I thought I'd share with you some info on the strategies I developed for the Combine, along with how I developed them. If you are thinking about the Combine, or thinking of developing a strategy to meet the Combine's very …
No trades today, so I'll talk about the strategies I am using...
A few posts ago ( I talked about the need to develop a system (strategy) that meets the rules of the Combine. Certain rules you have control over (daily loss limit, being out by …
No trades again today (Thursday), so I'll continue with discussing how I developed my primary strategy...
part 1 is located here:
part 2 is located here:
At this point, I knew the instrument (Euro), the time session (7AM - 3PM ET), number …
Last time I described my primary strategy. I intended for it to be my only strategy for the Combine, but there were a few problems with it:
1. It was profitable, but not profitable enough to pass the 20 day Combine
2. Its winning percentage was below 50%, which would not pass the Combine
3. It would trade less than the required 20 days in the 2 month Combine, so it might not even qualify for review
Since I only had about one and a half weeks left for development, until the Combine start, I decided to create 2 other strategies to trade along with the primary strategy. These strategies would trade at different times than the primary strategy. They would trade overnight, or late afternoon.
The goal in developing these strategies was NOT to maximize profit, but rather to help me meet the 3 shortcomings I had identified above.
I accomplished this by creating 2 unique mean reverting strategies, both of which primarily have small profit targets and larger stop losses. The overnight strategy is the better of the two, with a win rate around 75%. It is also profitable, but the win percentage and the trade frequency are what really make it useful to the Combine.
After a few days of trying some various SIMPLE things, I was able to create these 2 additional strategies (although I was, and still am, worried, that I rushed development a bit too much).
With a few days to spare, I WAS READY TO COMBINE!!!
**********************************************
That wraps up my discussion on my Combine strategies. If you read all 4 posts of this subject in a row, I hope you understand the main point I was trying to get across: you really have to develop a strategy that meets your goals and objectives. This is super important, not just for the Combine, but for any kind of trading you do.
That is why determining your goals and objectives is so important. Without knowing where you want to go, you will really have a tough time getting there!
The following 3 users say Thank You to kevinkdog for this post:
On days when you don't have a trade (according to plan), you should still throw in a small trade until you are green for the day. Why? Because that helps with your winning day % statistics. If in the next few days you get a few consecutive losing days, that could mess up your stats. So a day when you could have made a small but winning trade but you decided not to trade is basicly wasted on that parameter....
I know it is not according to your plan, but you do have to trade according to the rules of the Combine, and imagine if you couldn't qualify for the redo, just because 1-2 of your (relatively easily fixed) stats is red....
The following user says Thank You to Pedro40 for this post:
I see and and understand your point. For me, part of this experiment was seeing if I could design a system that meets all the Combine requirements, including winning day %. If it holds true to historical results, the profit should be the tough parameter to meet.
So, I'm inclined to just let it play out as designed, and see what happens.
I have a sneaky suspicion that if I do not pass, there will be more than one criteria I fail.
Kevin if you don't pass this combine, do you have any plans to enter another one? I've found the information and processes you are sharing to be very helpful.
The following user says Thank You to chambemk for this post:
I am unsure if I would do another one. I am currently working on a handful of strategies that could be traded in the Combine, since developing strict intraday systems is something new and challenging for me. Maybe there will be one I like enough to run in a combine.
One thing I would try to do differently is to trade to the "after" combine rules, which includes a weekly stop loss, a 10 day rolling average requirement and a trailing stop requirement. I did not use any of these requirements in my initial design, so if I do pass the Combine, I'm not sure I'd pass the "after" combine anyway.
I'm not sure why that particular metric is important, if all others are met, but I would assume the TST did some sort of statistical analysis of winning traders, and determined that average loser was indeed important.
I've never seen anything about the 10 day rolling average requirement or the trailing stop requirement. Can you provide a link to where you saw that? thanks.
OK, so you want to know if your new strategy is performing to expectations, right?
There is a simple way, and a complicated way. Today I'll look at the simple way.
The only data you need for this is the average trade, or average daily result. It you have the standard deviation of this value, then you can do even more.
All you do plot your results, along with the equation "n * avg" where n is the trade number/day, and avg is the average value. You'll get a chart like this:
So, if you are above the average line, your strategy is doing better than you thought. If below, your strategy is worse.
This chart becomes really useful as time goes on. Over 30 or more periods, you'd expect the strategy to be right around the average line. That is how I use it. For each strategy I am tracking, I simply plot the results with the average line. I do this every month. Then, at a quick glance, I know the general state of the strategy. Here is an example of a strategy I have been running live a few years. I consider this "good performance, as expected." Note how it rubber bands around the average line.
