which all boils down to the standard deviation made simple, but unfortunately I still don't understand and, I will try to put it in the nicest possible and most respectful way: I have given up on the standard deviation and therefore on the sharpe ratio. To me even a square root is something that confuses me. I am like allergic to it, and when i see it, I stop reasoning. Sorry. Let's forget about this thing.

It has to do with how I was brought up and the teachers I have had in highschool. When I was in junior high, I used to be the best student at Math, and most other subjects, but my dad wasn't happy, he kept on insisting and giving me extra homework when I came home. In elementary school he even spoke with my teacher and told her she wasn't doing her job and the class was too easy.

At 14 I got tired of this crap: I was one of the two best students in the class, I had to do extra homework, and my father still wasn't happy. So as soon as I started highschool, I just stopped studying, started skipping classes, about two months every year. And they made me stay back twice. Then my father sent me to finish highschool in the States, since I would never have finished Italian highschools.

From all this experience, I have developed an everlasting resentment for school, professors, all sorts of teachers, books, and, most of all, my father.

 

[dog4]

Thanks for your patience and kindness in showing me the sharpe ratio made simple, which all boils down to the standard deviation made simple, but unfortunately I still don't understand and, I will try to put it in the nicest possible and most respectful way: I have given up on the standard deviation and therefore on the sharpe ratio. To me even a square root is something that confuses me. I am like allergic to it, and when i see it, I stop reasoning. Sorry. Let's forget about this thing.

It has to do with how I was brought up and the teachers I have had in highschool. When I was in junior high, I used to be the best student at Math, and most other subjects, but my dad wasn't happy, he kept on insisting and giving me extra homework when I came home. In elementary school he even spoke with my teacher and told her she wasn't doing her job and the class was too easy.

At 14 I got tired of this crap: I was one of the two best students in the class, I had to do extra homework, and my father still wasn't happy. So as soon as I started highschool, I just stopped studying, started skipping classes, about two months every year. And they made me stay back twice. Then my father sent me to finish highschool in the States, since I would never have finished Italian highschools.

From all this experience, I have developed an everlasting resentment for school, professors, all sorts of teachers, books, and, most of all, my father.

I only mentioned it because its one way to look at the overall portfolio performance, and therefore helps you select models to trade. If you don't like it, here's something much simpler that would give much of the same usefulness:

- list the (e.g. daily) returns of the models you are considering to combine
- sum these returns & plot the combined equity curve
- calculate a modified & simplified profit factor of the combined models. Disregard the number of trades and just look at the sum of the day's winning vs. the sum of day's losses

There are probably better ways to do this, but this would be fairly simple and would provide overall stats on the combined models

 

[Yamato]

most traded futures by daily volume

After a pretty long search, I finally came across the good link I was looking for:
http://www.futuresmag.com/Issues/2010/March-2010/PublishingImages/2010TradersViewChart.pdf

I will now list the futures I am trading with their volume, from the link, and will mark as "TO BE TRADED" those I will trade (already ordered the data for them).

STOCK INDEXES (FUTURES)
E-mini S&P 500 Index
CME
2,207,596

Mini-sized $5 Dow Jones Industrial Index
CME
158,293

LONG-TERM INTEREST RATES
10 Year Treasury Note
CME
753,381

Euro-Bund
Eurex
717,282

CURRENCIES
Euro FX
CME
215,848

British Pound
CME
98,626

Japanese Yen
CME
90,276

Australian Dollar - TO BE TRADED
CME
66,400

Canadian Dollar - TO BE TRADED
CME
61,433

Swiss Franc - TO BE TRADED
CME
42,137

ENERGIES
Light, Sweet Crude Oil
CME
545,351

Natural Gas - TO BE TRADED
CME
190,283

GRAINS AND OILSEEDS
Corn - TO BE TRADED
CME
202,178

Soybeans - TO BE TRADED
CME
141,900

METALS
Gold
CME
139,443

SOFTS
Sugar #11 - TO BE TRADED
ICE US
108,334

Summary of the whole thing is that I am trading 40 systems on 9 futures, and I need to add another 30 systems on 7 futures, bringing the whole thing to 70 systems, which even Larry Hite would approve of. This is clearly going to take months, between back-testing and automating, even though much less than it took me to do the same on the previous systems. I think I'll be able to put the whole thing on just one excel sheet, but I'll have to be constantly busy dealing with bugs for a while. Probably for now I'll just get the data and slowly back-test the systems: it will take me about 2 week-ends per symbol, since I gotta work during the week, and when I come home I am too tired. I'll deal with the automation once the present systems will have allowed me to quit my job, and if that doesn't happen, it means I've got nothing good in my hands, and therefore I should not build more crappy systems.

