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Taking a Trading System Live

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  #401 (permalink)
 kevinkdog   is a Vendor
 
 
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Only 2 trades this week, both small, both positive.

I'm sure most people watching would have given up on this strategy by now, and I understand. I am going to stick to my original plan, though, and see what happens.









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 sixtyseven 
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I think you should update the chart (upper/lower 10% and average predicted lines) based on a gradual increase in contract size. The average shouldn't be quite so linear and I'd expect the lower 10% line would be lower that what it is. This might give you some hope that you aren't in the bottom 10%. The lines on the chart aren't giving you the information they are designed for.

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 tturner86 
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kevinkdog View Post
Only 2 trades this week, both small, both positive.

I'm sure most people watching would have given up on this strategy by now, and I understand. I am going to stick to my original plan, though, and see what happens.





Attachment 138264


Attachment 138265

I find it very fascinating to watch. Thank you for journaling it.

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I think you should update the chart (upper/lower 10% and average predicted lines) based on a gradual increase in contract size. The average shouldn't be quite so linear and I'd expect the lower 10% line would be lower that what it is. This might give you some hope that you aren't in the bottom 10%. The lines on the chart aren't giving you the information they are designed for.

You bring up a great point.

All the data in the chart is for 1 contract traded, so yes unfortunately I am in the bottom 10%. I have tried in the past to do these charts with a variable number of contracts, and (for me at least) the story gets muddled. So, I stick to the single contract chart. And the story it is telling is not very good right now!

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tturner86 View Post
I find it very fascinating to watch. Thank you for journaling it.

Sort of like a slow motion car crash.

Funny thing is a month or so ago - it was at an equity peak, and I had added on a contract.

My, how things can change so quickly.

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 tturner86 
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kevinkdog View Post
Sort of like a slow motion car crash.

Funny thing is a month or so ago - it was at an equity peak, and I had added on a contract.

My, how things can change so quickly.

A bit, but I appreciate it because it made me think about my trading differently.

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A bit, but I appreciate it because it made me think about my trading differently.

That's good. If you'd like to share how you think differently, I'm sure a lot of people would love to hear it. I'm constantly thinking of ways to improve what I do (just based on this strat's performance, I may need it!), so it would be interesting to hear your thoughts.

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A bit, but I appreciate it because it made me think about my trading differently.

I'll throw out one example of thinking differently.

I have a CTA friend, excellent programmer and trader. He creates mechanical systems, and does pretty well. BUT, on many of his strategies, he has an uncanny ability of when to turn the automated strategy on and off, based on whatever conclusions he makes in his mind.

I've always though that is a terrible way to do things - program an automated strategy, but then basically use discretion to turn it on and off.

But the market doesn't care what I think is a good idea. And the market is telling him that he is doing it right.

So, maybe that is something I need to look at. Certainly, I see trades with my automated strats that make me think "Huh? The trade is awful! It is going to lose." But I still let it go. Maybe that isn't always the best answer...

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 tturner86 
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kevinkdog View Post
I'll throw out one example of thinking differently.

I have a CTA friend, excellent programmer and trader. He creates mechanical systems, and does pretty well. BUT, on many of his strategies, he has an uncanny ability of when to turn the automated strategy on and off, based on whatever conclusions he makes in his mind.

I've always though that is a terrible way to do things - program an automated strategy, but then basically use discretion to turn it on and off.

But the market doesn't care what I think is a good idea. And the market is telling him that he is doing it right.

So, maybe that is something I need to look at. Certainly, I see trades with my automated strats that make me think "Huh? The trade is awful! It is going to lose." But I still let it go. Maybe that isn't always the best answer...

You hit the head on the nail, I have been thinking about how and why to use automated systems. I trade discretionary using price action, so automation seems foreign to me. So it is interesting to see how you created your system and then trying to execute it.

But the biggest thing I have been thinking about differently is the scaling of position size. Before I just thought once I get the x dollars I add a contract and for every x dollars I ramp up. But I find it interesting in how each time you have ramped to the second contract the wheels comes off so to speak. So that has made to rethink how I need to scale my position size.

I am reading The Trading Game and Super Trader: Make Consistent Profits in Good and Bad Markets by Van Tharp, so I have really been thinking about my position sizing and then thinking about it from different perspectives. Viewing your journal has given me a different perspective on trading in general. (Although it is having difficulties, I do not believe that it is a bad strat, but may take time to be profitable).

A second thing it has made me think about is how to handle drawdowns and how and when to scale your position size down to protect your account.

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You hit the head on the nail, I have been thinking about how and why to use automated systems. I trade discretionary using price action, so automation seems foreign to me. So it is interesting to see how you created your system and then trying to execute it.

But the biggest thing I have been thinking about differently is the scaling of position size. Before I just thought once I get the x dollars I add a contract and for every x dollars I ramp up. But I find it interesting in how each time you have ramped to the second contract the wheels comes off so to speak. So that has made to rethink how I need to scale my position size.

I am reading The Trading Game and Super Trader: Make Consistent Profits in Good and Bad Markets by Van Tharp, so I have really been thinking about my position sizing and then thinking about it from different perspectives. Viewing your journal has given me a different perspective on trading in general. (Although it is having difficulties, I do not believe that it is a bad strat, but may take time to be profitable).

A second thing it has made me think about is how to handle drawdowns and how and when to scale your position size down to protect your account.

You bring up some interesting points. Is it more than just coincidence that, following my rules, I've increased size 2 times (both times, after a run up obviously), only to have to retreat when a bad streak happens? I would have been better off trading constant size.

It is definitely worth thinking about. Of course, it looks like I'll have some time now before I get to that 2 contract threshold again!

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  #411 (permalink)
 tturner86 
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kevinkdog View Post
You bring up some interesting points. Is it more than just coincidence that, following my rules, I've increased size 2 times (both times, after a run up obviously), only to have to retreat when a bad streak happens? I would have been better off trading constant size.

It is definitely worth thinking about. Of course, it looks like I'll have some time now before I get to that 2 contract threshold again!

I don't remember the book I read it in, but it said something like Your biggest drawdowns occur after great periods of success. Or something like that. That after a great period of success you will have a period of drawdown, and how you handle that drawdown will determine if the overall period is profitable.

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 sixtyseven 
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kevinkdog View Post
You bring up a great point.

All the data in the chart is for 1 contract traded, so yes unfortunately I am in the bottom 10%. I have tried in the past to do these charts with a variable number of contracts, and (for me at least) the story gets muddled. So, I stick to the single contract chart. And the story it is telling is not very good right now!

I think it's worth the time to get a good spreadsheet going. It's not that hard when you use a few helper columns in excel. Ton's of ways to do it, but some suggestions:
- Put your backtest data on one sheet - with points won/lost.
- On the summary sheet have all your settings - Start equity, points risked per trade, Equity Ruin Level, annual trades, commission, slippage per contract etc
- On the calculation sheet have a number of different Columns. I use - "Trade #", "Random outcome", "Contracts", "P&L", "Cum. P&L", "Max Risk".
The "random outcome" uses the RAND() with simple VLOOKUP to grab one of the backtest data points.
"Contracts" just has a few IF AND nested formulas to calc the contracts based on Cum P&L, checking that it's not above Max Risk, or below the Ruin threshold
"P&L" calculates the outcome and adds on slippage/commissions based on the number of contracts.

You probably already have the VBA to modify so you can loop through x simulations.
Modify it to copy from the Calc page to a Results page taking with it some summary numbers from each simulation. I like to capture number of full wins / losses, max DD etc.

Once all the data is on the Result page you can just manually sort the final data into ranks, and manually graph the 10% lines - it can get pretty tricky with VBA unless you have some experience.