This is nice, but it doesn't convey a lot of information, especially early on. To get more insight, add 2 lines for the +/- standard deviation curves:
What this tells you is that roughly 68% (X=1) or 95% (X=2) of the time, your equity curve should be within the upper or lower bands. That is a pretty good range of performance. If it is outside of those bands, maybe there is something going on with your strategy.
Here is what my Combine system looks like with X=2 bands:
The most interesting point here is that bottom curve. Look as it starts negative, and stays negative. Imagine that! A winning (positive expectancy) system can still have negative results for quite a while. Pure random chance (the order of trade results) can lead a winning system to appear to be a losing system.
Of course, over time, the positive expectancy starts to dominate, and the lower curve should turn positive.
This has HUGE implications for the trader who "tweaks" his method if, after 5 trades, he is not showing a profit. He may well have just changed a winning system!
Here is a great quote that explains it better than I can. It is from the book "Trading Bases:"
"Well, if you had the opportunity to invest in a venture with a positive expected value, like ownership of a roulette wheel, would you prefer to own it for one hour or nine and a half hours? Funny things can happen in one hour; there is no guarantee of a profit even with the house edge. But over nine and a half hours, the natural fluctuations inherent in the game will smooth out, and the chances of losing money will be very small, approaching zero over time."
The following 11 users say Thank You to kevinkdog for this post:
The dotted red average line in Fig. 2 appears to be a straight line, which is exactly what I'd expect it to be.
The black average line in Fig. 1 and 3, however, appears to have a changing slope. Is it because your X axis is Trade Day, whereas n in your n*avg formula is actually Trade Number?
Thanks, it's very clear now.
One more question, if I may ask. If you find after a reasonably large number of trades that the actual line tends to rubber band not around the average line but rather around a less favorable line (but still inside the 95% or even the 68% range), how do you decide whether you are just being unlucky or you maybe got the expectancy wrong (i.e. it rubber bands around a true expectancy which is different from how you had assessed it during your system development and walk-forward testing)?
The following user says Thank You to Trovatore for this post:
That is a very good question. Many times, the historical walkforward performance (what I plot as the "average" line) is not what you get in real life - usually there is some degradation, which like you said is really a change in expectancy. This would show up as a shallower sloped "average" line.
Another thing could happen too. The market could change at some point, which might have a dramatic impact on your system. Say for example we go into a super low (or super high) volatility mode - one that had never been seen historically. Your system's performance may not be close at all to that average line.
So, the question becomes: how can you tell when the system you are trading is statistically different than the system you historically tested? Given my aerospace quality assurance and engineering background, I can tell you what I do, but there are many other ways to do it too.
I use something called Statistical Process Control (SPC). It helps you determine when a process (trading system) goes out of control, and gives you indications that corrective action (stop trading, change strategy, etc) is necessary.
SPC can be really complicated, and there are books and courses out there that can explain it much better than I ever could.
I hope this explains it a little bit. In the situation you are describing, as long as the real time equity line was still within the upper and lower line, I'd probably keep trading it as is.
The following 3 users say Thank You to kevinkdog for this post:
i think i have some confusion on your average curve ( "line" ) - Why not should it be of variable slope, i mean i feel it should not be of constant slope. As the time/trades passes , with each trade your average gona be change.
The "average" line is from the historical database of trades, so I calculate it before I start trading live. Therefore, it never changes. That let's me compare by real performance to my walkforward testing performance.
You bring up a great point. You could have the "average" line include current trades, then it would change as you suggest. You could also plot a running average of the last X trades. There are a lot of different ways to do it, especially if you wanted to incorporate recent performance.
The following 2 users say Thank You to kevinkdog for this post:
A good overnight trade, overwhelmed by the big loser day trade.
Passing the Combine is, at this point, probably not going to happen without some divine intervention.
I was hoping that even if I did not pass the Combine, that at least I'd be profitable. That would encourage me to trade it live. So far, I'm not seeing that, either. I'm at the 15th percentile so far. This means that the Combine performance is at the bottom end of my expectations for it. Pretty poor.
On the positive side, I have absolutely no desire to "cheat" or to do something silly (like go for broke, double size, etc). My discipline is pretty resolute - I'll stick to the system until the end...
The following 6 users say Thank You to kevinkdog for this post:
Kevin have you been able to identify any particular market conditions or variables of your strategy development that account for the current underperformance? Do you think that the strategy will revert to the mean if implemented on a larger time scale? thanks.
