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Taking a Trading System Live


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Updated January 6th 2016 by tturner86
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Taking a Trading System Live

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  #491 (permalink)
Legendary Market Wizard
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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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  #492 (permalink)
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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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  #493 (permalink)
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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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  #494 (permalink)
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How are things in June, @kevinkdog?

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  #495 (permalink)
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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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kevinkdog View Post
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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  #497 (permalink)
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Week 43 Update

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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  #498 (permalink)
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Week 46 Update

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 View Post
How are things?

Mike


ZZZZZ...

I'll have an update probably at the weekend.

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January 6, 2016


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