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Scalping - an issue with definition


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Scalping - an issue with definition

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  #11 (permalink)
 kevinkdog   is a Vendor
 
 
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syswizard View Post
I can confirm that his set-up with Ninja Trader 8 has been tested with both live trades and sim trades with no difference in the execution of limit or stop orders between live and sim accounts. My set-up is DTN IQFeed with Interactive Brokers accounts and I also see no difference with order execution between live and sim accounts.


Multiple contracts are of course honored, but forward testing will be only with 1 contract. No scaling in or out will be permitted.

Thanks for the feedback, but the real relevant issue is the time-in-trade issue. I am concerned that the strategy's validity will be compromised if there are too many test trades with very short time-frames. The rationale is that trading results for those trades will be based mainly on chance (i.e. noise) rather than any indicator or price level or signal used in the strategy. I call these very short term trades "noisy trades".....the results come from trading the random movements in the market.

FWIW, I have some strategies that I designed specifically to take advantage of noisy markets. Some are only in for 1 minute or 2.

Not saying your friend's system is good or bad, but noisy trades are not necessarily bad IMO.

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  #12 (permalink)
 josh 
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syswizard View Post
I did. Totally from experience in the ES and NQ markets. I feel that 5 minutes is the minimum time under normal market conditions to get a change of 5 - 10 ticks which is the target range for expected profit or loss of this strategy. Anything less and one is trading noise.

So, you're funding this system, or have some other reason to even care about the label placed on a trade which is less than 5 minutes in duration? Your criteria appears to be purely subjective, which seems to be a problem you have with the system in question.

For some traders, a trade which is closed the same day it's opened qualifies as "trading noise" -- so, call it whatever you like, the question is: why does it matter?

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  #13 (permalink)
 syswizard 
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josh View Post
So, you're funding this system, or have some other reason to even care about the label placed on a trade which is less than 5 minutes in duration? Your criteria appears to be purely subjective, which seems to be a problem you have with the system in question.

For some traders, a trade which is closed the same day it's opened qualifies as "trading noise" -- so, call it whatever you like, the question is: why does it matter?

No question I did not do my due diligence to statistically determine that "5" minute time period....which could easily be 3 or 4 minutes.....and of course that period changes with the trading time of day. Morning openings will certainly have a smaller period than the afternoon. Same for the closing 15 minutes.


josh View Post
"trading noise" -- so, call it whatever you like, the question is: why does it matter?

The simple reason it matters is I don't want the trading results to be similar to a system that just trades noise.....i.e. a random buy/sell order is made with an attached bracket order of 4 ticks. I want the strategy's performance to reflect the implementation of the indicators, price levels, and other signals that comprise it. BTW: I agree that an entire day's price action could be classified as noise to a hedge fund manager whose average time-in-trade is measured in months or years.
In this case, for this strategy, the average time-in-trade is likely to be 5 minutes or more. Thus, noise in that context is something less than 5 minutes of price movement.

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  #14 (permalink)
 syswizard 
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kevinkdog View Post
FWIW, I have some strategies that I designed specifically to take advantage of noisy markets. Some are only in for 1 minute or 2.
Not saying your friend's system is good or bad, but noisy trades are not necessarily bad IMO.

Agreed....If you are trading for noise. However, if you have a strategy that is not trading for noise yet has test results that indicate the PnL is coming from noise, then I have a problem with that strategy. For me, trading noise is putting in a limit or market order with a tiny bracket for the target and stop (2-4 ticks). I am sure there are high frequency firms doing something similar to that.

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 JonnyBoy 
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syswizard View Post
Agreed....If you are trading for noise. However, if you have a strategy that is not trading for noise yet has test results that indicate the PnL is coming from noise, then I have a problem with that strategy. For me, trading noise is putting in a limit or market order with a tiny bracket for the target and stop (2-4 ticks). I am sure there are high frequency firms doing something similar to that.

I am failing to understand this thread at all. I have read it a couple of times and either I am failing to understand the point being made, or I am too dumb to realise what it is.

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 michaelleemoore 
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If trades less than 5 mins aren't really trades, I guess I better find another line of work . And NQ can certainly move a heckuva lot more than 5-10 ticks in 5 minutes. Just sayin'

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  #17 (permalink)
 syswizard 
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JonnyBoy View Post
I am failing to understand this thread at all. I have read it a couple of times and either I am failing to understand the point being made, or I am too dumb to realise what it is.

Sorry about that...the title is probably misleading. The jist of the thread is to point out a problem with short-term trading systems that have a profit target of more than 4 ticks. I contend that if the forward tested results are showing a lot of trades in the 1-4 tick range, that system is likely trading on noise and not on a signal. It is essentially scalping. One might infer that a system like this may not be stable over time.

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 syswizard 
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michaelleemoore View Post
If trades less than 5 mins aren't really trades, I guess I better find another line of work . And NQ can certainly move a heckuva lot more than 5-10 ticks in 5 minutes. Just sayin'

Welcome to the thread Montana...my daughters are from Livingston and Bozeman.
Yeah, the 5 minutes was arbitrary...I probably should have specified a tick range like 1 to 4 ticks. They are still trades but my contention is that they are scalping trades not trades based on slgnals...that's all. Thus a system designed to have a profit target of more that 4 ticks, yet has many trades < 4 ticks may not show stable results over time.

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 JonnyBoy 
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syswizard View Post
Sorry about that...the title is probably misleading. The jist of the thread is to point out a problem with short-term trading systems that have a profit target of more than 4 ticks. I contend that if the forward tested results are showing a lot of trades in the 1-4 tick range, that system is likely trading on noise and not on a signal. It is essentially scalping. One might infer that a system like this may not be stable over time.

It depends what the framework of the system was designed to do. Some systems are designed to trade noise and it doesn't mean they are not profitable, even if it is scalping. To put another way, a system that trades noise is still entering on signals that is was designed to do within that noise, even if its target is 1 to 4 ticks. So it doesn't make it any less of a system and it doesn't make its signals invalid.

If the system was designed as a swing trading system and it was generating a lots of trades in the 1-4 tick range, I would say that the system is flawed or not really a swing trading system because such a system should be designed such that the noise is irrelevant to it.

I short term day trade and I can be in a trade for seconds, on a micro spike for example or literally hours because the market isn't moving as quickly as I had hoped after I entered a position. My trade can be stuck in this so called noise and I can't do anything about it, but it doesn't mean my system is trading noise, it just happened to enter during that time.

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 syswizard 
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JonnyBoy View Post
If the system was designed as a swing trading system and it was generating a lots of trades in the 1-4 tick range, I would say that the system is flawed or not really a swing trading system because such a system should be designed such that the noise is irrelevant to it.

Thanks Jonny Boy....finally someone "gets it". To me, "a lot of trades" would be 50% or more of all trades.

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