Thanks for the great question. I was hoping this would come up.
I love analyzing data. Looking for trends, clues, etc. to trading performance is always fun.
BUT, my feeling is that analyzing current Combine results would be a big mistake.
Why? Simply put, not enough data. I've had 12 days of results. That is nowhere near enough to analyze and make any type of conclusions, especially when those decisions may recommend changes.
If the strategy is good, it will revert to the mean. But it may take 30-50 days to show that. That is one reason why I wait to trade a new system with real money.
If the strategy is not good, I'll probably abandon it, rather than try to figure out why it failed. My experience is that analysis doesn't necessarily help (you can always look back in hindsight and come up with a reason). As for market conditions, it should work on all markets, since I tested over all markets.
In the next few days I'll show a real world example of this. The first 100 days of that strat were pretty bad, but after that - the strategy took off.
Do you mean this: if you were profitable at the end of the Combine, that would encourage you to trade the strategy live?
- Wouldn't that still be a 'not enough data' scenario?
- And why attribute that much importance to profitable vs not profitable? Looking at your bands, I'd estimate breaking even as roughly 'lower 28%' performance (whether it's 27% or 30% does not matter that much). I understand that the everyday view of trading results treats $0 as a special borderline - but why would your statistical approach put that much emphasis on being above the 'lower 28%'? Why not 'lower 20%' (which would encourage trading even when not profitable by that time) or 'lower 40%' (which would advocate stopping even if some profit has been made)?
I hope this is not coming through as annoying. I'm just trying to make my point clear so that I can learn from your reply. (And I've got a lot to learn. I'm nowhere close to your knowledge and experience)
The following user says Thank You to Trovatore for this post:
Call me stupid, but if it is just a strategy test, you could have paid for the practice account, only $100 for a month, just to see if the strategy is viable. You don't need the Combine for that.
Even with the free 2 weeks trial you get the stats.... But, hey it is your money, TST would like to thank you...
The following user says Thank You to Pedro40 for this post:
No, I understand what you are speaking about. I wasn't very clear. For me to actually start trading it with real money, the performance would have to be a lot closer to the average line. The zero line is really psychological. I can't imagine trading a strategy whose "live" performance was negative, even if it was well within the expected range. That is one of those mental hangups I have, like everyone else.
Bottom line is right now this strategy has not convinced me at all that it deserves a real money allocation. BUT, it is early in the process. At least, as of right now, the strategy has not fallen off the proverbial cliff.
The following user says Thank You to kevinkdog for this post:
No, I will not call you stupid! It is a good point you raise.
I developed the strategy specifically for the Combine. Only afterwards did I entertain thoughts of maybe trading it for myself, if it proves itself. So, you are right - I don't need the Combine to "prove" my strategy - I normally track incubating strategies differently.
So for me, I get 2 benefits at the same time : 1) I get to try the Combine, and 2) I get to incubate my strategy.
Where this all ends up (pass/fail Combine, pass/fail incubation, trade/not trade with real money) really depends on what the strategy does in these 2 months, and probably the next 2-3 months after that.
The following 3 users say Thank You to kevinkdog for this post:
3 trades, 3 wins today. One trade for each system, the trade on the farthest right of each chart. 2 were really small wins. One should have been a loser, but I exited early so I could play outside with my kids on the first 80 degree day of 2013 (I live in Cleveland Ohio, so you learn to take full advantage of beautiful days like this).
I'll see if I can post the more complicated Monte Carlo analysis tomorrow.
Sorry for the lack of drama lately. Good trading (even if it is losing, like I am so far), is pretty boring...
(Just remember, based on past statistics, I am "owed" 3 days of $500+ profit, with one of them being over $1,000. That should make it interesting, if it ever occurs...)
The following 5 users say Thank You to kevinkdog for this post:
Hi Kevin,
I would be interested in the Statistical Process Control you mentioned. Would you give us some more clarification, and/or reading suggestions?
Thanks
The following user says Thank You to Albnd for this post:
Thanks for the comment. I do not think I could I know I cannot explain it well enough in a post to do it justice. There are some good books on Amazon that look like SPC for beginners or novices. I recommend starting there.
With factory machines, the idea is you record the dimensions of parts the machine produces, and following certain rules, you either leave the machine settings alone or make changes. This is accomplished thru use of a run chart.
With a trading system, you can treat it as a machine. You only make changes (or shut down the system) when the statistics (from individual trades) tell you to do so.
Sorry I could not be of more help, but an intro text will get you going.
