my journal 2

[Yamato]

E.P.Chan's Quantitative Trading

Page 157:

...And yet, ever since I began my career in the institutional quantitative
trading business, I have spoken to many small, independent
traders, working in shabby offices or their spare bedrooms, who
gain small but steady and growing profits year-in and year-out, quite
unlike the stereotypical reckless day traders of the popular imagination.
In fact, many independent traders that I know of have not
only survived the periods when big funds lost billions, but actually
thrived in those times. This has been the central mystery of trading
to me for many years: how does an independent trader with insignificant
equity and minimal infrastructure trade with high Sharpe ratio
while firms with all-star teams fail spectacularly?
At the beginning of 2006, I left the institutional money management
business and struck out on my own to experience this firsthand.
I figured that if I could not trade profitably when I was free of
all institutional constraints and politics, then either trading is a hoax
or I am just not cut out to be a trader. Either way, I promised myself
that in such an event I would quit trading forever. Fortunately, I survived.
Along the way, I also found the key to that central mystery to
which I alluded earlier.
The key, it turns out, is capacity, a concept I introduced at the
end of Chapter 2. (To recap: Capacity is the amount of equity a strategy
can generate good returns on.) It is far, far easier to generate
a high Sharpe ratio trading a $100,000 account than a $100 million
account. There are many simple and profitable strategies that can
work at the low capacity end that would be totally unsuitable to
hedge funds. This is the niche for independent traders like us.
Let me elaborate on this capacity issue. Most profitable strategies
that have low capacities are acting as market makers: providing
short-term liquidity when it is needed and taking quick profits
when the liquidity need disappears. If, however, you have billions
of dollars to manage, you now become the party in need of liquidity,
and you have to pay for it. To minimize the cost of this liquidity
demand, you necessarily have to hold your positions over long periods
of time. When you hold for long periods, your portfolio will
be subject to macroeconomic changes (i.e., regime shifts) that can
cause great damage to your portfolio. Though you may still be profitable
in the long run if your models are sound, you cannot avoid the
occasional sharp drawdowns that attract newspaper headlines.
Other disadvantages beset large-capacity strategies favored by
large institutions. The intense competition among hedge funds
means the strategies become less profitable. The lowered returns
in turn pressure the fund manager to overleverage. To beat out the
competition, traders need to resort to more and more complicated
models, which in turn invite data-snooping bias...

http://www.amazon.com/Quantitative-...hmic-Business/dp/0470284889#reader_0470284889

 

[Yamato]

Office Space

http://www.letbobwatchthis.org/watch-2401-Office-Space

 

[Adamus]

Anyway, let's stop the smilies and let's start talking seriously again. Always make sure you reply to my thoughtful replies please. Or I'll reply to yours with smilies from now on.

You sound like my mother. Your attempts to ensure that I actually read your replies are having the opposite effect. I'll read it when I can, alright? Put your control freakery back in its box.

 

[Adamus]

several topics

how does an independent trader with insignificant
equity and minimal infrastructure trade with high Sharpe ratio
while firms with all-star teams fail spectacularly?

Because the Sharpe Ratio is ********?

DONE (later edit): good results for the first system tested, ZN_ON.

What is ZN_ON?

There must be something good in this system, because it looks good on the chart and it does exactly what i want it to do:

View attachment 89878

I can't believe you don't know the answer to your own question. Think about the stats. How often is it really going to rise up to exactly that line and then reverse once you've got your position on? 55% of the time, if you're really lucky. So your out of sample period has to have at least 100 trades so that you can see whether 55% of them are actually working. And even 100 trades means nothing. It's like taking 100 people and expecting them to be a perfect mix of heights and weights, whereas in reality you might have screwed up your sample by taking people from outside Macdonalds.

 

[Yamato]

There's some questions and interesting comments in your above post, and I could reply right now, with a little effort. But we have this new policy, so I'll reply whenever I feel like it, too. Yeah, because it would take some effort, and I don't feel like it. So maybe I'll reply in 2 months, maybe never. But I am sure you won't mind. It's an easygoing world we're in. From now on, we're all going to be easygoing, even me. But what am I doing? I even told you that i read your post... how considerate of me, damn.