I chart the bottom 10% and 1%simulation - and pick the worst performing of each case - based on its performance 25% of the way through the # of annual trades (there could be a number of trades in the 10 percentile - all with varying paths to the final P&L). I also chart the 50th percentile using 2 lines - with the best and worst performing simulations at the 25% mark. They can travel some funky paths to the same final P&L. Quite often the 1%,10% and bottom 50% travel similar paths for a lot of the period, before diverging right at the end. Performance near these bands is a cause for concern. It actually demonstrates your position quite well. You won't know if you are on that outlier 50% - with some big wins right around the corner, or whether you are on that 1% line, about to drop of just a little bit more. And this is where the analysis of the market data comes in. To try and ascertain if the underlying reason for the original trade is still valid in the current data. This is something I personally need to come to grips with to aid in my trade decisions.

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  #413 (permalink)
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Thanks for taking the time to lay out all the details of such an approach. This is very useful info!

I did something similar when I determined where to add contracts. What I did not include in the final analysis is showing the trade by trade progression, as you have explained.

Since right now I am stuck trading one contract (until I get to $10,104 equity), I will show the my Monte Carlo analysis with position sizing when I get closer to the "add on" point.

Thanks for your suggestion! It is a worthwhile topic to examine and discuss.

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 tturner86 
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kevinkdog View Post
Thanks for taking the time to lay out all the details of such an approach. This is very useful info!

I did something similar when I determined where to add contracts. What I did not include in the final analysis is showing the trade by trade progression, as you have explained.

Since right now I am stuck trading one contract (until I get to $10,104 equity), I will show the my Monte Carlo analysis with position sizing when I get closer to the "add on" point.

Thanks for your suggestion! It is a worthwhile topic to examine and discuss.

What is your reasoning for increasing size at 10104? Why that equity specifically? I may have missed it earlier in the thread.

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What is your reasoning for increasing size at 10104? Why that equity specifically? I may have missed it earlier in the thread.


This was much earlier in the thread. There is also a Part 2 right below it.





AND, it looks like I had a typo earlier: the next equity add on point is at $10,114.

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 aventeren 
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Kevin--

I've been reading along, as well, and I just want to add my Thank You to the growing list of other futures.io (formerly BMT) members that appreciate what you are doing with this journal.

For what it's worth, unless you had an incubation system that was showing vastly better results, I believe you should continue trading the plan that you established at the outset. However, if you do end up substituting a system, perhaps you would be willing to continue this thread with the new substituted system. Heck, I bet if you put the substituted back test trade data up that you could get some of your readers to even take a crack at helping you from Monte Carlo forward--kind of a far flung idea, but perhaps both parties would realize some value from the additional exercise(s).

In any event, thanks.

All best,

Aventeren

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aventeren View Post
Kevin--

I've been reading along, as well, and I just want to add my Thank You to the growing list of other futures.io (formerly BMT) members that appreciate what you are doing with this journal.

For what it's worth, unless you had an incubation system that was showing vastly better results, I believe you should continue trading the plan that you established at the outset. However, if you do end up substituting a system, perhaps you would be willing to continue this thread with the new substituted system. Heck, I bet if you put the substituted back test trade data up that you could get some of your readers to even take a crack at helping you from Monte Carlo forward--kind of a far flung idea, but perhaps both parties would realize some value from the additional exercise(s).

In any event, thanks.

All best,

Aventeren

For the forseeable future, I am sticking with the original plan.

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tturner86 View Post
(...)
I am reading The Trading Game and Super Trader: Make Consistent Profits in Good and Bad Markets by Van Tharp, so I have really been thinking about my position sizing and then thinking about it from different perspectives. Viewing your journal has given me a different perspective on trading in general. (Although it is having difficulties, I do not believe that it is a bad strat, but may take time to be profitable).
(...)

I think Tharp's book are great (I have them all, I believe), but besides his position sizing ideas he does not provide much value for algorithmic traders. Kevin, which books are on your 'must read' reading list? (Besides, obviously, your own forthcoming book ).


kevinkdog View Post
For the forseeable future, I am sticking with the original plan.

I don't mean this harsh, but I realize that it may sound that way if I type it here, but:

Shouldn't you call it quits with this strategy?

It is true that your maximum drawdown has not been reached yet. However, your strategy severely lags the performance it "should" be able to achieve. That got me thinking about the following. If you go back multiple steps, and forget all things about money and trading, you'll arrive at your alpha model and its alternative hypothesis.

Given the recent lack of performance, isn't the market telling you that, for the time being, your alternative hypothesis is wrong?

Depending on the value of the statistical test you choose to use for that, shouldn't that also mean that you might be better of not trading the strategy for a while, until its performance indicates that its results are better in 2014 than might be expected by chance?

(I also think that one should stop trading if the theoretical assumptions underlying the alpha model are invalidated. Are your theoretical assumptions public, btw? It might be interesting to explore these. Perhaps something changed in 2014 in the market that might explain the lack of performance.)

I know this is a little bit too strict , but let's look at something different than trading and assume that your model does not predict prices but predicts which teaching method is best. Then, looking at the data, we can see that children's grades have been around the low 10% of their predicted grades for the last 72 days. Would that not give strong evidence that, for the time being, the teaching method does not work? Even though the teaching budget (i.e. the max drawdown) has not been evaporated yet?

(I'm really curious what you, and other people in this thread, think about that. Thanks in advance for any comment. ).

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Jura View Post
I think Tharp's book are great (I have them all, I believe), but besides his position sizing ideas he does not provide much value for algorithmic traders. Kevin, which books are on your 'must read' reading list? (Besides, obviously, your own forthcoming book ).


I don't mean this harsh, but I realize that it may sound that way if I type it here, but:

Shouldn't you call it quits with this strategy?

It is true that your maximum drawdown has not been reached yet. However, your strategy severely lags the performance it "should" be able to achieve. That got me thinking about the following. If you go back multiple steps, and forget all things about money and trading, you'll arrive at your alpha model and its alternative hypothesis.

Given the recent lack of performance, isn't the market telling you that, for the time being, your alternative hypothesis is wrong?

Depending on the value of the statistical test you choose to use for that, shouldn't that also mean that you might be better of not trading the strategy for a while, until its performance indicates that its results are better in 2014 than might be expected by chance?

(I also think that one should stop trading if the theoretical assumptions underlying the alpha model are invalidated. Are your theoretical assumptions public, btw? It might be interesting to explore these. Perhaps something changed in 2014 in the market that might explain the lack of performance.)

I know this is a little bit too strict , but let's look at something different than trading and assume that your model does not predict prices but predicts which teaching method is best. Then, looking at the data, we can see that children's grades have been around the low 10% of their predicted grades for the last 72 days. Would that not give strong evidence that, for the time being, the teaching method does not work? Even though the teaching budget (i.e. the max drawdown) has not been evaporated yet?

(I'm really curious what you, and other people in this thread, think about that. Thanks in advance for any comment. ).


Thanks for the post. You are not being harsh at all. I welcome civil criticism and discussion/debate of what I am doing here. It is just when people get personal, accusatory and use inappropriate language and bad manners that I get ticked off. Some people post on the Internet stuff they'd never say face to face, and that is bad. But no worries, because that is what the ignore button is for, right?


Anyhow, some algo system authors I like:

Pardo
Aronson
Art Collins
Tomasini and Jaekel
Kaufman
Keith Fitschen (I haven't read his book, but I know he is a sharp guy)


As far as my system goes, before I started I had established my "quitting" criteria in advance. Why? Because I found that I make bad decisions in the heat of the moment. Most people do. I turn things off based on emotional responses. That is not good for me.

Ironically, I am friends with a CTA (Commodity Trading Advisor) who creates algo systems, but when he senses the market has changed, he turns the strategy on or off. It works for him, judged by his performance, so I can't say it is a bad thing for him to do.

He'd probably look at my performance, and say that the system is just not acting well. My guess is that because the volatility has gone down, there are less trading opportunities, and the ones that do appear are of possibly lower quality. One indication of this is that I have not had a "big winner" since going live. If you look at statistics (buried somewhere in this thread), you'll see I should have had at least one big winner by now.

