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System Development Paradigm

  #6 (permalink)

North Carolina
Trading Experience: Beginner
Platform: NinjaTrader, Tradestation
Favorite Futures: es
Posts: 644 since Nov 2011

You might want to read Mike Harris's (Price Action Lab's) Fooled by Technical Analysis. I haven't read it yet because it is only available through his website and there are not many reviews. While the title is "Fooled by Technical Analysis" but the topics seem to go into system development. But, I have seen him present some unique insights from what his work that I have read.

I think 10 or 20 years is a very long time to obtain success from markets-- even 5 years is doing good.

The answer to your question is much to do with the non stationary nature of markets. If you can adapt to trade a single market regime well then you can make a significant outsize return even though that return won't last. On the other hand, if you want to trade the same system every year, if you want more confidence, you will need to use a longer backtest history and your returns will be lower (historically) but you might have a stronger confidence what you are doing can work going forward.

I guess it depends on what market you are trading. I think there are edges that last for 10 or maybe even 20 years. However, the markets do change structurally and also in other ways. It is reasonable that the best/biggest returning edges will be edges that are newly discovered and that the returns will decline as more traders discover them or as you suggest markets change due to natural processes.

So, the best edges today to trade probably do not even exist in the data. And, with more and more pros trading against each other, this is why I think focusing on market cognition can be just as important as focusing on system development. Market cognition refers to how markets are operating today, how they are working, how traders are trading, etc.

I think the answer is also whether or not you are okay with average returns or if you want to get into the top 10%. Right, it makes sense as you seek for higher returns that you are taking greater risk. The risk can come in many forms including various types of unknowns.

Last edited by tpredictor; September 5th, 2017 at 03:56 AM.
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