I'll try to be like this guy:

http://www.letbobwatchthis.org/watch-2401-Office-Space

 

[Adamus]

There's some questions and interesting comments in your above post, and I could reply right now, with a little effort. But we have this new policy, so I'll reply whenever I feel like it, too. Yeah, because it would take some effort, and I don't feel like it. So maybe I'll reply in 2 months, maybe never. But I am sure you won't mind. It's an easygoing world we're in. From now on, we're all going to be easygoing, even me. But what am I doing? I even told you that i read your post... how considerate of me, damn.

OK, you try to 'educate' me into your way of operating, and I will try to 'educate' you into my way of operating. I have tried to base my way of operating on internet forums on an objective assessment of the basic facts surrounding human nature and the levels of communication that one can normally expect to achieve using the limited channels of high frequency, text-based exchanges.

If I can't get an answer to a question, whether I overtly phrased it directly to one person or just generally speaking to a whole forum, then I rephrase it and repost.

I don't immediately assume anything about my actual or desired correspondent, other than what is specifically stated in text as part of the dialogue. I resist the uncalled-for and usually unwarranted thoughts that leap out from my lower brain stem suggesting that I have been slighted and that I need to re-assert my social status, and I don't let them creep into the internet dialogue unless consistent and repeated evidence of subtle or implied personal criticism occurs.

In fact experience shows that it's just a complete waste of time worrying about that sort of stuff and it's better to expend your energy on getting a decent cup of coffee. I'd recommend freshly roasted 100% Columbian organic, fair trade beans from the Aguadas co-operative 1500m up in the Andes. Now I've wasted 1/2 hour reading about coffee production I think I'd better leave your education for the meantime.

 

[Adamus]

I need precisely 15 minute timeframe data from disktrading because I need to verify if my systems live on IB TWS execute exactly the trades that get backtested by tradestation on disktrading data. I need to see if my systems are doing live what they are supposed to do, to understand if their failure (when it is the case) is due to the system not working anymore or to the fact that it is not executing trades according to the backtests.

OK I'm looking at your analysis. Do you object if I post the last chart with the trade sizes and directions on my journal?

 

[Yamato]

No, go ahead. It's great for discussion.

I can add more stuff. In later analyses (I have slightly improved the back-tested code and therefore trades, too), I have found out that, out of these 200 trades, there's 8 trades going in the opposite direction. And 21 cases of trades missed on either data set: on one set there's a trade, while on the other none. The average absolute profit difference per trade is 40 dollars, a bit less than 3 ticks. It does not seem like a lot to me, but I also have to mention that the average absolute profit is 136 for back-tested trades and 128 for forward-tested trades. So, the average absolute difference corresponds to almost one third of the average absolute profit/loss (average excursion), which would sound pretty bad if we didn't see the chart that shows how they are going in the same exact direction.

http://www.trade2win.com/boards/attachments/trading-journals/89916d1282488321-my-journal-2-snap1.jpg

There's a total of 15% discrepancies. But this is nothing in my opinion. I told you why in previous posts. A small difference in the moving average can cause opposite signals (8 of them). A small difference in the daily range calculation can cause trading to be disabled on one data set (21 of those cases).

Remember the thing i said about the 2 servers (one in US vs the other in Italy): 2 seconds of difference, all other things being equal, cause 20% of 1-tick differences per week.

Out of 200 trades made every month, on either server there is one missed trade per week, and 2 opposite trades per month.

So imagine what happens when we compare excel trading live on IB data with tradestation backtesting the system on a 15-minute timeframe on disktrading.com data. It's a miracle the differences are so small.

 

[Adamus]

I can't do it. I used to export to HTML and it would create a png file of the chart but the option's not on the menu anymore. It must be a version thing.

You pretty much covered what I was going to say anyway.

