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Kevin's TST Combine Journal

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  #151 (permalink)
Legendary Market Wizard
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Trovatore View Post
The ratio of the expectancy (average trading day) over the standard deviation is 0.17 in this case.
It's interesting to look at this value from the perspective of Van Tharp's guidelines to system quality. In his book Super Trader, he suggests that a system with a ratio of 0.16-0.19 is 'poor but tradable' (this sounds a bit harsh but that's not my purpose). He considers ratios from 0.2 upwards 'average', 0.25+ 'good', 0.3+ 'excellent', 0.5+ 'superb' and 0.7+ 'Holy Grail'.

This is how I can relate Dr. Tharp's classification to your Combine experience: you have a good reason to think that your system has an edge (it's tradable). It has a positive average trading day, which is a good basis to expect profits in the long run. However the aspect that makes it less than good (in his harsh wording: poor) is that the standard deviation is relatively high. If you could get the same average day with half the standard deviation (bringing the ratio to an excellent 0.34), your 95% range breadth would also be halved. One consequence is that you would need far less trades to see the lower band cross the zero line: exactly the criteria you mentioned as so important to give green light for trading with real money.
As I calculated assuming a normal distribution, it takes almost 100 trades (days) with the ratio of 0.17 for the worst 5% to reach slightly positive profit. With a ratio of 0.34, this 'worst 5% breakeven' would take 24 trades (days). This is quite a difference, and especially so in the context of the Combine, where the first is beyond the end of the Combine period, whereas the second means you would have to be very very unlucky to finish with a loss.

I wonder what is a fair conclusion regarding the decision whether you should trade this strategy with real money. A possible answer: if you are patient enough, you could. However, if you have (or can develop) a strategy which has a better average/StDev ratio, then it's better to use that one and not your current Combine strategy. Though even then, it depends how highly you value the diversification aspect.


You are absolutely right - standard deviation of trades is a super important metric. A small standard deviation makes things so much easier, and really helps in position sizing.

I don't know how Van developed his guidelines for avg/std dev, but the concept (lower std deviations are better) is sound.

I would have no qualms trading this system live if it got close to its average line. I'd accept the variability, and all its other flaws, but it first has to get closer to (or ideally above) the average line.

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  #152 (permalink)
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No trades today, Tuesday.


Although I'm not planning to change my approach or trading at this point, I'm curious what people in the community think.

If you were me right now, knowing all the Combine and backtest info I have posted thus far, what would you do?


A. I'd start trading differently. This strategy is clearly not working.

B. I'd stay the course - keep trading as you are. Don't deviate from the plan

C. I'd just give up right now. No sense prolonging the inevitable failure to pass the Combine.

D. I'd for broke with one last big trade, and if that trade wins, I'd do the minimum necessary to pass the Combine.

E. I'd try to get to slightly positive, and hope to rollover the Combine. I would then trade it with a better strategy, or the same strategy.

F. Something else - another option not listed


There is no right or wrong answer. I just want to gauge how others would react at this point. Feel free to answer with just a letter, or with a detailed explanation.

THANKS!

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  #153 (permalink)
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Personally with so few trades I think it is not possible to make an informed conclusion just yet, unless there was a result that is wildly outside the initial parameters, which does not seem to be the case.

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  #154 (permalink)
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Hey guys, I am new to BigMikes, just curious but has anybody on the site passed the TST combine? I'm not asking because I doubt the combine whatsoever, I am just curious if anyone has managed on here.

Sorry to ask questions on your thread! Good luck with the combine!

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  #155 (permalink)
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kevinkdog View Post

If you were me right now, knowing all the Combine and backtest info I have posted thus far, what would you do?

B. I'd stay the course - keep trading as you are. Don't deviate from the plan.

Explanation: as Mike wrote.

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  #156 (permalink)
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kevinkdog View Post

Although I'm not planning to change my approach or trading at this point, I'm curious what people in the community think.

If you were me right now, knowing all the Combine and backtest info I have posted thus far, what would you do?