The following user says Thank You to kevinkdog for this post:
No Trades today, although I missed one during the last 30 minutes of the day (I had some errands to run). That trade lost 2 ticks, so I'll include it on the "perfect" curve.
I will try to post the Monte Carlo chart this weekend.
Have a great weekend everyone!
The following user says Thank You to kevinkdog for this post:
Here are some curves of where I am at with the Combine:
Average - thick dark blue line - if strategy was performing as it has historically, equity should be close to this
Actual - light blue dots and line - my actual performance, as measured by TST simulator
Perfect - dark blue dots and line - performance according to Tradestation backtest engine, includes $17.50 per round trip for commissions and slippage.
The following 2 users say Thank You to kevinkdog for this post:
Before I continue this discussion, I realize that this short post is probably way too involved for the casual reader. So, I'll summarize this work in a sentence: Before you change or quit a poorly performing trading system, make sure that you aren't neglecting an unlucky runs of trades - you might be ditching a good system at just the wrong time.
A few posts ago, I showed a fairly simple way for you to determine if you strategy is performing to expectations:
2. Create upper and lower bound equity curves, based on whatever confidence levels you want (68% for 1 std dev, 95% for 2 std dev, etc).
3. If your strategy equity curve is within the bounds, chances are the strategy is performing as expected (although maybe not to your liking)
My point with this kind of chart was to show that even winning strategies may start off on the wrong foot, and lose money. You have to let the long term positive expectancy kick in before you make any decisions.
Unfortunately, this is hard to do. I see people abandon a strategy after 4 or 5 losers at the start, or who subscribe to a strategy signal service for 1 month, and if it lost money, they bail. Such actions may be crazy!
To win at a game of probabilities like trading, you really have to know what the probabilities tell you.
*********************
So, here's a sample case. This is a real world system I currently trade with my own money.
Curve 1: The system performance after 140 days. Barely positive, and close to the lower 10% line. That means, at that point, only 10% of the randomly generated equity curves, based on the system trades, would have been worse than this.
I'm sure most people would have stopped trading at this point.
I did not, since I knew there was a chance that the system was not fundamentally broken.
Curve 2: The curve for the next 200+ days. I kept the system running, and now it is performing close to its expected value. (The thin lines you see are the standard deviation calculation lines, so you can see how close they are to Monte Carlo simulation lines.)
***************
As I explained earlier, I use Monte Carlo simulation to determine if a strategy is performing to expectations or not. It is basically the same result as with using mean and standard deviation (described in earlier post), except that you can include "boundary condition" effects with Monte Carlo (like quitting after % drawdown, or quitting when account gets blown out).
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.
To create these curves, you can just stop the Monte Carlo sim after X trades, and plot the percentile results that you want. For most people, it probably is easier to use the earlier method I presented, and frankly, the results are just as good.
The following 11 users say Thank You to kevinkdog for this 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?
The following user says Thank You to futuretrader for this post:
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.
The following 2 users say Thank You to kevinkdog for this post:
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...
The following 6 users say Thank You to kevinkdog for this 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?
The following user says Thank You to trendisyourfriend for this post:
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.
The following 2 users say Thank You to kevinkdog for this 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.
The following user says Thank You to trendisyourfriend for this 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.
The following user says Thank You to futuretrader for this post:
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).
He has mentioned it in several webinars. Essentially his point is that the outcome of the very next trade is 50/50. Yes, you may have a historical win percentage of X. But you dont know ahead of time where in the distribution of trades your wins and losses will be. All you know is that over time, your win percentage will likely be around X percent. So he's not referring to your overall win percentage, he is talking about the very next trade.
Hi Kevin, this goes back to a post of yours from a week ago. I am sometimes a bit slow (and not a King of Statistics )
Anyway, as I was trying to digest the meaning of the bands, this is what I got confused about. When you cut off the 'too lucky' and 'too unlucky' tails of the bell curve at 2 standard deviations from the mean, you exclude 2.5% worth of very lucky samples and another 2.5% of very unlucky samples, keeping the least extreme 95% in between. Do you agree that what you call "Lower 5%" is actually the curve below which you've got the worst 2.5%? (and what you have above the "Upper 95%" curve is actually the best 2.5%)
A related question: what was actually the expectancy and the standard deviation that you had at the end of your testing? I estimate the expectancy (average trade net profit) was around $71-$72 - but how much was the standard deviation of the walk-forward sample?
The following user says Thank You to Trovatore for this post:
Since I am using 3 different strategies here, it is easiest to express the expectancy based on a trading day...