Another thing I must mention is that the Swiss Franc surprised, because its volume is pretty low, at least according to futuresmag.com. I'll have to order the data for Natural Gas, because it surprised me as well, in a different way: it has a lot of volume. After bringing my quantity this high, I'll only focus on quality of course. Just as I have been doing until now, since when I stopped working on quantity a few months ago, thinking I couldn't hope to bring my systems any higher than 40. But I was wrong since there's a great economy of scale, in that i can simply apply my existing systems on all these new futures, and almost double my profits without doubling my drawdown (it will definitely increase).

 

[Yamato]

"...(it will definitely increase)"?

Continuing from the previous post, the last sentence.

I realize i have a big hole in my mind as to what exactly new systems will do to my drawdown and profit, so I will analyze this problem in detail, thinking out loud as usual.

After this I'll take a break. Hopefully a few hours or even the whole day. I don't know if I'll manage.

Now let's say I have a capital of 100k, which is the ideal capital for my systems.

Let's say I have my 40 systems, which, used in the ideal and most effective combination (allowing the best systems to trade more contracts and all that) produce a monthly profit of 30k and a potential maximum drawdown of 15k (all realistic estimates). Mind you, even if the 15k drawdown happens, the profit could still happen: it doesn't mean the month has gone badly.

Let'go over these figures again.

capital: 100k
drawdown: 15k
monthly profit: 30k
systems: 40

Now let's say that I am allowing, as I will, a maximum risk of 5% of capital per trade, which is based on the maximum loss of every system. E.g.: if the CL_ID system has lost 2.5k in its worst trade (which it has), it will be allowed to trade 2 contracts, because at their worst, they would produce a loss of 5k, 5% of the 100k capital.

Now, another rule will be that if a system didn't make any money, regardless of its maximum loss, it won't be allowed to trade anything. And, since the systems trade rarely and do not all trade at once, my hypothesis is that all these rules will leave half of my capital unused most of the time.

Now, if I chose to trade more contracts, I would simply have to choose to allow more risk by each system, which - if the drawdown were exceeded or if all systems lost at once - would increase too much the probability of blowing out my account.

So let us assume that I will keep that 5% risk fixed, and that I will therefore not use the remaining capital.

Given this situation, if I added the above-mentioned 30 systems, what would happen?

Assuming the systems were as profitable as the others, they would definitely increase profit, so let's go over those figures again, changing them with what we have now, with 70 systems (marking in red all changes).

capital: 100k
drawdown: ?
monthly profit: 50k
systems: 70
risk per system: 5% of capital

Everything would seem great because we can make much more money, with the same risk per system, but something is missing: we don't know the drawdown.

In my previous post I wrote that it would definitely increase, but I sensed I didn't know what I was talking about, and that is why I had to come back to make sense of this. For myself first of all, but also I felt the duty to not write bull**** on my journal, out of honesty to the readers. But most of all for myself.

Anyway... these 30 extra systems will definitely have losses, and this I can say without fearing I might say bull****. Now, if the losses happen at the same time as the other 40, the drawdown will indeed increase...

Now I have to interrupt myself to add something important here. The "drawdown will increase" of course is valid only because we're wanting to make more money with the same capital (because we have extra capital), because if we decided to cut in half the other contracts while adding these other systems, or add more capital (with the purpose of diversification or out of need because the capital is insufficient), the consequence would be diversification, with all its advantages. And this would for sure mean that, at worst, the losses would happen at the same time as the others, in which case there'd be no changes. But, since it just can't happen statistically, they would happen at different times, and we would therefore lower our drawdown while keeping profit constant. So this tells us without any doubts that adding futures is good.

Maybe I could stop here, but since I am not that clever, I want to continue the above hypothesis with my own example, to see if we can reap even more benefits. But probably I am being illogical in continuing the hypothesis, because it was already proven it is convenient. But let me do it.

So we're not adding more capital, and we're not reducing the contracts allocated to the existing systems. Everything is perfect: profit increases, 5% risk stays constant, but does overall drawdown increase?

My brain is overheating.

Where was I? I need excel. I will write down three weekly gain/loss columns, with the two groups separate and an overall gain/loss column, and see how they all interact. I will divide the month in 20 days.

The profit will have to be as in the example above, 30k for the 40 systems, 50k for all systems.