What to do? Well, my original criteria was drawdown based. If I had made a quitting point based on lower 10% performance (from the running chart I show), I probably would have quit. But I didn't, so I'm not going to add that criteria now. I try not to second guess myself, as that can have long term bad consequences. Maybe, though, when I rollout a similar system in the future, I will include that criteria.

One other "quit" point I mention in the thread is the "next best alternative." Every few months or so, I look at the portfolio of systems I trade, possibly adjust the capital I allocate, and possibly replace underperformers with something new. When that happens, I might decide to temporarily retire this system, and stick in another comparable system. Again, though, I wait to do it on a regular schedule. That keeps me from making a rash decision.

So, I hope I have explained my rationale. I understand your point of view, and clearly the strategy fits what you are saying (it is not working particularly well right now - nowhere near expectations). If I had more of a quick trigger, I might indeed stop trading it. But, I have a plan, and so I must stick to it.

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 Big Mike 
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What was the average daily range during your incubation period, compared to the live cash period so far?

Mike

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kevinkdog View Post
2 Trading Strategies in NGEC:

Strategy #1 - Trades Overnight session, has high winning percentage, lots of little wins and an occasional big loser
Strategy #2 - Trades Day session, lower win percentage, primary profit generator

All strategies are out by 3 PM ET each trading day. Both strategies are independent, and I'll only be in one at any given time.

Has one strategy outperformed the other?

"The days when I keep my gratitude higher than my expectations, I have really good days" RW Hubbard
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What was the average daily range during your incubation period, compared to the live cash period so far?

Mike


I just looked at the day session, since it seems to be trading a lot less than usual. Daily range has gone down a lot...


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Has one strategy outperformed the other?

Both currently in drawdown. Day chart is first, followed by night... Day has been in drawdown since 1/9/2014, and Night since 9/16/2013. Historically Day is the much more profitable system






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 deaddog 
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Both currently in drawdown. Day chart is first, followed by night... Day has been in drawdown since 1/9/2014, and Night since 9/16/2013. Historically Day is the much more profitable system





Attachment 140533

Is the night system the one taking the large losses as forecast?

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Is the night system the one taking the large losses as forecast?

Yes. Right now, after the last planned re-optimization, the max loss for the overnight system was changed to $325.

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As far as my system goes, before I started I had established my "quitting" criteria in advance. Why? Because I found that I make bad decisions in the heat of the moment. Most people do. I turn things off based on emotional responses. That is not good for me.

(...)

He'd probably look at my performance, and say that the system is just not acting well. My guess is that because the volatility has gone down, there are less trading opportunities, and the ones that do appear are of possibly lower quality. One indication of this is that I have not had a "big winner" since going live. If you look at statistics (buried somewhere in this thread), you'll see I should have had at least one big winner by now.

(...)

But, I have a plan, and so I must stick to it.

I'm a little late in replying, but still thanks for your comments Kevin.

Based on your comments above (and this thread in general), how did you develop confidence and stress resistance when it comes to trading in general and trading specific strategies? Or is this something that you just have?

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I'm a little late in replying, but still thanks for your comments Kevin.

Based on your comments above (and this thread in general), how did you develop confidence and stress resistance when it comes to trading in general and trading specific strategies? Or is this something that you just have?

It took a long while to develop confidence. I was able to get it from developing strategies (the wrong way), seeing them fail, and then slowly learning the right way to develop (which I do now).

The breakthrough for me was creating systems that actually made money, which gave me confidence I could develop good strategies, which lead to new strategies, most of which made money, etc. It then becomes a self reinforcing process.

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@kevinkdog, how are things wrapping up for March?

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@kevinkdog, how are things wrapping up for March?

Mike

Update in next few days. Just got back from the Happiest Place on Earth (DisneyWorld)....

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New to the board and just spent a while reading through from start to finish.

thanks for your honesty Kevin, been a good read. It's tricky watching a system go live after all the testing and seeing how it performs. I'm currently in the live SIM trading for my first system, it's good fun so far.

For me personally I couldn't handle this particular system, trades are way too infrequent for my tastes

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New to the board and just spent a while reading through from start to finish.

thanks for your honesty Kevin, been a good read. It's tricky watching a system go live after all the testing and seeing how it performs. I'm currently in the live SIM trading for my first system, it's good fun so far.

For me personally I couldn't handle this particular system, trades are way too infrequent for my tastes


Lately, the system has been trading less and less, due to the volatility being lower.

Definitely, though, one has to trade systems he/she feels comfortable with.

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Here are updated charts, etc through April 1, 2014.

The system is seriously underperforming expectations. It is not trading nearly as much as its historic norm, due to lower volatility of EC. I am going to keep going with this, per the plan detailed at the beginning of the thread.

This whole thread does bring up an interesting point - you can do everything correctly during development, and things still might not go as planned. I kind of compare it to an Olympic athlete. He or she trains and trains, and then when the competition is held, a lot of factors can help or prevent that person from winning. He may have done everything correctly in preparing, and still lose.

Of course, one could argue that this system was nowhere near Olympic athlete caliber to begin with!!!!








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This week (one trade in particular) was a good one... now the performance is at a point where the overall account is underwater only because of position sizing. If I have traded just constant size throughout, I'd be up about 10%.


Of course, this week's performance also exposes the weakness in this trading system - it needs big winning trades to create positive performance. Without the big trades, the system is blah. And, we have not had many big trades since going live. Only 2 trades about $500 profit, with Thursday's win by far the biggest.

When volatility returns to EC, I suspect we will see more big wins, and more trades in general.










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Week 34 in the books. Decent enough week.

Overall the account is still down about 6% from start. This is mostly due to position sizing (when I traded 2 contracts, I had quite a few losers). Note if I had traded a single contract the whole time, I'd be up about 17%.


I'm curious: how many of you would still be trading these systems live? And, why or why not?


Be as blunt/brutal as you wish. You won't offend me. There is no right or wrong answer here, just fodder for discussion purposes...






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..
I'm curious: how many of you would still be trading these systems live? And, why or why not?

I would have some difficulties. I would consider it a lost of time and money. Obviously my answer is based on some assumptions, ie, you depend on it to live and have no other income.

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i will follow the initial plan . But as a further rule I would probably stop the program if maxdd become a newer number and start to revise all the strategy structure.

Further I saw that the equity line has a dangerous and slow movement. Have you considered to put a switch refered to the volatility?

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I would have some difficulties. I would consider it a lost of time and money. Obviously my answer is based on some assumptions, ie, you depend on it to live and have no other income.

Good points. If this system was your only source of income, you'd be better off volunteering your time at a soup kitchen (and if you'd continue trading this system probably soon enough you'd be on the other side of the ladle ).

In your trading, do you depend on one strategy/market to make a living?

I use to try to do just that - I'd look for a super tremendous strategy that by itself would be sufficient. Eventually, I found that was nearly impossible (at least for me).

So, I diversify systems, markets, etc. That helps a lot. But even then, this system is not "carrying its weight" compared to what it should do.

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i will follow the initial plan . But as a further rule I would probably stop the program if maxdd become a newer number and start to revise all the strategy structure.

Thanks for the comment.

It is nice having a civilized conversation here, as opposed to the drama at another forum, right @coccigelus ?

Stopping when the max historical dd is hit is a pretty good stopping point, even though many people say "your worst drawdown is always in the future." So, I sometimes use 1.5 * max dd.

Just for reference, based on 1 contract, the historical max dd is $3,265. Since I started trading live, the max dd on one contract has been about $1,800.

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Good points. If this system was your only source of income, you'd be better off volunteering your time at a soup kitchen (and if you'd continue trading this system probably soon enough you'd be on the other side of the ladle ).

In your trading, do you depend on one strategy/market to make a living?

I use to try to do just that - I'd look for a super tremendous strategy that by itself would be sufficient. Eventually, I found that was nearly impossible (at least for me).

So, I diversify systems, markets, etc. That helps a lot. But even then, this system is not "carrying its weight" compared to what it should do.

Did you think to put the same weights to each trading system to keep your portfolio balanced ?

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Did you think to put the same weights to each trading system to keep your portfolio balanced ?


I typically put all the systems I am running live together in one Monte Carlo simulation, and try to have it tell me approximate weights for each system. For example, it might tell me I should trade 4 contracts of system X, 3 contracts of System Y and 1 contract of system Z.

When I do that analysis, I try to maximize return/drawdown, within certain constraints (like no max drawdown abouve XX%).

The answer turns out to be more involved than that, but I think that explains the general idea.

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Thanks for the comment.

It is nice having a civilized conversation here, as opposed to the drama at another forum, right @coccigelus ?

Stopping when the max historical dd is hit is a pretty good stopping point, even though many people say "your worst drawdown is always in the future." So, I sometimes use 1.5 * max dd.

Just for reference, based on 1 contract, the historical max dd is $3,265. Since I started trading live, the max dd on one contract has been about $1,800.

I was shocked for some comments I read there around and I felt bad for those that have experienced personal attacks with such intensity .

You are sitting at half of your maxdd so I will not be worried about. But I will try to do some test regarding the volatility and see how it can affect the yield. Few years ago I had a strategy on the wheat and I noticed that the volatility played an important role on that symbol. Maybe because the wheat behaviour is affected in some way by seasons?

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I was shocked for some comments I read there around and I felt bad for those that have experienced personal attacks with such intensity .

You are sitting at half of your maxdd so I will not be worried about. But I will try to do some test regarding the volatility and see how it can affect the yield. Few years ago I had a strategy on the wheat and I noticed that the volatility played an important role on that symbol. Maybe because the wheat behaviour is affected in some way by seasons?

Yes, volatility plays a big role, and that is probably true for any system. Somewhere in this thread I looked at volatility, and it was down since I went live. That could explain some of the underperformance.

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I was shocked for some comments I read there around and I felt bad for those that have experienced personal attacks with such intensity .

That is what makes Big Mike's such a great place. @Big Mike would have taken care of that other forum's issue immediately, before it spun out of control.

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That is what makes Big Mike's such a great place. @Big Mike would have taken care of that other forum's issue immediately, before it spun out of control.

Anyway I Think there are responsabilities for both factions. It should be not allowed to talk in that way and at the same time stop the conversation with off topic comments widely used by some members. Than with the new guest it turned out to be an asylum instead of a forum. BTW I felt a bit sorry for Tim that had not the chance to continuing his conversation.

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Some great comments and questions so far...

Put yourself in my shoes: continue trading this system, quit trading it, or "it depends?"

I think it is a good exercise, because this situation is sort of a gray area...

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Depends.

You have mentioned if volatility returns then you would expect some bigger winners. Not sure where that falls within your curve fitting parameters, but I'd test that in the historical data, and perhaps only trade those periods if the result was significant. The system depends on the big winners, and if they mostly occur during higher volatility, then....

It is a matter of luck when first sizing up so I'd want to have a better idea of the likely outcomes. As mentioned in a prior post - your chart doesn't accurately reflect the expected paths as its all based on 1 contract. I'd be surprised if you were actually below the lower band if you monte-carloed an increase in size. And this knowledge would give you a little more confidence.

Given the position sizing is so important I'd also spend a ton of time running different scenarios. Such as thresholds for going up, at what point to drop down again etc. The biggest hump is obviously going from 1 to 2. Given the size of your losers compared to the average smaller winner I'd say your doomed to be stuck between 1 and 2 until that lucky streak of 2 big winners comes along.

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Some great comments and questions so far...

Put yourself in my shoes: continue trading this system, quit trading it, or "it depends?"

I think it is a good exercise, because this situation is sort of a gray area...

@kevinkdog would you be asking the same question if you were up 17%?

You seem to be questioning the system solely because you flipped a coin (increased exposure by 100%) and got burned. Had you been trading 10 contracts would you have jumped to 20? Probably not.

My suggestion is to either trade more contracts as a base to minimize in the increase in volatility when you increase size (how would you pnl look if you started with 2 contracts and only increased 50%, or 10 contracts and only increased 10%?), or spend significantly more trades at 1 contract to effectively earn the equity you need to hit a reasonable account volatility the next time you double your exposure.

Don't take it out on the poor system, it was only doing what you told it to do.

.
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Depends.

You have mentioned if volatility returns then you would expect some bigger winners. Not sure where that falls within your curve fitting parameters, but I'd test that in the historical data, and perhaps only trade those periods if the result was significant. The system depends on the big winners, and if they mostly occur during higher volatility, then....

It is a matter of luck when first sizing up so I'd want to have a better idea of the likely outcomes. As mentioned in a prior post - your chart doesn't accurately reflect the expected paths as its all based on 1 contract. I'd be surprised if you were actually below the lower band if you monte-carloed an increase in size. And this knowledge would give you a little more confidence.

Given the position sizing is so important I'd also spend a ton of time running different scenarios. Such as thresholds for going up, at what point to drop down again etc. The biggest hump is obviously going from 1 to 2. Given the size of your losers compared to the average smaller winner I'd say your doomed to be stuck between 1 and 2 until that lucky streak of 2 big winners comes along.


Thanks. You make some good points.

Re: volatility, you suggestion is a good idea for a study of past history. I'll have to look at what I've already done in this regard.

Re: position sizing, one thing I did not do is run a ton of different position sizing techniques. You are right, a different technique may have been a better choice. As it has turned out, both times I have scaled up have been met with a bunch of losses, pushing me back down.

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@kevinkdog would you be asking the same question if you were up 17%?

You seem to be questioning the system solely because you flipped a coin (increased exposure by 100%) and got burned. Had you been trading 10 contracts would you have jumped to 20? Probably not.

My suggestion is to either trade more contracts as a base to minimize in the increase in volatility when you increase size (how would you pnl look if you started with 2 contracts and only increased 50%, or 10 contracts and only increased 10%?), or spend significantly more trades at 1 contract to effectively earn the equity you need to hit a reasonable account volatility the next time you double your exposure.

Don't take it out on the poor system, it was only doing what you told it to do.


Thanks, good points. You are 100% right, that the position sizing technique I used is more to blame than the system itself, even with the system underperforming.

Many people tend to think that position sizing is much less important than the system itself. Ralph Vince (of optimal f fame) claims positions sizing accounts for 90% of performance (the system being the other 10%). In this case, so far the position sizing technique has been the big determinant in the overall performance.

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 kayaktri 
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Kevin,

I am very appreciative of you keeping all of us abreast of the progress for this system. As you are likely aware, from a readers perspective, this thread has slowed down a bit from its inception. Part of that is due to the nature of the life cycle of where this system currently resides (you spent quite a bit of time explaining the system testing and modeling early in the thread, and now we are in the system maintenance/management mode). And part of it is that the system is not very active.

I am wondering if you might consider interjecting some of the activities you perform from some of your other systems on a regular (or at least somewhat regular) basis or consider the topic of looking at a portfolio of systems. I appreciate your ability to not focus on the entry triggers, as I believe that allows this forum thread to focus on the system itself. However, if you are so inclined, I would like to touch upon the idea of considering furthering the topic by discussing some other aspects as well (maybe in a new thread?) like system portfolio management, or the like. Or, possibly creating a thread discussing your thoughts on topics like system exits, which I think many folks (including myself) could benefit from.

For example - how does one determine when and where to exit to get a profitable system. I know you can run hundreds of thousands of tests using software to do this on historical data, but there is a lot more to this aspect that meets the eye. We always hear the axiom - 'Cut your losers short and let your winners run', and 'don't change your stops once set'. So far in your system, your average losing trade is quite a bit larger than your average winning trade - which many would consider non-conformist and would allow many to comment - 'that will be a losing system because it breaks a 'rule' of trading'. And, even though I am suspecting you do not change your stops after entry, I am curious as to if you have analyzed (on this or other systems) if a system is more profitable/ less profitable when doing so.