Average Trading Day: $71.42 Std Dev: $425.17
Average Losing Day: -$294.31
If you consider expectancy as average trade, it is $71.42
If you consider expectancy as avg trade / avg loss, it is .243
Another thing to point out is that the distribution of trades is not a normal (bell) shaped curve, which can be a big problem, depending on the analysis you do.
The following user says Thank You to kevinkdog for this post:
In the attachment below, you will see an article that I wrote for the August 2010 issue of SFO Magazine (not defunct - thanks Russell Wassendorf Sr.!)
If you don't want to read the article, here are the main points:
1) Establish a quitting point or stopping point for any strategy you begin trading - BEFORE you start trading it.
2) Write it down, share it with trading partners, etc.
3) Follow It!
From what I've seen, and from my own personal experience, I can tell you that this is much harder than it seems. In fact, most people don't do this at all, and instead make a knee jerk, emotional, heat of the moment decision to stop trading a system. Of course, that is the worst time to make any kind of decision.
The following user says Thank You to kevinkdog for this post:
I guess that's where Monte Carlo simulation comes on stage as a handy tool? I mean you don't need to be a professor of statistics but you can still make good sense of the results, like how likely is it that you will have at least X dollars of profit after N trades, or no more than Y% drawdown.
The following user says Thank You to Trovatore for this 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.
The following 2 users say Thank You to Trovatore for this post:
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.
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.
Site Administrator Swing Trader Data Scientist & DevOps
Manta, Ecuador
Experience: Advanced
Platform: Custom solution
Trading: Futures & Crypto
Posts: 50,013 since Jun 2009
Thanks: 32,472 given,
98,311
received
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.
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!
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!
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!"
The following 5 users say Thank You to kevinkdog for this post:
I should point out that I have only mentioned half of the story - what actually happened. It is easy to look at a chart, see where the entry was missed, and wax poetically about what might have been.
BUT, how do we know what would have happened, had I been filled?
I had a limit order to sell short at 1.3100. The high of the day ended up being 1.3098. Maybe, there was a big bank, hedge fund or even central bank trying to keep the price below 1.3100. Possibly they were selling all the way up to 1.3100, to prevent it from ever getting to that point. If it got above 1.3100, maybe they would reverse and go long. Or maybe there were a ton of buyers right above the 1.3100 mark. After all, it is a round number, which many people like.
The fact is we just don't know what would have happened, had the price gone to 1.3100. It might have rocketed to 1.3200 for all we know.
So, what I've found, and what I hope you agree with, is that the sooner I forget about this missed trade, the better. Sure, I can be a little mad about it, a little bummed, but the sooner I let it go, the better off I'll be.
I took no trades today, Thursday. In my late day strategy #3, there was a trade at 3:30 to 4 PM. I missed it, since I was buying my kids some video games. The good news is that it was a small loser, so I avoided making my stats even worse.
Here's the latest graph of "actual" performance and "perfect" performance. "Perfect" performance would be if I got filled on every trade exactly like the Tradestation backtest engine showed.
The following user says Thank You to kevinkdog for this post:
Kevin
A large barrier option was rumored there. If you trade levels it always paid to place limits ahead of any round number or important high or low because there can be some large interest preventing price from touching the level.
All the best. Alex
The following user says Thank You to xelaar for this post:
Yes, and in this case, who knows what would have happened, had that barrier been broken? In my mind, that is why hindsight bias can be so bad. Just looking at the chart now, I conclude I missed a great trade. But really, had price broken 1.3100 and soared higher, I may have avoided a loser. I just don't know.
After almost a week of no trades, with only 3 weeks left in the Combine, and minimum 6 trading days left to trade, being stuck, essentially in neutral, is really frustrating.
The impulse to go "rouge" - to just start trading, in hopes of passing the Combine, is very strong.
But then, what's the point? The point of the Combine is to pass it, and then stay funded. The point is not to pass the Combine just to pass it, or for me to look better to all the people reading this journal.
I'm sure this impulse has hit most traders out there. After a time of "treading water" performance, the demons start to come out. They tell you to trade trade trade. Do something, anything, to start making some money. The voices tell you that time is passing you by, and others are making profits, but not you. Take a flyer trade, take a gamble, the voices say.
Don't listen to the voices.
I'm surely not. I'm trading the same plan I started out with. If it works, great. If not, oh well.
The following 11 users say Thank You to kevinkdog for this post:
Site Administrator Swing Trader Data Scientist & DevOps
Manta, Ecuador
Experience: Advanced
Platform: Custom solution
Trading: Futures & Crypto
Posts: 50,013 since Jun 2009
Thanks: 32,472 given,
98,311
received
Well, reality is, you are unlikely to pass the combine. You already know this.
