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Taking a Trading System Live


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Taking a Trading System Live

  #211 (permalink)
Phoenix Arizona
 
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Kevin, do you think this has something to do with the market being slow and thin?

I have been experiencing much the same....though
I am negative a bit.

Ddawg

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  #212 (permalink)
Legendary Market Wizard
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Ddawg View Post
Kevin, do you think this has something to do with the market being slow and thin?

I have been experiencing much the same....though
I am negative a bit.

Ddawg

It certainly could be the case. Just not as many opps to trade. Some of the big movement days (like the Fed day a few weeks ago) I only missed by a few ticks. But I do hope volatility increases - that is usually a good thing.

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  #213 (permalink)
Legendary Market Wizard
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rk142 View Post
Kevin,

Excellent thread. Thank you.

In response to a question about your approach to optimization you wrote the following:



Could you say a bit more about the tools / decision making process you use to make decisions about the IN/OUT periods you use?

I'm afraid of optimization.

thanks,
RK


I have been a bit behind in my work, so I apologize to @rk142 for not addressing his question yet. I have not forgotten it though, and hope to give a good answer soon.

Thanks for your patience!

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  #214 (permalink)
Chicago, IL
 
Experience: Advanced
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Hey Kevin, great journal you got going here. I just caught up with the whole thing this week! Your posts regarding trading being boring reminded me of my recent TF system that I thought I'd share. Hopefully readers find it interesting to look briefly at a different system and my experience.

I developed this system earlier this year. I did use your Monte Carlo spreadsheet but must not have saved the results. Thanks for sharing that. Keep in mind this data below does not include slippage or commission. It is based on 1 TF contract per trade. I did run some WFO but didn't find enough difference to bother with it. I ended up optimizing over 3 years on max. PF and used the first 6 months of 2013 as out of sample data. The stats/curve looked the same and I saw no obvious difference in the equity curve.



So I started trading live June 1st, expecting the average profit per trade to be ~3 ticks. Yes this is very low but was better than my recent trading so why not?
Things began with a drawdown (don't they always?) but later had a good run:


By the end of July, after 2 months, I decided to stop trading the system.

I had in the back of my head all along that I never really had an incubation period. It was a "live" incubation! LOL Plus, although I had a small gain (~$700 I think), performance was recently flat/down and I wanted to take my trading a different direction and try a discretionary approach for awhile which would limit my focus on systems. Keep in mind systems I do trade are all mechanical and I do not have a Ninja license so can't automate currently.

Over the past 2 months, the system has been really flat so I have no regrets for now. I will keep an eye on it and may trade it again (or automate it) at some point in the future.
June thru Sept:

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  #215 (permalink)
Legendary Market Wizard
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Thanks!

Thanks for sharing MBA. Any particular reason why your original analysis did not include slippage or commissions? Is the 3 tick profit gross or net? It looks like your bottom charts expect 4 ticks per trade ($40), so I am a bit confused.

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  #216 (permalink)
Chicago, IL
 
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kevinkdog View Post
Thanks for sharing MBA. Any particular reason why your original analysis did not include slippage or commissions? Is the 3 tick profit gross or net? It looks like your bottom charts expect 4 ticks per trade ($40), so I am a bit confused.

Sorry for confusion. First my bottom chart assumes $43.60 net per trade with standard deviation of $440. And I see I attached an earlier version of my system's equity curve on my 1st chart. Attached is the latest version (the one I had been trading) which shows avg. profit of $48/trade through today. For the period 1/1/10 - 6/1/13 it was $51.24 so it has dropped a bit with the "live/incubation" performance since June 1st. Again, all my Ninja reports do not include slippage or commissions. I just find it easier to subtract that myself later when I export to Excel. The "Expected Performance Curves" above DO adjust for slippage and commission. I only included 1/2 tick of slippage per roundtrip which I realize is much smaller than you would use but I found that pretty realistic with this system trading 1 lots.

So I guess I should have said that in theory, I expected the avg. trade to produce 4.3 ticks of net profit, not 3. But in reality I like to set expectations a bit lower due to unforeseen things, human error, incorrect assumptions, etc. Perhaps not low enough in this case as the average profit in period since June 1st is just $2.37/trade or 1/4 of a tick! That's pretty far from 3 or 4 ticks!

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  #217 (permalink)
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MBAGearhead View Post
Again, all my Ninja reports do not include slippage or commissions. I just find it easier to subtract that myself later when I export to Excel.

One word of caution with this approach, especially if you optimize based on Net Profit or something similar. The optimizer will usually give you a best set of parameters that make you trade too much. Here is an example:

Without Slippage or Commission:

Parameter Setting #1: Gross Profit/trade = $25, 1000 trades, Gross Profit=$25000

Parameter Setting #2: Gross Profit/trade = $50, 300 trades, Gross Profit=$15000

The optimizer will select Setting #1 as superior.


With $25 Slip and Commission:

Parameter Setting #1: Net Profit/trade = $0, 1000 trades, Gross Profit=$0

Parameter Setting #2: Net Profit/trade = $25, 300 trades, Net Profit=$7500

The optimizer will now select Setting #2 as superior.


So, I hope you can see the that adding in costs up front may be really important.

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  #218 (permalink)
Chicago, IL
 
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kevinkdog View Post
One word of caution with this approach, especially if you optimize based on Net Profit or something similar. The optimizer will usually give you a best set of parameters that make you trade too much.

Excellent point Kevin of which I am very aware. I never optimize on Net Profit, partially for that reason. I prefer to optimize on avg. profit per trade and that is the first metric I look at after Ninja generates a report. If this isn't high enough, it's back to the drawing board.

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  #219 (permalink)
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Week 7

7 weeks into trading this system live, and things went bad this week. The cumulative equity is hovering right around the 10% line, which is a good warning sign that the system is not working the same as its historical test. If circumstances were different I might consider stopping trading this system. The things working against the "quit now" idea are:

1) There are only 18 days of live trading data - too short in my mind to make a decision to quit

2) Most importantly, when I laid out the criteria for stopping live trading, performance relative to this chart was not considered (some times, I do consider this chart in my "when to quit" analysis).


So, I will keep on keepin' on, realizing that things need to improve.







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  #220 (permalink)
New York
 
 
Posts: 5 since Mar 2013
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Great Question Kevin!



kevinkdog View Post
With this question, I am trying to get everyone to think emotionally, not analytically. Here you are, all excited to start trading a system live, one that you predict will more than double your money in a year. Yet, after 5 weeks of trading, you are stuck in neutral. You really need this system to perform, or else that trip to Disney next year is out. And you just read Trader Y's journal, where he is killing it with 100% returns just this last month. Maybe you should abandon your approach and follow his...

It is an exercise, but look at it emotionally, and put yourself in that situation. You'll learn some interesting things about yourself...

Great question Kevin!

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