View attachment what_adding_30_systems_will_do.xls

It came out very nice and clear. Ok, so basically we've got three situations:

1) If the drawdowns totally match, which is impossible, because there's a lot of trades within those days, drawdown will increase.

2) and 3) If it doesn't match completely or doesn't match at all, it will decrease. So, this is very far from the original "it will increase for sure". Most likely profit will increase and drawdown will decrease. Both drawdowns will happen, but they will mostly be offset by each other's gains. To be on the safe side I would say that drawdown will stay the same, and profit will increase.

So, in summary, i would be going from this:
capital: 100k
drawdown: 15k
monthly profit: 30k
systems: 40
risk per system: 5% of capital

to this:

capital: 100k
drawdown: 15k (unchanged or less)
monthly profit: 50k
systems: 70
risk per system: 5% of capital

I wish were better with math and formulas, because each time I wouldn't need to do all these graphic simplifications. Besides, since I suck at math and formulas, the above drawings, charts may seem good enough, but could be totally flawed and wrong. Maybe the drawdown does increase. I can't figure out a formula to establish this for sure. But what I can say is that now, given my limited understanding and small overheating brain, I have a better idea of what I am up against, and I am positive that there will be benefits from increasing the number of systems: I just can't say how much exactly.

 

[Yamato]

Interesting video I found here:
http://www.123learntotrade.com/

Not too useful for automated trading though. But if you are a discretionary trader, and want something else to worry about, on top of all the worries you already have, you can worry about market manipulation (not the illegal "market abuse": "you can't foment" he says, "but you do it anyway, because the SEC doesn't understand it" he adds).

 

[Adamus]

Some excellent links, thanks.

I was just wondering how on earth excel copes with the amount of stuff you throw at it. Are you going to run 60 systems from one excel spreadsheet? I am amazed. I should never have bother learning java if excel can do all this.

I know many of the traders in banks use excel to do stuff, but the kind of java I used to write when working as a programmer was for traders who had written 'War & Peace' in their excel spreadsheet and couldn't get it to load up anymore. So they had to come to the programmers to get something going again.

 

[Yamato]

Well, congratulations on learning Java. It was beyond my reach so I didn't even try.

I always keep everything as simple as possible (because it later means as efficient as possible). I am running 40 systems on one excel workbook right now, which has 40 sheets full of macros and functions ("40" is a coincidence: it doesn't have one sheet per system), and it doesn't even tire my computer. So I can definitely run another 30 on it (even though it will probably be tired by then).

As I said in an earlier post, my compulsive personality hurts me in discretionary trading as much as it helps me in automated trading. Whereas my compulsive behaviour makes me overtrade in discretionary trading, there's no over-debugging possible on excel, so all my constant checking and double-checking (sometimes I get up in the middle of the night to just change a function on one cell) keeps on improving my excel sheet. I am also very orderly. All my compulsive behaviours help my excel workbook. In trading, all these behaviours make it impossible for me to be profitable, because, just as i manipulate excel, which never breaks, I manipulate restlessly my capital, but each time I touch it, I am entering early, exiting early, doubling up on my loss... I only sit when I am paralyzed by a loss, at the wrong time... a nightmare just to think of it.

Anyway, as long as your systems of course are not high-frequency trading (but in that case you need a server very close to the exchange and all that, to save on milliseconds), and, like mine, their trades last several hours, excel can do everything you need, quickly and efficiently. You can change it any time you want without compiling .exe files every time you make a little change (or whatever it's called, sorry for my ignorance). As far as speed, the fact that my trades get executed one second later doesn't bother me at all. They could even get executed 5 minutes later and it wouldn't affect my systems.

 

[Yamato]

Counter-intuitive things in trading

I was just thinking how there's things in trading that are counter-intuitive, as stuart mcphee likes to put it. He mentioned many reasonable things in one of his videos, but now I was thinking about these other facts.

You feel you can predict a chart, and to some degree you can, but you can't manage your trades (wins and losses) well enough to be net profitable.
You look at a chart, and you always feel the next move of the market is easy to predict, and even if it is easy to predict, you still end up losing money overall. Why? Because when you predict it correctly you make less money than you lose when you predict it incorrectly. Also, once you incur losses, your reasoning is affected, adversely, because you get upset, and then you can't predict any longer. So, recapitulating: initially, you're good at predicting, but not at exploiting your predictions. Later, once you're upset for losing money, and blinded by emotions, you're not even good at predicting any more.