So what you need to decide is whether or not there is enough data to determine that your strategy is performing as expected, and simply was not good enough to pass the combine (which could mean any number of things, such as trade frequency or just luck), or if the strategy is not performing as expected and therefore should be discontinued or rewritten.
I assume that whether you pass or fail the combine, you'll continue to let the strategy run for a while longer so that you can make that decision.
If you choose to do another combine, I imagine you'll do so with more strategies in your portfolio to increase the trade frequency. You could even include this strategy in that, and add to it with some others.
Definitely correct. I think the jury is still out on this strategy, due to the lack of trading.
Yes, probably another 2-4 months. Then I should have enough data to make an intelligent decision.
I hadn't thought of that, mainly because I was thinking of trading only the Euro. I could add another Euro strategy, or I could introduce another instrument. I'd have to develop a strat for another instrument, to meet the combine rules.
One thing I would do is develop/modify all strategies to meet the "second" round of the combine (I'm not sure what that second round is called). But, in it there are rules for weekly loss, and the introduction of a trailing stop, among other things. I'd want these in from the beginning, since otherwise I might pass the first, but not the second.
The following 4 users say Thank You to kevinkdog for this post:
If you've read through this journal, you'll see there are quite a few times that I talk about "luck." I talk about being lucky, having luck on my side, etc.
You might wonder "Hey, Kevin, if you are supposedly a winning trader, why do you need luck?"
Well, my definition of luck is "when preparedness meets opportunity.*" I'll explain how that applies to trading, but first an example from football.
Last football season, the San Francisco 49ers had a great quarterback named Alex Smith. After a terrific 2010 season, there was no doubt he was the starting QB. He was just that good.
His backup was also pretty good. His name was Colin Kapernick, and he knew he was the likely backup all season. BUT, he practiced, paid attention and otherwise played as if he'd be called on at a moment's notice. In other words, he was prepared.
Midway through the season, Alex Smith got a concussion and could not play. So, Colin Kapernick became the starter (his opportunity). He seized the job, took full advantage, and kept the starting role the of the year, until the 49ers lost the Super Bowl.
Some say Colin was lucky to get his chance to start. Maybe. But, to get this "luck" he needed the opportunity (Ales Smith's injury) and he needed to be prepared to take advantage (by practicing, rehearsing, etc). Fate might have opened the door, but Colin himself kicked it down and kept it open.
How does this relate to trading?
My experience is that, with positive expectancy trading systems, over the long haul "luck" tends to run in my favor. Big positive days tend to outnumber big negative days (although these negative days still occur, all too often for me!).
So, to me, "luck" in trading is when I create a positive expectancy trading system (preparedness), and then let it run wild in the market. Eventually, good opportunities are going to come along, and I'll be "lucky."
The bad thing is that you cannot count on luck. Sometimes it arrives, and sometimes (like my Combine so far), it does not. Regardless, you should be prepared anyhow, for any opportunity that comes around to give you luck.
* I think I got that definition from a personal development course from Earl Nightingale - "Lead The Field."
The following 9 users say Thank You to kevinkdog for this post:
Thanks, Kevin. A very good trading mindset and overview of expectation. Winning a Combine certainly requires some star alignment as even the best systems and traders can have their low days and day of no opportunities. Trading profitably over the time not putting too much risk on any day's or even month's outcome certainly not depending so much on celestial alignments. One should always remember that this is a probability game and no home to certainty to both any given trade outcome or even month's worth of trading outcome.
The following 2 users say Thank You to xelaar for this post:
I thought that was smart trading, I saw that earlier yesterday. He was done by day 7, there was no reason to screw it up for the last 3 days, so he took 3 1-1 tick profits each days.
Completely by the rules, smart move. He has to pass the live trade preparation anyway....
Actually what he showed was he does not have confidence enough in his trading to finish out the combine. I know for a fact the TST scout team frowns upon this. Hoag has stated as much. If anything he has hurt his chances of getting a funded account.
Robert
nosce te ipsum
You make your own opportunities in life.
The following 2 users say Thank You to Silver Dragon for this post:
Seriously people, I explained in my Combine Strategy thread, that you have to play the Combine in a special way to pass it. Yes, he did get funded, so you are incorrect. Here is the explanation why he was smart:
Risk and reward: He reached his goal by day 7, you are not getting anything extra if you overshot the profit target, so there was nothing to gain by making 1K more. But if he gets a bigger losing day, he might need another 2-3 days to make it back. So by making the very minimal trades, he saved days, he followed the rules and he kept his exposure minimal. And he passed the Combine in the minimal days needed.
