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KJ Trading Systems Kevin Davey - Ask Me Anything (AMA)


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KJ Trading Systems Kevin Davey - Ask Me Anything (AMA)

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Kevin Davey is the Founder and CEO of KJ Trading Systems and will be monitoring this thread so that he may answer any questions that you post here relating to his products or services, primarily focused on algorithmic trading systems.

Please keep in mind that some customer service/technical support issues are best handled through proper channels at KJ Trading Systems.

Kevin Davey is a full-time professional trader and a multiple time winner of the World Cup of Futures Trading Championships (traded live with cash). Kevin Davey also contributes articles to SFO Magazine (Stocks, Futures and Options) as well as Active Trader Magazine.

Kevin Davey was profiled as a "Market Master" in the book "The Universal Principles of Successful Trading" by Brent Penfold. Kevin has also presented multiple webinars on futures.io (formerly BMT) that focus on algorithmic trading, which you can find in our Webinars section.

In addition to this thread, I will also be asking Kevin Davey to stop by on occasion for a casual webinar where he can answer questions via audio while also sharing his screen to visually demonstrate any points as needed. The date/time of those sessions will be announced here in this thread. These sessions will be limited to questions only, there is no prepared presentation. After the session ends, the recording will be posted in this thread.

You can find more on their website:
KJ Trading Systems

Feel free to ask any questions below and we'll do our best to get them answered.

The futures.io (formerly BMT) "AMA" (Ask Me Anything) series is by invitation only. It is part of a new program we are launching shortly called "Certified Trustworthy", something that has been months in the making. I will provide all the details of this new program as soon as it is ready for launch.

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Hi @kevinkdog,

I'd like to start by asking you how important you think Portfolio Trading is? Do you tend to have a single strategy that trades multiple products, or multiple strategies that trade multiple products?

How much importance do you place on the Portfolio Backtesting aspect of systems development?

Most traders seem to put all of their effort behind building just one trading system, and then they trade just a single product with that system. I prefer to look at multiple systems in multiple markets, and I do my best to ensure the trades they are taking are as uncorrelated as possible. This is not an easy task as the average tools available don't adequately do this job in my experience.

Do you use any specialized tools?

Mike

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Big Mike View Post
Hi @kevinkdog,

I'd like to start by asking you how important you think Portfolio Trading is? Do you tend to have a single strategy that trades multiple products, or multiple strategies that trade multiple products?

How much importance do you place on the Portfolio Backtesting aspect of systems development?

Most traders seem to put all of their effort behind building just one trading system, and then they trade just a single product with that system. I prefer to look at multiple systems in multiple markets, and I do my best to ensure the trades they are taking are as uncorrelated as possible. This is not an easy task as the average tools available don't adequately do this job in my experience.

Do you use any specialized tools?

Mike


I think Portfolio Trading is the closest thing out there to the "Holy Grail." For people starting out with small accounts, it is really hard to do, so most stick with one strategy and one market. Maybe that is partly why so many small traders lose. They put themselves at the mercy of one market, and one strategy.

When I had success in a trading contest, I was trading the same exact strategy (with different parameters), in multiple markets. Nowadays, I tend to trade different strategies in different markets, although I still have some single strat / multiple markets, too. I think both ways, if done properly, have merit.

So I tend to put a lot of faith in diversifying. Different markets, different timeframes, different trading styles, different macro approaches(futures, options, spread trading, etc), different strategies. Diversifying helps smooth things quite a bit, and takes away the reliance on any one strategy. With multiple strats, it also makes it easier to kill a bad strategy, and it makes it harder to cheat on a strategy.

For analysis, I tend to (surprise!) keep it simple. That is my bias, since in my old career, I used to have statisticians working for me. I remember one asking me "what conclusions do you want me to justify with this data?" Well, I like the data to tell me the answer, not for the data to be manipulated to what I think it should tell me. I think more complicated analysis is easier to manipulate to say what you want it to say.

One example: If you want to see correlation, just plot a simple X vs Y graph, and stand a few feet away from it. If you can see a relationship, then there is likely correlation. If it looks like a shotgun pellet pattern, there probably is no correlation.

Of course, many times you need numbers to tell you things, so I use Excel (and Excel macros) for many things. I also have some other software I have written or found over the years, but I use those only a little. I usually take what I want right from the performance reports, and (lightly) manipulate it in Excel.

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Thanks Kevin.

Can you give us an idea as to some of the markets you are trading? Do you routinely trade equities, or is it primarily futures?