As an example, I was incubating a system for a time where I was changing my stop on a regular basis (always in my favor - never against), and I had a few folks state that this was a sure way to lose money. But what I did not see was them providing analysis of the details as to why this was true (other than this price was the stop you analyzed to be a level you knew you were wrong when you entered, then why would this change after you got into the trade). For example on my system my trades always started with a -1R stop - after entering, if the trade went in my direction +.25R, I would move the stop from -1R to -.75R, a +.5R move had me moving my stop to -.5R, a +.75R move had me moving my stop to -.25R, and a +1R gain had me moving my stop to BE - .01. When I conducted my analysis (in real time, not historical), it showed that moving my stops in this manner were more profitable than not moving them, even though this flies in the face of what many/most people call for (and many people state here and other forums).

This got me wondering, am I wrong?, do these other folks run a thorough analysis of their trading to determine if they are more profitable? does this only apply to certain trading styles? etc. etc. It also got me thinking trading is like a religion (defined as: a specific fundamental set of beliefs and practices generally agreed upon by a number of persons or the body of persons adhering to a particular set of beliefs and practices), once someone gets their mind set in a particular direction, they are extremely reticent to change it and consider other ideas. I would be curious from a systems development perspective, what you and other people (who lend an analytical eye to systems) are thinking. Again, this topic may likely get this thread off track, or it may stimulate more conversation, I will let you be the judge.

Just a thought, and thank you again for your continued support in educating us on this topic.

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Kevin,

I am very appreciative of you keeping all of us abreast of the progress for this system. As you are likely aware, from a readers perspective, this thread has slowed down a bit from its inception. Part of that is due to the nature of the life cycle of where this system currently resides (you spent quite a bit of time explaining the system testing and modeling early in the thread, and now we are in the system maintenance/management mode). And part of it is that the system is not very active.

I am wondering if you might consider interjecting some of the activities you perform from some of your other systems on a regular (or at least somewhat regular) basis or consider the topic of looking at a portfolio of systems. I appreciate your ability to not focus on the entry triggers, as I believe that allows this forum thread to focus on the system itself. However, if you are so inclined, I would like to touch upon the idea of considering furthering the topic by discussing some other aspects as well (maybe in a new thread?) like system portfolio management, or the like. Or, possibly creating a thread discussing your thoughts on topics like system exits, which I think many folks (including myself) could benefit from.

For example - how does one determine when and where to exit to get a profitable system. I know you can run hundreds of thousands of tests using software to do this on historical data, but there is a lot more to this aspect that meets the eye. We always hear the axiom - 'Cut your losers short and let your winners run', and 'don't change your stops once set'. So far in your system, your average losing trade is quite a bit larger than your average winning trade - which many would consider non-conformist and would allow many to comment - 'that will be a losing system because it breaks a 'rule' of trading'. And, even though I am suspecting you do not change your stops after entry, I am curious as to if you have analyzed (on this or other systems) if a system is more profitable/ less profitable when doing so.

As an example, I was incubating a system for a time where I was changing my stop on a regular basis (always in my favor - never against), and I had a few folks state that this was a sure way to lose money. But what I did not see was them providing analysis of the details as to why this was true (other than this price was the stop you analyzed to be a level you knew you were wrong when you entered, then why would this change after you got into the trade). For example on my system my trades always started with a -1R stop - after entering, if the trade went in my direction +.25R, I would move the stop from -1R to -.75R, a +.5R move had me moving my stop to -.5R, a +.75R move had me moving my stop to -.25R, and a +1R gain had me moving my stop to BE - .01. When I conducted my analysis (in real time, not historical), it showed that moving my stops in this manner were more profitable than not moving them, even though this flies in the face of what many/most people call for (and many people state here and other forums).

This got me wondering, am I wrong?, do these other folks run a thorough analysis of their trading to determine if they are more profitable? does this only apply to certain trading styles? etc. etc. It also got me thinking trading is like a religion (defined as: a specific fundamental set of beliefs and practices generally agreed upon by a number of persons or the body of persons adhering to a particular set of beliefs and practices), once someone gets their mind set in a particular direction, they are extremely reticent to change it and consider other ideas. I would be curious from a systems development perspective, what you and other people (who lend an analytical eye to systems) are thinking. Again, this topic may likely get this thread off track, or it may stimulate more conversation, I will let you be the judge.

Just a thought, and thank you again for your continued support in educating us on this topic.


Thanks for the kind words. You've brought up a lot of interesting points and observations. I'll try to address them at a high level here:

THIS THREAD HAS BECOME BORING: Yes, that is what happens when going into live trading. Everything has been done, now the system just has to run. A lot of people I talk to get frustrated by the boredom, and end up in a never ending cycle of "improvements." My experience is that it is better to stick with boring.

MAKE A THREAD ON OTHER ACTIVITIES, OR MAKE A THREAD ON EXITS: I'll look into this. Problem is I only want to do it if enough people benefit, and most people really like "entry" type discussions. But we'll see.

MOVING STOPS, OR NOT? Don't let anyone tell you their way is the only way. The right way is the way you choose, based on hard data and facts. I've seen systems fall apart when employing moving stops. I also won a contest using a system that had a moving stop. Both ways can work.

DOING THOROUGH ANALYSIS In my experience, most people do not do enough analysis. But who am I to say? I have a trader friend in New Zealand, and he read some of my material for my book, and he said "I do about 25% of the analysis you do, Kevin." And guess what, he is much more successful than I am. Maybe I do too much.


Thanks for the comments. I hope I've addressed your big issues. If not, please let me know.

Kevin

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Yes, volatility plays a big role, and that is probably true for any system. Somewhere in this thread I looked at volatility, and it was down since I went live. That could explain some of the underperformance.

Hi Kevin,

You're not alone - google "bloomberg fx volatility trend" and see the first link on Bloomberg news. (I can't post a link yet...)

I'm running a system on the EUR and its also suffered poor performance since the end of last year.

Cheers, Tim

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Thanks for the kind words. You've brought up a lot of interesting points and observations. I'll try to address them at a high level here:

THIS THREAD HAS BECOME BORING: Yes, that is what happens when going into live trading. Everything has been done, now the system just has to run. A lot of people I talk to get frustrated by the boredom, and end up in a never ending cycle of "improvements." My experience is that it is better to stick with boring.

MAKE A THREAD ON OTHER ACTIVITIES, OR MAKE A THREAD ON EXITS: I'll look into this. Problem is I only want to do it if enough people benefit, and most people really like "entry" type discussions. But we'll see.

MOVING STOPS, OR NOT? Don't let anyone tell you their way is the only way. The right way is the way you choose, based on hard data and facts. I've seen systems fall apart when employing moving stops. I also won a contest using a system that had a moving stop. Both ways can work.

DOING THOROUGH ANALYSIS In my experience, most people do not do enough analysis. But who am I to say? I have a trader friend in New Zealand, and he read some of my material for my book, and he said "I do about 25% of the analysis you do, Kevin." And guess what, he is much more successful than I am. Maybe I do too much.


Thanks for the comments. I hope I've addressed your big issues. If not, please let me know.

Kevin

I am learning that exits are more important then entries...

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Some great comments and questions so far...

Put yourself in my shoes: continue trading this system, quit trading it, or "it depends?"

I think it is a good exercise, because this situation is sort of a gray area...

I vote "It depends"

On how much of your capital you have risk. I'm assuming the risk capital you have is a small percentage of your portfolio.

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I am learning that exits are more important then entries...

Agreed. So long as you've got a good entry to start with...

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I am learning that exits are more important then entries...

For some people Exit => New Entry.


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For some people Exit => New Entry.


Not sure I understand. Can you explain a bit?

Thanks

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Slightly up this week, nothing exciting...




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Some great comments and questions so far...

Put yourself in my shoes: continue trading this system, quit trading it, or "it depends?"

I think it is a good exercise, because this situation is sort of a gray area...

I suggest to carefully consider volume - look at the moments when the system makes
positive gains and watch especially when the minus had occurred.
Every system has times that has phases of continued gains and others with many losers
in a row. Optimizing these days of taking the trade or to wait for a better setup may
give significantly better results.

If so - the system NEEDS to be continued

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I suggest to carefully consider volume - look at the moments when the system makes
positive gains and watch especially when the minus had occurred.
Every system has times that has phases of continued gains and others with many losers
in a row. Optimizing these days of taking the trade or to wait for a better setup may
give significantly better results.

If so - the system NEEDS to be continued

GFIs1

Interesting idea. How would you look at it? The volume (or average volume) on the bar before entry?

I'd probably do the same with volatility - avoid trades during low volatility, take them during high.


This all might be an exercise just to see if anything reveals itself, rather than changing the system. For example, if I go back through all trades and determine that when volume or volatility is below XXX, don't take those trades, I've really just optimized for that condition, and it may not hold up in the future...

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Interesting idea. How would you look at it? The volume (or average volume) on the bar before entry?

I'd probably do the same with volatility - avoid trades during low volatility, take them during high.

Just for being more precise here (as I described several times in my journal) - I am only looking for daily
volume. The trigger if I will take a trade today in my case is the Initial Balance volume - means the first 30
minutes after opening. There are times (like summer holiday or before a major long weekend) that have
very low daily volume - so my system halts.
If the day has to little "power" to start - my system will not work properly thus I do NOT trade that day.
In the case of my traded Dax futures I need to see at least 5000 contracts, better 7500 or 10000 on IB.

Not confusing volume and volatility here...

GFIs1

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Just for being more precise here (as I described several times in my journal) - I am only looking for daily
volume. The trigger if I will take a trade today in my case is the Initial Balance volume - means the first 30
minutes after opening. There are times (like summer holiday or before a major long weekend) that have
very low daily volume - so my system halts.
If the day has to little "power" to start - my system will not work properly thus I do NOT trade that day.
In the case of my traded Dax futures I need to see at least 5000 contracts, better 7500 or 10000 on IB.

Not confusing volume and volatility here...

GFIs1

Thanks for clarifying. I will look more into this.

Yes, you are talking about volume. I mentioned volatility because I might look at that in a similar manner...

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Thanks for clarifying. I will look more into this.

Yes, you are talking about volume. I mentioned volatility because I might look at that in a similar manner...

There are many moments where high volatilty goes with VERY little volume (like the Dax yesterday made a rally
to the end of day with nearly no volume).
And there are moments with high volume but only sideways moves without big vola.

So I am ONLY concentrating for the entry of a trade on the volume (I do only one trade per day and my trade
is exactly time oriented - means entry and exit times are fixed BEFORE taking the trade).

GFIs1

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To compare it here in a same chart:
Dax Future (June contract), 30 minute bars, 2 days (Wednesday and Thursday this week)
Volume bars at the bottom



Shows precisely what I meant...
GFIs1

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At the suggestion of @GFIs1 , I decided to run some studies on the impact volume may play in the performance of the daytime Euro strategy I am trading.

Specifically, I wondered if it was best to avoid low volume periods and/or high volume periods.

I played around with a few ideas, careful to leave 2013-14 out of the analysis (which is roughly 20% of the trades).

What I found is if the volume is exceedingly low, or exceedingly high, on the bar where the system decides to place an order for the next bar, it is better to skip those trades. This cuts out about 20% of the trades.

The average per trade profit increases from $82 to $101, roughly 23% increase in average trade. But since the number of trades fell by about the same amount, the overall impact on net profit is just about zero. This is shown in the equity curve at the bottom.


When I ran results through a simulator, the volume filtered system was a better choice - drawdowns were less, and therefore the return/drawdown ratio was better (there was little change in overall return).


There are all sorts of variations you could run with volume analysis (for example, the volume has to be greater/less than the average volume over last x bars). I only ran this one analysis, just to see how much better/worse things could be...



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"What I found is if the volume is exceedingly low, or exceedingly high , on the bar where the system decides to place an order for the next bar, it is better to skip those trades. This cuts out about 20% of the trades."


A little more detail on this:

I recorded the volume on the bar prior to the order bar (vol01). I also recorded the average volume for the previous 11 bars prior to the order bar (roughly 1/2 a trading day, based on 23 hour sessions) (vol11).

If the difference vol01-vol11 is in the upper 10% or lower 10% of its historical range when other trades occurred, I removed those trades. This is because low and high volume differences lead to worse trades.

I kept the 80% of "normal" volume trades.

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If the difference vol01-vol11 is in the upper 10% or lower 10% of its historical range when other trades occurred, I removed those trades. This is because low and high volume differences lead to worse trades.

I kept the 80% of "normal" volume trades.

Well done - we see another good example of Pareto optimum 80/20 rule.

Good trades
GFIs1

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Well done - we see another good example of Pareto optimum 80/20 rule.

Good trades
GFIs1

I might have been able to get better results with a different percentage, but I figured 10-80-10 was a good place to be.

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Quite a few losing trades these past few weeks...








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Quite a few losing trades these past few weeks...


]

Kevin,

thanks for the continued posting.

the way I see things is

1)as long as continued equity drawdown is not below statistically determined equity drawdown
2)and sideways/drawdown time characteristic is also not violated

then your system needs to continue to run unless your system pass/fail criteria and priorities have changed since inception.

the other thing is you may want to consider scale-in and scale-out logic rather than simply all-in all-out contract compounding. not sure if this would be considered a system design change or separate money/position size management separate from system design??

tihfa

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Kevin,

thanks for the continued posting.

the way I see things is

1)as long as continued equity drawdown is not below statistically determined equity drawdown
2)and sideways/drawdown time characteristic is also not violated

then your system needs to continue to run unless your system pass/fail criteria and priorities have changed since inception.

the other thing is you may want to consider scale-in and scale-out logic rather than simply all-in all-out contract compounding. not sure if this would be considered a system design change or separate money/position size management separate from system design??

tihfa


Thanks for the comments. Yes, even though things are not going well right now, until it violates my initial "quit" point, I will continue on trading it.

I did not include any kind of scale in / scale out arrangement when I designed the system, so I cannot put it in now (I could, but then it would be a new system completely). Normally, I create systems just trading a single contract, and then apply position sizing later, usually including it with other systems I am trading.

Kevin

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Discussion on modifying the "quit" point after-the-fact...

I am 100% for setting up measurements prior to enabling and running the strategy. But I think most people would be modifying them in some way, especially their 'quit' point, after this kind of duration/result.

Can you tell us what keeps you 100% convinced to follow the rule you initially set? Has this rule always been a key component of your rule set? Has it saved your bacon in the past?

Is this quit rule flexible enough to account for change in behavior of markets?

Mike

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Do you plan to start trading one of your other systems publicly in this thread? I know you have other systems, and I also know you don't want a public failure because it's embarrassing.

But I'd like to encourage you to do so, because the benefit of this thread to systems builders is immense. It's real world and not hyper inflated BS.

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Discussion on modifying the "quit" point after-the-fact...

I am 100% for setting up measurements prior to enabling and running the strategy. But I think most people would be modifying them in some way, especially their 'quit' point, after this kind of duration/result.

Can you tell us what keeps you 100% convinced to follow the rule you initially set? Has this rule always been a key component of your rule set? Has it saved your bacon in the past?

Is this quit rule flexible enough to account for change in behavior of markets?

Mike

You bring up some good points, here are some answers:

Can you tell us what keeps you 100% convinced to follow the rule you initially set? Has this rule always been a key component of your rule set? Has it saved your bacon in the past?

The rule is I use to establish a "quit point" before I start trading a particular system/strategy. The reason I do this is because I am not good at making decisions under emotional duress. Most people aren't.

A great example of this is my second grader's baseball team, 8 year old kids. Time and time again, during a game I watched an infielder get a grounder, maybe bobble it, panic and throw to the wrong base, or not throw the ball at all. So, I started to tell them, BEFORE the ball is hit, rehearse in your mind where you will throw it if the ball is hit to you. Then, just do what you had planned. You can guess what happened. Much, much better decision making, and many more good plays. Happier, less stressed kids, too!