So Hoag is wrong. It is like in the NFL after week 13 your team made it to the playoffs. There are 4 more games left, but if your play off standings are not in danger, you might relax your best payers and let them rest, because except bragging rights, there is no point in winning 3-4 extra games, but it is necessary to have healthy players in the playoffs, when every games needs to be won.
And again, there was the playoff, the Live prep, and apparently he did pass that too, so TST did see that he can trade under different circumstances and it wasn't just a fluke...
Now I understand Hoag. A trader could have just 1 huge day and play it safe for the rest, 7-8 days, but this guy had decent numbers for 7 days, and didn't risk for the last 3, so I say this was smart trading, not gaming the system...
Fair enough - My point still stands though- if you try game the system you may have to go through the live prep unnecessarily and they may throw extra conditions in there to be sure your for real and you just didnt get lucky. Not sure why you would want to take this chance. If your a good trader why not prove it?
My understanding is that everyone has to do the Live prep, no matter what your Combine looked like. Maybe if you kicked the ball out of the stadium, but TST only loses 2-3 weeks profit making by making you do the Live prep, so that is a small price for them....
Site Administrator Swing Trader Data Scientist & DevOps
Manta, Ecuador
Experience: Advanced
Platform: Custom solution
Trading: Futures & Crypto
Posts: 50,013 since Jun 2009
Thanks: 32,472 given,
98,311
received
I agree completely and place it in the 'gaming the system' category, which has nothing to do with actual trading capability.
Combine's are useful for teaching skills necessary to be a good trader, if you set them up to be so. If your goal is to just pass the Combine, then that is not the same as having a goal of being a good trader.
Site Administrator Swing Trader Data Scientist & DevOps
Manta, Ecuador
Experience: Advanced
Platform: Custom solution
Trading: Futures & Crypto
Posts: 50,013 since Jun 2009
Thanks: 32,472 given,
98,311
received
Do you intend to be a trader? If so, how does the above apply in the world of trading? Whether you need someone else to fund you or not, once you are trading real cash, the above is not useful.
So why this guy got funded? I listened in the pit to his interview yesterday. He's from Malasia but he's not novice, he traded Malasian stock and I think he mentioned trading Indonesian stock indices as well. And he's traded at least 5 years. Now we can ask if he traded for 5 years how come he needs TST and 30k account, so perhaps he wasn't very profitable and does not have a capital even a small one. Which is fine. On the other side, perhaps TST understands the point Mike and Silver made, but if they will cut too severe they will be left with no traders: this program is not really intended to get on board experienced profitable traders, they try to get lucky with novices, while teaching them how to trade, and offering combines. Which is absolutely fine by my book. And after all this guy passed the test and only got 1500 usd max draw down risk. Not too big risk to speculate about long enough.
Mike, I know what you are saying, but this is only true for yourself in the honest look in the mirror. In the real life it is not like this - everybody doctor results, everybody. Funds can get dormant after a strike during first months of the year not to risk their 20% by the end of it, banks regularly put good trades on book and bad trades save for next year hiding in SPV and the bonuses based on good trades pretending bad ones do not exist, brokerages oh boy what not they do.. It's not right but it's an accepted norm in a perverted world of finance. So what this guy did is not gaming the system but just not taking unnecessary risk once conditions are achieved.
Neither is winners vs. losers duration stats... Nevertheless they measure you by it in the Combine... Actually, 2/3 of the Combine stats are unimportant in real trading....
Gaming the system would be if I discovered a glitch in the software and exploited it. Using sound special strategy to pass the combine while still following the rules is just common sense. After all the trader eventually has to keep making money, so no gaming the system would help him with that when trading Live. But he does have to pass the Combine first....
I may be wrong, but im fairly certain that it's been mentioned a few times in TST's youtube video's that the live prep is not done by everyone. It is only done when something does not completely sit right with them in the combine report eg:
- A couple large winning days, and then just taking 1 tick winners for the remainder
For the traders who trade consistently throughout the entire combine, the live prep is not done. They're looking for good traders who will stay funded. Not traders who pass the combine by knowing the intricacies of the rules, but cannot stay profitable in the long term.
I'll try find it somewhere on their website, but i've got a feeling it was only mentioned during one of their youtube videos. Perhaps email them to confirm.
@Big Mike , completely agree. I think the discussion of special tactics and strategies just to pass the Combine -- i.e., to fool TST into thinking you are their kind of trader -- is misplaced. Yes, you can shift the stats a little in your direction, but that's only a good idea if you think that the TST guys basically don't understand trading, so you need to play with them until you can get some of their money to put to use with your own (much better) methods.