While back-testing a theory, you observe something else, which doesn't make sense, yet that will be profitable.
You have ten years of past data, and you feel that some rule will work over time, but find out that it doesn't (sometimes your perceived ability to predict is deceitful). But then, by chance, you discover something else tends to happen, maybe the exact opposite of what you thought. And then you say: come on, this can't be possible... it doesn't make any sense. Yet a system based on that observed event will make you money in the long run. Even if the rule doesn't seem to make sense. Even if the system is very simple.

More counter-intuitive things about automated trading
1) RELYING ON THE PAST REPEATING ITSELF. You feel that by observing a fact in the past, and describing it through a formula, you won't be able to predict the future. And yet that's what we do even as discretionary traders: we look at a chart and say "now it will do this again" (because it's done it before).
2) A SIMPLE FORMULA BEATING ALL YOUR REASONING. You feel that a simple formula (two lines of easylanguage code) cannot replace nor beat all your reasoning. Instead that simple formula (created by observing events) will make money, whereas your reasoning will lose money (in my case, as I am always referring to my personal experiences).
3) A SIMPLE FORMULA WITH A LOW SUCCESS RATE BEATING ALL YOUR REASONING. You find it hard to conceive that you can make money using a formula that has only a 60% success rate at predicting an event, because you feel it could easily go wrong and be even less accurate in the future. And yet you're wrong because it makes money. While the more complex and accurate formula is over-optimized and will lose money.


Here's that stuart mcphee video I was writing about (make sure you bookmark this guy, because he's one of the best trading educators around, together with his friend david jenyns they're probably the best trading educators around):

 

[Splitlink]

Re: Counter-intuitive things in trading

I was just thinking how there's things in trading that are counter-intuitive, as stuart mcphee likes to say. Yeah, he said about other reasonable things. Just now I was thinking about these facts and opposite impressions.

You feel you can predict the chart, and to some degree you can, but you can't manage your trades (wins and losses) well enough to be net profitable.
You look at a chart, and you always feel the next move of the market is easy to predict, but then you end up losing money overall. That's why I kept losing money for 12 years: I kept saying to myself that I was able to predict the direction by looking at it. The problem is that you are indeed able to predict most of the time but not always, and the tendency is that when you predict it right you won't make as much money as when you will predict it wrong, due to your inability to manage your trades effectively by the naked eye, and blinded by emotions.

While back-testing something else, you observe something, which doesn't make sense, yet that will be profitable.
You have ten years of past data, and you feel that some rule will work over time, but find out that it doesn't (so you find out the above impression of being able to predict is sometimes deceitful). But then, by chance, you discover something else tends to happen, maybe the exact opposite of what you thought. And then you say: come on, this can't be possible... it doesn't make any sense. Yet a system based on that observed event will make you money in the long run. Even if the rule doesn't seem to make sense. Even if the system is very simple.


Here's that stuart mcphee video I was writing about (make sure you bookmark this guy, because he's one of the best trading educators around, together with his friend david jenyns they're probably the best trading educators around):

Just a comment on your "Prediction" paragraph- I'm a very strict stop person and it is rarely based on anything other than 5, 10, 15 points, depending on the instrument and volatility. I've found that putting a stop just beyond the bar does not work as well, but I am strict with stops and it is no good putting one on mentally- I'm not quick enough. Sometimes I reopen the trade again within a few minutes because I have a strong opinion on direction and rarely reverse.

If I think, for example, that the direction is down but the price has gone up to an overbought position and I sell, there is no point in allowing the price go up too much further because, quite often, a better opportunity`presdents itself later.

I know that this is easier said than done. It comes down to how each one of us reacts.

 

[Yamato]

Wow, while you wrote your post, I was compulsively editing my post (like dozens of times, as usual), so now your quote and my post look quite different.

Anyway, thanks for the feedback. I guess it won't help me trade better, because about one month ago, I have finally quit all my discretionary trading and efforts to be profitable at it. I hope this time my decision is final. Please everyone help me by not telling me "You can do it, too. We will help you become profitable". I am entirely focusing on automated trading from now on.

 

[Splitlink]

Wow, while you wrote your post, I was compulsively editing my post (like dozens of times, as usual), so now your quote and my post look quite different.

Judging by the fact that you have been trading for 12 years you know all about survival, that's for sure! ie. When to say "enough is enough!" on a trade. Since you have your stops sorted it remains for you to get your entries right. It is surprising how better I am at assessing entry points now than I was a few years ago, now that I refuse to accept more than my chosen loss on a trade.

Anyway, Travis, good luck in your researching.

 

[Yamato]

Yeah, thanks. Same to you.