I did not always follow this "rule," and sometimes I still don't. But it has helped me in the past. I make better decisions when there is no pressure.


Is this quit rule flexible enough to account for change in behavior of markets?


This rule really encompasses a lot of things: change in market behavior, poor developed system (that falls apart in real time), etc. What it really tells you is "hey, you better quit trading this system. Something is wrong here."

Some people have different systems for different markets. Maybe they trade 1 for a volatile bull, another for a quiet bull, etc. That's great, if you can really define these markets and test your system in advance. Unfortunately, I think a lot of people test their system on all data, and then go back and say "hmmm, this system doesn't work well in bull markets. From now on, I'll avoid trading it during that time." I personally don't think that is wise, but if it works for you, who am I to say?

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Do you plan to start trading one of your other systems publicly in this thread? I know you have other systems, and I also know you don't want a public failure because it's embarrassing.

But I'd like to encourage you to do so, because the benefit of this thread to systems builders is immense. It's real world and not hyper inflated BS.

Mike


I'll have to think about that. I honestly don't know how worthwhile this type of thread actually is, beyond what I've already posted.

Based on the most popular threads, I think most people like reading about the positive possibilities of trading rather than dealing with the negative realities of it. And I like seeing the positive too.

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I'll have to think about that. I honestly don't know how worthwhile this type of thread actually is, beyond what I've already posted.

Based on the most popular threads, I think most people like reading about the positive possibilities of trading rather than dealing with the negative realities of it. And I like seeing the positive too.

I personally think this thread is invaluable and one of the best on futures.io (formerly BMT). I have learned more reading this then others. It has caused me to think of trading differently and outside of the narrow box I had when I first came here.

I have taken some of the ideas of automated trading and working to apply them to my mechanical discretionary trading plan. i.e. having a set plan (with define rules that have been explained and tested [still working on that]) and sticking to it, then also working on an analytical framework that I can use to grade my trades / setups.

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I personally think this thread is invaluable and one of the best on futures.io (formerly BMT). I have learned more reading this then others. It has caused me to think of trading differently and outside of the narrow box I had when I first came here.

I have taken some of the ideas of automated trading and working to apply them to my mechanical discretionary trading plan. i.e. having a set plan (with define rules that have been explained and tested [still working on that]) and sticking to it, then also working on an analytical framework that I can use to grade my trades / setups.

I think I agree with this. My trading is essentially discretionary (recognizing patterns, S/R, PA, etc.), but for that reason it is necessary to fence in my discretion with very clear and simple decision points, or I will just be shooting from the hip, telling myself basically what I want to hear instead of what is there.

It's good to have a model of clear thinking to keep me more honest.

Bob.

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I personally think this thread is invaluable and one of the best on futures.io (formerly BMT). I have learned more reading this then others. It has caused me to think of trading differently and outside of the narrow box I had when I first came here.

I have taken some of the ideas of automated trading and working to apply them to my mechanical discretionary trading plan. i.e. having a set plan (with define rules that have been explained and tested [still working on that]) and sticking to it, then also working on an analytical framework that I can use to grade my trades / setups.

Same here. I trade discretionary, but I am spending a lot more time in analysis. One thing I have learned is one "setup" I have been trading is totally 50/50, with so far no discernible edge. The trades that actually succeed seem to be basically luck. Very sobering, but glad I have started studying.

This has also made me look at things a lot more analytically, iow, if I go short/long every time a certain scenario develops...what happens??? Unfortunately, I am finding out a lot of it is 50/50.

Enjoy the thread.
Ddawg

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327trader
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kevinkdog View Post
I'll have to think about that. I honestly don't know how worthwhile this type of thread actually is, beyond what I've already posted.

Based on the most popular threads, I think most people like reading about the positive possibilities of trading rather than dealing with the negative realities of it. And I like seeing the positive too.

please feel free to share your thoughts because we all are looking for fresh new ideas
to go our trading to a new level.

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 rk142 
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kevinkdog View Post
I'll have to think about that. I honestly don't know how worthwhile this type of thread actually is, beyond what I've already posted.

Based on the most popular threads, I think most people like reading about the positive possibilities of trading rather than dealing with the negative realities of it. And I like seeing the positive too.

You've given a thorough and helpful exposition of your approach to system testing and management. There's really not much more you can to do help those willing and able to learn what you've generously decided to share. It was all very clear in theory, and the real life example you carried out made it clear in practice.

Personally I think this thread should be a sticky. This is definitely one of the best threads on the forum. If it isn't made a sticky, I think you should just bump the thread every now and again so that people who haven't seen it get a chance to find it.

Neither real traders nor promising traders-to-be care whether this system succeeded publicly or not: it should have zero impact on what they think of the thread or of you as a trader. And you strike me as someone who has real human connection off of message boards, so there is no reason to care whether the thread is "popular." I can't see a reason to continue the thread with a profitable system unless you feel you have something to prove - which you don't.

If you do decide to share anything else on this forum, though please post an announcement to this thread so that I can come check it out.

-RK

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 deaddog 
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How about an update?

"The days when I keep my gratitude higher than my expectations, I have really good days" RW Hubbard
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How about an update?


Only 4 trades in the past 2 weeks. Net was -$123.

Can you say boring?







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So this is what trading is really like? Count me out. Thanks, Kevin!

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Mathemagician View Post
So this is what trading is really like? Count me out. Thanks, Kevin!

At least it is for me, some of the time, with some of my systems!

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kevinkdog View Post
At least it is for me, some of the time, with some of my systems!

You're lucky, then!

Food for thought: Whenever you add a contract it is by definition after a winning trade. In most cases, it's after a bit of a run. When you choose a point at which to "start", is it also after a run? My guess is that it is given your description of the process (e.g. waiting for good performance in the incubator, replacing strategies periodically with ones that are "more promising", etc.). All of this conspires to have you doing "starts" and "adds" triggered by runs. Have you considered the impact of this on the results immediately afterward?

As a further aside: Live trades are not actually randomly pulled from a bag and they are not as independent as we'd like to think. There are good and bad periods. (If you need an example, just look at EC vol recently.) In a sense, the market "knows" that your style has been receiving above average performance lately and that other styles have been seeing below average performance. Given the mean-reverting nature of "average" performance, the market may actually be "out to get you".

Just some randomish thoughts.

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 bobwest 
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Mathemagician View Post
In a sense, the market "knows" that your style has been receiving above average performance lately and that other styles have been seeing below average performance. Given the mean-reverting nature of "average" performance, the market may actually be "out to get you".

This is a really interesting take on the old (and generally invalid) idea that the market is "out to get you".

I would normally have said that the market doesn't know you and is not after you, but in the sense that performance tends to revert to the mean (whatever the mechanism), perhaps there is something to it, in a different way.

I'd be interested in @kevinkdog 's take on this. Do you see enough of this kind of mean reversion in your testing, and (a) does it matter, and (b) what can one do about it?

Bob.

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Food for thought: Whenever you add a contract it is by definition after a winning trade. In most cases, it's after a bit of a run. When you choose a point at which to "start", is it also after a run? My guess is that it is given your description of the process (e.g. waiting for good performance in the incubator, replacing strategies periodically with ones that are "more promising", etc.). All of this conspires to have you doing "starts" and "adds" triggered by runs. Have you considered the impact of this on the results immediately afterward?

Very good point, especially the part about changing to strategies that look more promising. I see that a lot on some investor signal sites, where everyone piles into the latest and greatest looking system. They constantly jump from system to system, usually at the wrong time.

You are also correct that contracts are added after good runs, and many times are right before a bad run. That's happened to this system twice - a run up, followed by adding contracts, then a run down. Both times this happened, it would have been better to just stick with one contract.

