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Kevin's TST Combine Journal
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Kevin's TST Combine Journal

  #131 (permalink)
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kevinkdog View Post

So, here is my Combine system, using Monte Carlo. As you can see, my actual results, while negative, are within expectations. This would tell me the system, while underperforming, is NOT broken.



An interesting post, thank you. But isn't there a time factor as well? At what point, assuming it continued to perform in this way, would you decide that the system was broken, at least in the sense that it significantly underperforms in real use? Would it have to drop down into the bottom 10%? If so, how long would it have to stay there?

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  #132 (permalink)
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futuretrader View Post
An interesting post, thank you. But isn't there a time factor as well? At what point, assuming it continued to perform in this way, would you decide that the system was broken, at least in the sense that it significantly underperforms in real use? Would it have to drop down into the bottom 10%? If so, how long would it have to stay there?

I wish I had a good answer to your questions. But I'll try...


Yes, there probably is a time factor to this. A system that bounced below say the 10% mark right at the beginning, and then recovered, can probably be ignored. The same goes for early data, which can vary all over the place. As time goes, though, chances are any bottom line penetration should be taken seriously.

The 10% line is just a number I chose. Maybe a better number is 5%, or 25%. I don't know. It comes down to the comfort level of the trader.

For me personally, right now, at the 10% line I'd probably stop real money trading, and switch to incubation. If it didn't recover within a certain time, I'd probably drop it from incubation, and just let the system die.

I should point out that I also use other methods of determining "when to quit" a trading system, not detailed here. But this method is a fairly objective one. It just will take a few tries to see what levels you like.

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  #133 (permalink)
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Combine, Day 14


Day 14, one trade, best day yet!

Unfortunately, still short of breakeven overall... I am at least $1000 off the pace for passing the Combine.


I know I've stated before that "everything is normal" and that the system performance, while lagging, is to be expected.

All that talk is based on statistics and numbers.

Unfortunately, my emotions and mental state make me wonder "Is this just a breakeven strategy? Does this strategy have any kind of edge? Why am I still losing money after 14 days?"

This is a classic case of disconnect between what the numbers tell me, and what I actually feel.

I can tell that, even if this strategy starts performing well, that it will be tough to trade with real month. Being underwater for a whole month is why. That is hard to deal with emotionally...


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  #134 (permalink)
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kevinkdog View Post
...Does this strategy have any kind of edge? Why am I still losing money after 14 days?"
...

I think it's Mark Douglas who wrote this:
"An edge is nothing more than an indication of a higher probability of one thing happening over another. The only evidence you need to gather is whether the variables you use to define an edge are present at any given moment."

Question for you

Do you take into account as variable the strength and weakness of price action as it approaches certain areas? Does the context enter into the equation when your trades trigger?

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  #135 (permalink)
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trendisyourfriend View Post
I think it's Mark Douglas who wrote this:
"An edge is nothing more than an indication of a higher probability of one thing happening over another. The only evidence you need to gather is whether the variables you use to define an edge are present at any given moment."

Question for you

Do you take into account as variable the strength and weakness of price action as it approaches certain areas? Does the context enter into the equation when your trades trigger?

Thanks for the questions.

The entry for my Day strategy (strategy #2, what should be the main profit producing strategy, but so far has not been) is based on selling short after a short term high, in a longer term downtrend (and vice versa for long trades). Sort of a mean reverting strategy.

So, of all the previous bars on the chart, the strategy entry only looks at three of them:
1. The current bar high/low
2. The high/low "X" bars ago
3. The close of "Y" bars ago

And that's it.

So, anything beyond that on the chart, the strategy ignores. I think most "price action" traders would be appalled at that. Certainly, the strategy is ignoring most of what is going on bar to bar. But, I believe most mechanical strategies are like that - unless they have a ton of rules, filters and conditions - and that can lead to overfitting.

In its favor, this simple entry has shown a positive expectancy over the 370+ trades in walkforward testing over the past 4+ years. With walkforward testing, is does adapt "X" and "Y" values over time, which is nice. BUT, it is far from a perfect strategy, that is for sure.

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  #136 (permalink)
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In his book Bob Volman wrote about the edge that it is something much more a personal perception than it is a statistical certainty. Or that a technical edge in trading, as much as it is the key to survival in the markets, is quite a dubious phenomenon in contrast to the edge in a game of roulette (biased) or a game like blackjack, just to name these two, is evident or more tangible. So i can understand your doubts.

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  #137 (permalink)
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trendisyourfriend View Post
In his book Bob Volman wrote about the edge that it is something much more a personal perception than it is a statistical certainty. Or that a technical edge in trading, as much as it is the key to survival in the markets, is quite a dubious phenomenon in contrast to the edge in a game of roulette (biased) or a game like blackjack, just to name these two, is evident or more tangible. So i can understand your doubts.


That is a great passage from his book. You can think you have an edge, you can show through statistics that it is likely you have an edge, but

1) you never know for certain you have an edge

and

2) you never know how long said edge might last.


That is part of what makes trading hard.

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  #138 (permalink)
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I would say that's almost all of what makes trading so hard.
And why people get so confused about using historical expectancy, and have such a hard time understanding FT71's point about "the very next trade" having a 50:50 possibility of winning.

If you feel like going into it, I would be interested in hearing about the other methods you mentioned using to determine when to discontinue a strategy.

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  #139 (permalink)
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futuretrader View Post
I would say that's almost all of what makes trading so hard.
And why people get so confused about using historical expectancy, and have such a hard time understanding FT71's point about "the very next trade" having a 50:50 possibility of winning.

If you feel like going into it, I would be interested in hearing about the other methods you mentioned using to determine when to discontinue a strategy.

I will post something on discontinuing a little later today.

In the meantime, do you have a link where FT71 talks about next trade being 50/50? I'm having trouble understanding how that is true for strategies like option selling (where you might have a 90% win percentage) or trend following (I have one strat that wins only about 25% of the time).

Thanks

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kevinkdog View Post
Day 14, one trade, best day yet!

You Go 'dog!


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