Pedro, I do not mean to be critical, but have you really thought this out?
Yes, it is quite possible that someone can have a style of trading that does not agree with the TST approach, and yes, it is quite possible that it could be successful.
But these guys were professional traders for a long time. Sure, most (or all) were pit traders, which may have colored their thinking and trading styles; and other types of traders may have other styles and may also succeed.
On the other hand, it's a mistake to think that they put these criteria in because they're just dumb and inexperienced.
For instance, how long you stayed in your winning trades vs. your losing trades is a rough but generally accurate measure of whether you can cut your losses and not cut your winners too soon. Yes, you can have a big and quick gain and close it out profitably, but they want to know about your ability to control your losses, and this is one way to get a reading on it.
So are things like your winning percentages, your max drawdown, etc.
They are looking for a specific kind of trader: not, can you have big winning trades alone, but can you control your losses. They say that again and again, and that's what's in their metrics.
You may think trading is not about what they are looking for, but I take it as something to aim for.
(Disclosure: I have completed one Combine and got a rollover. I was told -- by @Hoag -- that "recovering your costs" is the first thing you need to be able to do to make it in trading. Then concentrate on your winners. I assume they know something about that.)
First that's what I thought too, but I can post very nice consistent Combine records from people who passed and still had to do the Live prep. But anyway, this topic is not so important to the main discussion...
Why would it be fooling them? After all, at the end of the day you still have to make money and be profitable. On the other hand I had a Combine where all my stats were nice (except one) but I didn't make money. So what good those nice stats did for me?
No argument from me, I agree....
Oh, I understand justifications for the stats. But that doesn't mean that in the real word they mean anything. And actually, they don't. You either make money at the end of the timeframe or you don't. Can you pay for anything in the grocery store with a good duration stats? Unfortunately, you can't.
For each stat I can show you a trading strategy where it works against you. The only stat that really matters in real life is the max. DD.
I understand that reasoning....
Apologies to Kevin, we kind of took his journal offtopic.
The following user says Thank You to Pedro40 for this post:
No, that is OK. I asked what would people do, if they were in a similar situation in the Combine. It is a good discussion, and people have raised some good points on both sides.
My only comment is that TST might frown upon the practice, but if it really bothered them, then they could easily create a rule prohibiting it.
For my Combine, I'm hoping to get to a point where I have to make a decision like the funded trader from Malaysia...
The following 3 users say Thank You to kevinkdog for this post:
Thanks for the question. I have to give an answer in number of days traded, since that is how I added up the combined effect of the three strategies.
Based on past history, I expected to trade in about 28 days of a 43 trading day Combine (65% of days). Each of those days would have between 1 to 3 trades, depending how many of the 3 independent strategies fired off on that day.
At this point, I have only traded on 15 of 31 days, or 48%. So, I am guessing I'll trade for 6 more days, which would give me 21 trading days total. I could have as many as 27 days, but I doubt that will happen.
So, during the Combine I definitely traded fewer days than I expected.
The following 3 users say Thank You to kevinkdog for this post:
Site Administrator Swing Trader Data Scientist & DevOps
Manta, Ecuador
Experience: Advanced
Platform: Custom solution
Trading: Futures & Crypto
Posts: 50,013 since Jun 2009
Thanks: 32,472 given,
98,311
received
I couldn't do it.
When I write algo's, I prefer ones that trade thousands of times per year. With such a low trade frequency of 15 per month or so, I would always be convinced of over curve fitting and it would take hundreds of trades to really know whether the strategy is performing as expected in real-time, or 2 years of collecting live trades at this rate.
I guess my view on algorithmic trading is to do something I cannot do as a discretionary trader. And that is primarily speed (obviously not HFT level). So when I write algo's they usually go to that end, and with speed comes higher trade frequency with smaller intervals per trade, again reacting to certain things faster than I could as a discretionary trader, while also setting profits and such far smaller than I would ever do as a discretionary trader.
It seems your algo is really just an extension of your own discretionary trading style?
I guess you could say that, although I really don't have a discretionary style. I do a variety of strategies, whatever tests well.
When I create a strategy, I usually end up wherever it leads me. Usually it ends less frequent trading, and usually overnight holds. The Combine experiment forced me to close at end of day, which I don't do a lot.
But perhaps a more high frequency approach might be better for the Combine. Once they get Ninja working with it, it will be a legitimate option.
The following 2 users say Thank You to kevinkdog for this post:
