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A framework for system design
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A framework for system design

  #1 (permalink)
Denver Colorado/USA
 
Trading Experience: Intermediate
Platform: SierraChart, ThinkorSwim
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A framework for system design

Hey

I was just working on this new system which got me thinking about about system development in general.

I am a visual person so I started thinking about going on a trip in my car as a good analogy for price movement.

So, if I have a trip I'm going to make and I don't know specifics about where the place is or how to get there I will naturally start to think about the journey and certain aspects of it. This is the next trade.

Where is the place I am going relative to where I am? Price direction

How far away is it from where I am? Total price movement

How long does it take to get there? Trade duration

What is the route I'll take to get there? Price action

How much traffic will there be? Volume

What's the weather going to be like? Recent news/current sentiment

The reason I want to classify different elements of a trade like this is so that I can define the variables that I am using for decision making. Also, I want to give myself a high level view of all the variables going into a trade decision so that I can determine if I have too many inputs or if it would be useful to add more for precision.

Within each of these categories I have different tools I am using to classify the current state or measurement of that variable. Additionally, I am only allowing a limited range of possible inputs from each variable type. For example, I use volume profile in my trading and I am considering classifying 3 levels of importance within the volume profile paradigm: 1. (strongest level) vah/val 2. POC 3. (weakest) Significant volume peaks. This might change, but the point is that I want to define the aspects of the trade that matter to me and limit the potential range of values of those aspects that I'll use for decision making so that I can cover all of my bases while preventing information overload. A simple yet comprehensive plan. Instructions that can be followed accurately in a crisis situation. I feel like I'm on the right track here. I'm not sure if I'm explaining myself, but I wanted to get a second opinion because my roommate's drunk and doesn't understand how you can "trade the future".

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  #3 (permalink)
hillsborough nj
 
Trading Experience: Advanced
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That is an interesting exercise, but the outline seems overly ambitious, and the metaphor is dubious.

Why can't the design be similar to football, where a trade equals one play? Are you on offense or defense?

While you are driving to your destination, are you prepared to be attacked by the inevitable motorcycle gangs that want to take your money? - is your girl friend with you?

Also, what is your motivation? It could quite well be greed or something equally unpleasant. A greedy person doesn't mind taking a trip, fearful people tend to stay at home.

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  #4 (permalink)
Denver Colorado/USA
 
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Posts: 80 since May 2017
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semiopen View Post
That is an interesting exercise, but the outline seems overly ambitious, and the metaphor is dubious.

Why can't the design be similar to football, where a trade equals one play? Are you on offense or defense?

While you are driving to your destination, are you prepared to be attacked by the inevitable motorcycle gangs that want to take your money? - is your girl friend with you?

Also, what is your motivation? It could quite well be greed or something equally unpleasant. A greedy person doesn't mind taking a trip, fearful people tend to stay at home.

I don't watch football. This design was chosen because it accounts for the elements of my trades that require decision making.

Being attacked is not how I view the market. I look for patterns that lead to a desired outcome and take note of all of the variables that could affect that outcome.

Motivation and mindset are not part of trade decisions for me. I know why I'm trading, I'm comfortable with the risk, and I know what I need to do to have my head right before I put money at risk.

What is ambitious about what I'm saying here? I know how half-assed systems work out and that's not the results I'm looking for. This isn't for beating the S&P or making only double digit % gains.

Since this doesn't resonate with you, what do you think about when designing your trade systems?

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  #5 (permalink)
hillsborough nj
 
Trading Experience: Advanced
Platform: TradeStation
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Favorite Futures: emini
 
Posts: 16 since Sep 2018
Thanks: 5 given, 18 received

If your system was already completed, you probably wouldn't have started the thread.

Volume profile has a relatively good reputation as a technical analysis technique. I'm not very familiar with it. Some people like to look at volume, it's relationship with price movement seems tenuous to me.

Your idea about a point count system is interesting. That could be compared to the point count system in bridge where an ace is worth 4 points, a king 3, etc. Simple counting will give you a pretty good idea of the strength of your bridge hand and then there are subtleties like distribution, pattern evaluation, etc.

You have touched on some important issues. The idea that implementing a working methodology will now be relatively easy is pretty optimistic.

I'm doing statistical work. I have a thread here discussing the work. I have an interest in understanding what is going on with price activity as opposed to profiting from it (admittedly that would also be nice). I've been doing quantitative financial analysis since the early 1980s. Two things it isn't are easy and simple.

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