So, maybe a legitimate question is: Do you include some position sizing rules to add contracts after a down run? Nothing as extreme as Martingale, but maybe something to take advantage of the normal ebbs and flows in a system. On the downside, it could be like trying to catch a falling knife.




Mathemagician View Post

As a further aside: Live trades are not actually randomly pulled from a bag and they are not as independent as we'd like to think. There are good and bad periods. (If you need an example, just look at EC vol recently.) In a sense, the market "knows" that your style has been receiving above average performance lately and that other styles have been seeing below average performance. Given the mean-reverting nature of "average" performance, the market may actually be "out to get you".

I have definitely experienced that. Maybe there should be 2 bags: 1 with all the "high volatility" trades, and 1 with the "low volatility" trades. It might turn out that the under-performance this system has been seeing is really not as bad as it looks, given the current market volatility. The trick may be defining these "high" and "low" areas. It might not be hard to after the fact, but it could be tough in real time.



Thanks for the comments. Very interesting insights.


Welcome to futures.io (formerly BMT), by the way!

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bobwest View Post
This is a really interesting take on the old (and generally invalid) idea that the market is "out to get you".

I would normally have said that the market doesn't know you and is not after you, but in the sense that performance tends to revert to the mean (whatever the mechanism), perhaps there is something to it, in a different way.

I'd be interested in @kevinkdog 's take on this. Do you see enough of this kind of mean reversion in your testing, and (a) does it matter, and (b) what can one do about it?

Bob.


I definitely see mean reverting behavior in systems I trade. The big question I always have is "what is the actual mean the performance should be reverting around?"

Here is an example with a system I trade live. You can see that the actual performance does revert to a mean line, and the mean line is upward sloping (obviously that is important).

Just to be clear, the mean line I show is NOT a regression line. Before I started trading this system, my historical testing said I should make $XX per month. That is what I consider the mean line.








Here is another I trade live. I am leery of increasing size on it right now, because the actual performance is way above the mean line. If I had to guess, I would think the next 6 months will bring flat or down performance, and get closer to the mean line. If that is true, there is no sense in increasing size right now.



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Glad to be here!

My two cents... I would disagree with adding hysteresis to your money management protocol. No matter what money management method you choose, there's going to be a point where you go from 1 contract to 2. If you delay this transition and catch a run, you are leaving a LOT of growth on the table. (Go ahead, experiment with the long-term impact of deferred compounding early on.) If you delay going back to 1 contract if you get unlucky, you've violated your initial risk parameters. This is a key disadvantage of this kind of money management, but I think it's worth it.

In essence, you're trading the pain near the contract add/remove thresholds (until you get past 7 or so) for maximum compounding. Repeat enough times and I think you'll find you're better off just accepting the chop at the thresholds as part of the process.

You should be congratulated, by the way. This thread is absolute proof that you have the discipline and confidence that so many lack, and both are necessary if one is to be a successful trader over the long term. Well done!

Regarding your two charts, be careful. There are two "averages" at play. The first average is the actual "realized average" for that set of trades. It's a straight line connecting the first and last dot. The other average is your "expected average". They are two different things with entirely different interpretations.

In the latter graph, you are observing that the "realized average" is different from your "expected average". This can occur for one of three reasons... pure chance (you can compute the odds of this using MC), your expected average is too low/high, or something has changed in the market. Once pure chance is ruled out, I default to "my expectations were formed incorrectly" and examine my development process for leaks. I have control over my process but do not have control over the markets, so time spent worrying about that is not productive.

I wish I had better answers for you regarding how to take advantage of the mean reversion idea, but even after contemplating this for quite some time many open questions remain for me. Ultimately, about the only conclusion I've drawn is that unless you know the mean with some degree of certainty there isn't much action you can confidently take.

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 kevinkdog   is a Vendor
 
 
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Mathemagician View Post
Glad to be here!

My two cents... I would disagree with adding hysteresis to your money management protocol. No matter what money management method you choose, there's going to be a point where you go from 1 contract to 2. If you delay this transition and catch a run, you are leaving a LOT of growth on the table. (Go ahead, experiment with the long-term impact of deferred compounding early on.) If you delay going back to 1 contract if you get unlucky, you've violated your initial risk parameters. This is a key disadvantage of this kind of money management, but I think it's worth it.

In essence, you're trading the pain near the contract add/remove thresholds (until you get past 7 or so) for maximum compounding. Repeat enough times and I think you'll find you're better off just accepting the chop at the thresholds as part of the process.

You should be congratulated, by the way. This thread is absolute proof that you have the discipline and confidence that so many lack, and both are necessary if one is to be a successful trader over the long term. Well done!

Regarding your two charts, be careful. There are two "averages" at play. The first average is the actual "realized average" for that set of trades. It's a straight line connecting the first and last dot. The other average is your "expected average". They are two different things with entirely different interpretations.

In the latter graph, you are observing that the "realized average" is different from your "expected average". This can occur for one of three reasons... pure chance (you can compute the odds of this using MC), your expected average is too low/high, or something has changed in the market. Once pure chance is ruled out, I default to "my expectations were formed incorrectly" and examine my development process for leaks. I have control over my process but do not have control over the markets, so time spent worrying about that is not productive.

I wish I had better answers for you regarding how to take advantage of the mean reversion idea, but even after contemplating this for quite some time many open questions remain for me. Ultimately, about the only conclusion I've drawn is that unless you know the mean with some degree of certainty there isn't much action you can confidently take.


Thanks for the comments. Everything you say is pretty spot on.

I thought I'd try the hysteresis money management and see how it did. So far, not so good, and unfortunately it looks like it will be a while before I can try again! I'm not 100% sold on its merits.

For the difference in averages, the one that always scares me is the development process having leaks. It is amazing how easily issues can crop up in testing. Sometimes the most innocent decision during development can lead to problems down the road.


With the mean reversion idea, IF you knew you had a current positive expectancy system (if you absolutely knew that your strategy would perform go forward at a certain rate, and that the market would not change), it would be easy. Sort of like having a bag with 5 red balls, and 5 black balls. If you were drawing without replacement, if you drew 4 red balls out (leaving 1 red and 5 black in the bag), you could start to bet heavily on black, since black is very likely the next few picks. But you'll never get that with a trading system, obviously.

Thanks again for sharing your thoughts!

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Turveyd
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I've developed 100's of trading systems over the years, they all work to a point at the time, then the market changes then it's adapting to the next method required to make $$$'s, it's never easy sadly.


Simple I think is key to long term profitable mainly cause it doesn't burn you out trading it.

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rossw
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Very interesting discussion here, glad I subscribed to this thread!

Interesting to learn how there are so many different ways to calculate if/when to add size, and even experienced guys such as yourselves are still questioning it.

Kev I like your charts with the expected mean from testing as a guide for future performance, even as a rough overview. I'll add similar to my list of sanity checks once I go live.

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 Big Mike 
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How are things in June, @kevinkdog?

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Big Mike View Post
How are things in June, @kevinkdog?

Mike

I'll give an update over the weekend, but it has been a snoozefest, @Big Mike !!!

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I'll give an update over the weekend, but it has been a snoozefest, @Big Mike !!!

There's an understatement after the last few days. World Cup isn't likely to help any, either.

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Not much going on the last 3 weeks. The volatility in the Euro just is not there. It will be interesting to see how the system responds when volatility increases, which it eventually will.


Right now, the system should have 20-25% more trades than it has (since the start of live trading).







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Results through June 30. Still seriously underperforming expectations. I attribute a lot of this to the lower volatility of the Euro currency these past few months. Not an excuse, though.

If I had traded one contract throughout these past 10-11 months, I'd be up about $500. Of course, that is not what I did (I followed my position sizing rules), and I am down about $1,600.

As disappointing as this recent performance is, it is not totally surprising. Many times, strategies go through flat/down periods, before breaking out to new highs. Or breaking out to new lows. I hope it is the former!







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 Big Mike 
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How are things?

Mike


ZZZZZ...

I'll have an update probably at the weekend.

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