A. I'd start trading differently. This strategy is clearly not working.

B. I'd stay the course - keep trading as you are. Don't deviate from the plan

C. I'd just give up right now. No sense prolonging the inevitable failure to pass the Combine.

D. I'd for broke with one last big trade, and if that trade wins, I'd do the minimum necessary to pass the Combine.

E. I'd try to get to slightly positive, and hope to rollover the Combine. I would then trade it with a better strategy, or the same strategy.

F. Something else - another option not listed

B and always B.

Everything else is the opposite of good trading.

In general terms (and not to be taken personally by anybody):

A - Changing horses midstream - generates more uncertainty than it addresses.

C - Speaks about a self-defeatist attitude, lack of faith.

D - Speaks of immaturity and the loss of self-restraint that deviates from professionalism at the most inopportune moment.

E - Speaks of the common sense practicality which is what we use to get though an imperfect world. However if I do B then E will be atleast possible. If I aim for E it will might be the equivalent of reducing one's targets and that is also a change in strategy!

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  #157 (permalink)
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kevinkdog View Post
No trades today, Tuesday.


Although I'm not planning to change my approach or trading at this point, I'm curious what people in the community think.

If you were me right now, knowing all the Combine and backtest info I have posted thus far, what would you do?


A. I'd start trading differently. This strategy is clearly not working.

B. I'd stay the course - keep trading as you are. Don't deviate from the plan

C. I'd just give up right now. No sense prolonging the inevitable failure to pass the Combine.

D. I'd for broke with one last big trade, and if that trade wins, I'd do the minimum necessary to pass the Combine.

E. I'd try to get to slightly positive, and hope to rollover the Combine. I would then trade it with a better strategy, or the same strategy.

F. Something else - another option not listed


There is no right or wrong answer. I just want to gauge how others would react at this point. Feel free to answer with just a letter, or with a detailed explanation.

THANKS!

B. For sure.

But will give up with the Combine, honestly.

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  #158 (permalink)
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B. Keep at it.

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  #159 (permalink)
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No trades again today, Wednesday April 24.

Right now, I am estimating that I will trade for another 11 days in the Combine, out of the 21 trading days remaining.


Still waiting for the Big Ones - profitable days over $500.

Just stickin' to the plan...

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  #160 (permalink)
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UUUUUUGGGGGHHHHH! Waiting for the Big One, and almost had it today...


Like every other trader out there, occasionally I come across situations where my entry is almost hit, but isn't. Of course, then the market takes off without me. VERY frustrating. Today was such a day.

Missing an entry by a couple of ticks can be psychologically devastating. It makes you think "my system is good - it just needs a little adjustment," or maybe "the logic is sound, maybe I need to add more rules to my plan" or worse yet "how could my system miss such a great trade? I'm ditching it!" Your mind will think of a million ways to make that "nearly a trade" into "definitely a trade." In the end, your brain might actually think that trade WAS in your strategy - you just missed benefiting from it.

"IF that trade had been made, I'd be in good shape for passing the Combine."


Of course, such thinking is dangerous. Just look at the facts - your strategy did not have that trade. Your backtest would not have had that trade. That "trade" wasn't a trade for you. It is nothing to you.

If you change your strategy to include that trade (maybe by entering a few ticks early, as price approaches your entry price), are you going to review your history, and include all other cases just like this? Maybe then your strategy will actually be worse - who knows?

This situation seems to happen to me a lot when I trade with discretion. With automated systems, though, I don't notice it nearly as much. It still happens, I am sure, but since orders and calculations are being done behind the scenes, it is not as apparent to me.

With the Combine strategy, though, I do see these near misses, since I manually enter each order. Today's "almost" trade was a whopper. I missed a great trade by 2 or 3 ticks. I had a limit order to sell short at 1.3100. The high was 1.3098. So, I was 2, probably 3, ticks away from a fill. As I write this, it would have been a $1,000 winner. $&%^#*@# !!!!!!!!

On one hand, this makes me feel really good about the system - it was oh-so-close to getting a great trade. On the other hand, this fills me with disappointment. Not many whopper trades are out there, and my system just missed a great one.

Really, I should feel neither happiness, nor disappointment. I should feel NOTHING, because nothing happened.


The lesson here is DON'T PLAY THE "IF" GAME. As someone once said, "if 'ifs' were fifths, we'd all be drunk!"



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