Out of a total of approximately 200 trades, the difference between the 2 runs is as follows, although this is just a visual count and the small trades were difficult to identify properly:

Trades different size: 15
Trades different direction: 9
Trade missing from other: 30


I think the differences that I come up with are going to be pretty much the same. I'm going to go on step further and put my trade listings into a java app that I use to run analyses of various types. It just needs fixing though which might take 48 hours.
I guess I was being pretty naive, I wasn't expecting that at all.

 

[Yamato]

Well, for the chart you can always take a snapshot, with a program like hypersnap.

Yeah, those are the differences more or less. 15%, and I am fine with it, because I know where they come from.

As long as all my 60 systems will look like this picture below, I will be very satisfied with my easylanguage coding, with my VBA automation and with the correspondence of IB and disktrading.com data.




This correspondence does not rule out the possibility for the systems not to be working in the future. They could still be over-optimized (until recently I didn't even use the out-sample method). But at least we know I am trading what I back-tested. And if I could even squeeze just 20 good systems out of the 60 I have, I'd have the confidence that they have done well in forward-testing as in back-testing, precisely because I know they are the same systems.

But this was just the first system tested. I still have another 9 systems to go, before i can have that confidence.

 

[Adamus]

Yeah, those are the differences more or less. 15%, and I am fine with it, because I know where they come from.

As long as all my 60 systems will look like this picture below, I will be very satisfied with my easylanguage coding, with my VBA automation and with the correspondence of IB and disktrading.com data.

Beats my 15 systems. Although I'm not going to get an analysis like that for them until midweek. Actually I'm only going to analyse one.

 

[Adamus]

And I can force myself to accept 15% as well. It's not like I've got a choice.

 

[Yamato]

Not boring, like any movie with Christina Ricci:
http://stagevu.com/video/jyvtoaxkdrct

The script kind of sucks. But the movie has good acting in it.

 

[Yamato]

gave it all back

I still didn't blow out (see previous posts about increasing compulsive gambling in the past two weeks), but today I gave it all back, what I took in the previous days. What's really bad is that I made that 500 because I seized very good opportunities, but then I gave it all back today because I traded almost randomly. The trade wasn't begging to be taken. Now, in the next few days, I will feel vengeful and I will probably start a trade that will really blow out my account. I even wanted to start it right now, but there is really nothing giving me an excuse.

Anyway, the reason I didn't blow out is that the margin call closed my trade.

 

[bangkoker]

Re: gave it all back

Behave Travis, sounds like you are making good headway on your systems, stop the crazy discretionary gamble trades (of course I don't expect you to listen to me but I read a thread of yours a very long time ago with the same problem and it seems a shame for you to have to keep repeating and suffering).

Would love to check into your threads and this not to be a problem and you using your systems.

This isn't a dig, just don't like to see people hurting

 

[Yamato]

I can't help it. It's just like scratching my head. I stopped biting my fingernails when I was a teenager, and soon thereafter I started scratching my head. Sometimes I can stop for a month or two, but then it just keeps on coming back.

If I could live a healthy life, no work, and a lot of swimming, I'd certainly neither scratch my head nor make my discretionary trades. But this sick life, work home work home work home, forces me to vent out my frustrations somehow.

I can't go to the gym because that's not a natural thing to do.

I think I will be stuck with this sick lifestyle of scratching my head and placing discretionary trades until I'll quit my job and go live by the ocean. I won't be able to quit my job until I'll make enough money, though. And I won't make money unless I stop the gambling.

It seems like this situation has no solution. But, knowing myself, I'll come up with something to solve it. I can't stand to have unsolved problems. That's how my mind works. Sooner or later I will solve this one, too. Actually both the scratching and the gambling.

Maybe I will do so by finding a new addiction though. Because I went from sucking my thumb to biting my fingernails and from that to scratching my head. Maybe I should start smoking. I can't just seem to get addicted to it. Nor drinking. I am just stuck with this phase of scratching my head and compulsive gambling and can't seem to get out of it. But maybe there is one constant problem, that's been with me all these years and that I've never solved: stress. I've never been relaxed, happy with myself, content, satisfied, serene. No matter how many things I did and problems I've solved, I've never... relaxed. I think this derives from growing up with my dad, a very stressed out and compulsive person - regardless of how greatly everyone speaks of him, he is a very disturbed person. It's funny: you're a cab driver but a serene person, and you're no one. You're a psycho like my dad, but you're successful, and everyone will say nice things about you or be quiet. One way or another all my frustration and all my problems come from him.

