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Objectifying your strategy--Need insight/advice!
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Objectifying your strategy--Need insight/advice!

  #1 (permalink)
Trading Apprentice
Boston, Massachusets
Futures Experience: Intermediate
Platform: NinjaTrader
Favorite Futures: zb,cl
Posts: 8 since Feb 2016
Thanks: 1 given, 0 received

Objectifying your strategy--Need insight/advice!

Hi there. I've been in the futures market for 2 years, but have been most active over the past year--ever since I purchased Jigsaw's trading tools.

I have been in a unique situation over the past 2 months. I've had exceptionally great months trading by only using charts to gauge price action and order flow to gauge momentum etc. I don't use any indicators, and I've finally learned to identify myself as a scalper. However, there's one issue: I've been consistent for 2 months without having an objective strategy. For example, it has reached the point where I first begin by defining my risk when entering a trade (I calculate how much I can lose first and then how much I can gain after), and then I look at the charts to get an idea of major support/resistance levels, and then I read the tape. However, all of it feels more intuitive on my end and I feel like I'm relying heavily on my gut when trading.

So, my question is this: How can I make my strategy more objective? I clearly have something that seems to work for current market conditions (Past results are not indicative of future results, of course), but I am struggling to understand why/how it's working and why my "strategy" has had considerable success.

Have any of you been in a similar situation before? Any thoughts/feedback/insight?

I'd appreciate it. Thanks!

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  #2 (permalink)
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  #3 (permalink)
Market Wizard
North Carolina
Futures Experience: Beginner
Platform: NinjaTrader, Tradestation
Favorite Futures: es
Posts: 540 since Nov 2011
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Yes, it sounds like the problem you face is you have some conflicting or incomplete beliefs. The solution is to derive a new coherent belief system to resolve the paradoxes. Belief is the first step to action. Trading is simply making decisions and taking actions to buy or sell. It might help to understand that much of human cognition is not fully conscious but rather relies on implicit learning, and that it is possible for people to learn to recognize patterns that are too complex for the conscious mind to understand. I suspect the best discretionary traders do make conscious as much as possible but also work directly with the non-conscious processing capabilities.

The second question is whether or not past results are useful for gauging your future results. If your past results are not useful then obviously your track record is meaningless as an aide for making future decisions. While specific disclaimers may require traders to make the statement you made about past results: it seems rational that most traders at a minimum must believe that current or past data or information can be used to trade profitably. Traders probably are more likely to believe that past results may be indicative but are not conclusive of future results.

As for objectifying your methods, I think the most important aspect to objectify is the risk. Define how much you will risk per day, how many contracts you will trade, how you will scale up, etc.

As for the objectifying your decision making process, you might want to create a graybox. I have a blog dedicated just to that if you look under my profile. However, this is difficult and you will need to be able to program. As an example of a primitive start toward a graybox, assuming you just look at the chart to find your levels, instead of that, you could develop an indicator (program) to draw the levels on the chart for you. If you can build a program that finds the same or similar levels as to your drawn levels then you have successfully systematized that component. An algorithm is simply a set of steps to solve a problem or accomplish a task. An algo is also known as a "setup". So, if you can start to identify the types of trades you take then you might want to start to formalize them into various setups. Mike Bella from SMB Capital recommends naming your best setups and creating a playbook. It seems reasonable: however, it will be relevant as you do this to think about whether the setups you are creating are descriptive or predictive.

As for systematizing your methods if you can start to think in terms of concepts and corollaries then you can start to see that a moving average, the value area in market profile, and the open price are measures of historical value while other measures such as support/resistance, highs/lows, and standard deviation tend to be used as measures or indications that price is out of value. At any rate, if you can find a proxy to whatever you are doing then you can develop simplified strategies to test your concepts.

An alternative and more more advanced method would be to use data mining or rule discovery methods (aka reverse engineering) in an attempt to try to understand your trades better. You basically analyze your historical trades in terms of proxy indicators and strategies. You can also look at secondary explanatory values, such as how volatility or range influences your profits.

Last edited by tpredictor; July 19th, 2017 at 12:45 AM.
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