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Taking a Trading System Live


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Taking a Trading System Live

  #251 (permalink)
Market Wizard
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Luger View Post
As to the reasons, I believe that @Fat Tails could give us a math lesson that would prove that longer time frames should be more profitable. He posted it in another thread or threads because the timeframe topic is usually addressed as a sub-topic to something else. Though I believe it gets down to the points you made about noise and costs.


Technically, there is a sweet spot between smaller timeframe trading (scalping) and larger timeframe trading (investing). The exact location of that sweet spot depends on variable costs such as slippage and commissions. We have already discussed this subject in the thread on "Risk of Ruin".

The question was asked by @Big Mike in this post:



and I had tried to give a simplified answer here:




The main idea was to compare risk-adjusted returns. Usually the shorter timeframe system (intraday trading) comes out winner compared to the longer timeframe system (swing trading), so I am not entirely with you.
The reason is that if you trade a longer timeframe the variance of returns is much larger compared to the variance of returns of the system that trades faster. In the example discussed in the thread on "Risk of Ruin", the higher timeframe system has a risk of ruin about 1,350 times higher than the smaller timeframe system.

As the fast trading system has a lower variance of returns and thus a lower risk of ruin, you may increase leverage and trade a larger number of contracts.

However, intraday trading also has its downsides. Commissions and slippage are much higher in relation to the average return per trade. Also intraday trading takes a higher toll on the health of the trader, unless the trades are fully automated.

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  #252 (permalink)
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Excellent conversation, guys!

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  #253 (permalink)
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Big Mike View Post
Years ago I did exclusively intraday type strategies. I also believe automation should leverage its strengths of speed (more trades, faster reaction times).

However, over the years I've drifted to portfolio strategies that trade a basket of stocks or futures. This gives me the increased frequency I demand and creates some intraday trades as a group.

I find this to literally be the holy grail and cannot encourage it enough over the traditional one strategy one instrument system.

Portfolio trading is the best way to manage risk IMO. After you do that, profits are the easy part.

Sent from my LG Optimus G Pro

Mike -

When you develop a portfolio strategy for a basket of futures, are you using the exact same strategy for each futures instrument? If so, are you using the same parameters for each instrument, or do you "tune" for each?

What do you think makes it the Holy Grail? The diversification aspect?

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  #254 (permalink)
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kevinkdog View Post
Mike -

When you develop a portfolio strategy for a basket of futures, are you using the exact same strategy for each futures instrument? If so, are you using the same parameters for each instrument, or do you "tune" for each?

What do you think makes it the Holy Grail? The diversification aspect?

I have tried all kinds of options.

Presently spending my time on a single strategy with two parameters, a moving average length and an oscillator length. These same parameters have been tested against dozens and dozens of uncorrelated instruments and have produced good results in the portfolio so far.

In this case, I do use NT to optimize the entire basket/group at one time, for the best parameter across say 20 stocks over say 10 years of data.

Mike

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  #255 (permalink)
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Big Mike View Post
I have tried all kinds of options.

Presently spending my time on a single strategy with two parameters, a moving average length and an oscillator length. These same parameters have been tested against dozens and dozens of uncorrelated instruments and have produced good results in the portfolio so far.

In this case, I do use NT to optimize the entire basket/group at one time, for the best parameter across say 20 stocks over say 10 years of data.

Mike

Thanks for sharing. I wonder how much of your performance is attributable to entries and exits being of high quality, as opposed to so-so entries and exits, but with superior diversification. I personally have found that diversification plays a major role in overall success.

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  #256 (permalink)
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kevinkdog View Post
Thanks for sharing. I wonder how much of your performance is attributable to entries and exits being of high quality, as opposed to so-so entries and exits, but with superior diversification. I personally have found that diversification plays a major role in overall success.

It's all about diversification. Any one strategy on one instrument is nothing special, but put a dozen of them in a basket and the equity curve and drawdowns can become magical.

Mike

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  #257 (permalink)
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kevinkdog View Post

So, usually when I start development, I select short timeframe bars (1 minute to 5 minute), throw in the "set exit on close" statement to exit at the end of the day, and jump into development.

Nine times out of ten, though, the strategy fails.

I've heard FT71, on multiple occasion, talk about how it's almost totally about the exit, and that one can make money with a random entry method; and that he can prove it.

What would you say about that statement?

I think THAT would be an excellent webinar..... and thusly, shatter the academic world, and have Eugene Fama running for the hills.

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  #258 (permalink)
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indextrader7 View Post
I've heard FT71, on multiple occasion, talk about how it's almost totally about the exit, and that one can make money with a random entry method; and that he can prove it.

What would you say about that statement?

I think THAT would be an excellent webinar..... and thusly, shatter the academic world, and have Eugene Fama running for the hills.

I would agree in principle with that assertion. Van Tharp and hedge fund manager Tom Basso did the same thing a bunch of years ago. I wrote a few articles for Active Trader Magazine a few years back looking into that - random entries, and random exits.

I think it is timeframe dependent though. A scalping strategy will probably never work with random entries. A long term swing strategy very well might.

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  #259 (permalink)
Birmingham, AL
 
 
Posts: 1,065 since Apr 2012

I read an academic study once in college that showed how there was more skew and kurtosis in longer timeframes than shorter ones (in forex). This could also be another reason to add to the thorough ones you listed previously.

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  #260 (permalink)
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kevinkdog View Post
.... looking into that - random entries, and random exits....

Isn't it about that you can have a winning system with random entries but with non random exits.
The exit counts so it shouldn't be random.

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