On top of this, I've recently started to suffer from serious insomnia. I think the cause of everything though is that I don't like my job, nor any job I've ever had:

1) I trade in the remote hope of making money to quit the job
2) I scratch my head as a substitute for getting a gun and shooting my colleagues
3) I suffer from insomnia because I worry about work, and because I don't want to go to sleep so I will be too tired to go to work. Often in the morning I wake up after only 6 hours of sleep and I say "**** it", go back to sleep, and go to work 2 hours late (I use my vacation days and hours, though).

I want to get hypnotized and become like this guy:

http://www.letbobwatchthis.org/watch-2401-Office-Space

Anyway, all this talking is just to practice my typing and writing skills. There's nothing good coming out of all this complaining, or maybe very little.

I need to slow down. I need to relax. I need to get rid of this compulsiveness that has followed me all my life. All this worrying, solving, working...

... but i see light at the end of the tunnel, and it's not a truck about to hit me. It's light of hope of a better future, a swimming future. The time is approaching:

 

[Yamato]

Starting Over

It's time to spread our wings and fly
Don't let another day go by...

 

[Yamato]

buffalo '66

Not boring, like any movie with Christina Ricci:
http://stagevu.com/video/jyvtoaxkdrct

The script kind of sucks. But the movie has good acting in it.

I finished it today. I think it's worth watching after all. It's very understated, and sometimes it seems like home made movie, but it's good overall. Not predictable, original... it's got something very rare that makes it worth watching, simply because it's rare and not boring. A better made movie but less original might be more boring. It's not a masterpiece of course, but it's original and interesting.

http://en.wikipedia.org/wiki/Moonchild_(King_Crimson_song)

And now, peace of mind. I can sleep if there is peace of mind:

 

[Yamato]

up all night almost...

Can't sleep, placed another discretionary trade last night, and losing on that one, too. Pretty desperate state of mind.




The systems are losing, I am losing, I see no way out. I just keep trying to gamble my way out of the office. The drawdown on the (supposedly) best 10 systems has lasted over 2 months now. Nonetheless, if I could just sit still things would have gone a lot better for me. But I can't stay inactive, being compulsive. And most of all I cannot stay idle if things are looking so bad for me. With nothing I hoped for ever happening in my life.

I've started this life being defeated from the start, because I was handicapped by a demoralizing father. I want to start another one.

 

[Yamato]

official commitment/resolve to not talk about some things

No more talking about my gambling here: it has never solved anything. I have been talking about it for a whole year and there's been no improvements. Therefore no more talking about it here: it's useless. Waste of time. Whether I continue or not, writing about it here will not help. So I won't talk about it, but don't assume I've stopped because I don't talk about it.

No more talking about my father or other people who pissed me off in my life. That hasn't solved any problems either, and maybe it uses up precious energies that might help me solve the problem.

If I will be insomniac, I will just write I am insomniac, but I won't mention that it's because of ruminating about the past nor about discretionary trades gone badly.

From now on, only useful posts or posts about new things and even problems, as long as they are new. No more talking and writing about stuff I've complained about for years, because the problems are clear thanks to writing and talking, but this has not helped me solve them. No more writing about this stuff. All that had to be written about it has been written.

I will make this commitment here that from now on I won't talk about my gambling nor about my father, and such related things, and similar stuff. No more writing about all the pills I am taking to sleep either. I can write that I am awake due to insomnia, but no more lists of pills and similar things. All this is useless - it wasn't useless - but now it's all clear and it would be useless to write more about it. So, no more writing posts about useless subjects. No more writing posts that I've already written. No more complaining about the colleagues either.

Commitment, promise, vow, resolve, resolution...

http://thesaurus.com/browse/commitment
http://thesaurus.com/browse/promise
http://thesaurus.com/browse/resolve