One of the problems I have is getting data out of NinjaTrader and into Excel, and then doing portfolio analysis. What I mean is that I want to combine say 3 strategies trading 5 markets, and have one big equity curve and one big correlation report. I've not been able to do this.

Maybe there are other Excel wizards who can...

Mike

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Big Mike View Post
Thanks Kevin.

Can you give us an idea as to some of the markets you are trading? Do you routinely trade equities, or is it primarily futures?

One of the problems I have is getting data out of NinjaTrader and into Excel, and then doing portfolio analysis. What I mean is that I want to combine say 3 strategies trading 5 markets, and have one big equity curve and one big correlation report. I've not been able to do this.

Maybe there are other Excel wizards who can...

Mike

All my active trading is in futures. Leverage and tax reasons are the biggest reasons. I see my stock trader friends struggle with buy/sells wash sales, etc. I just input 1 number from my future brokerage into my tax software...


My trick to doing portfolio analysis with Tradestation output isn't really even necessary nowadays, since Tradestation now has a portfolio tool called "Portfolio Maestro." I've never used it.

My trick: I output the daily P/L results for all the strategies into Excel. I then add in missing dates (when there were no open trades), and end up with a table of date in one column, and each individual strategy in its own column.

Once it is in that format, it becomes pretty easy to create an overall equity curve, drawdown curve, do daily correlation analysis, and run Monte Carlo sims.

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What is the criteria from moving from the incubation to small size live money trading? What if the incubation period has been in draw down? It seems easy to decide to trade real money if the incubation has been profitable.

For example you have a system the you know that the max draw down based on your monte carlo and back tests is 5,000 but your incubation (of 3 months & 25 trades) has had a draw down of 2,000? Is that still safe to take to the real money arena, we still are within statistical parameters? Or are we looking for only profitable incubation periods? Where is the cut off line?

Thanks in advance.

 
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treydog999 View Post
What is the criteria from moving from the incubation to small size live money trading? What if the incubation period has been in draw down? It seems easy to decide to trade real money if the incubation has been profitable.

For example you have a system the you know that the max draw down based on your monte carlo and back tests is 5,000 but your incubation (of 3 months & 25 trades) has had a draw down of 2,000? Is that still safe to take to the real money arena, we still are within statistical parameters? Or are we looking for only profitable incubation periods? Where is the cut off line?

Thanks in advance.

Thanks for the question.

At the start of incubation, I am assuming I have a profitable strategy - I just want to ensure that I made no drastic mistakes. If there are mistakes, I expect them to show up in the 3-6 month incubation period. Note that this is different than if you were trying to use incubation to prove the strategy is good.

So, I am looking for performance during incubation to be "similar" to the walkforward test. There are a few ways to define "similar:"

1. You could use Student T test to see if walkforward and incubation are from the same distribution (meaning are they similar or not)

2. You could use Statistical Process Control to determine if the trade process is in "control." If it is, then the strategy is functioning in incubation as it did in walkforward.

3. Print an equity curve of walkforward and incubation together. If you stand a few feet away, and can tell when incubation started, then that is a problem. If it is tough to distinguish where one ended and the other started, that's good.


So, for your exact question, without more info, I'd have to assume that $2000 incubation dd could be expected in a $5000 dd walkforward case.

BUT, let's say every walkforward drawdown, regardless of size, was 1 week or less in duration. Then, in incubation, you've been in drawdown for 5 months. Even if the drawdown amount was within historical bounds, I'd still be scared by the duration being "abnormal."

In cases where I am not sure if incubation "passes" I'll typically let it run a few more months, maybe 9-12 months.

I hope this gives you some guidance.

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Hi Kevin,

I was wondering if you found it easier to build systems on larger time frames, say daily? or do you have a time frame you like to focus on. I know a lot of books and developers out there use the daily time frame, as well as the system you gave out in the webinar. What are your thoughts on shorter time frames say 1 hour?

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treydog999 View Post
Hi Kevin,

I was wondering if you found it easier to build systems on larger time frames, say daily? or do you have a time frame you like to focus on. I know a lot of books and developers out there use the daily time frame, as well as the system you gave out in the webinar. What are your thoughts on shorter time frames say 1 hour?

Hi Trey -

Great question. There are really 2 questions here: 1) what is a good timeframe to use for the bar charts, and 2) what is a good holding period for trades.

As far as timeframes go, I am all over the place with various timeframes, both common and uncommon. Anywhere I feel I can get an edge. I do some things that many people would consider odd. For example, I use a 1 minute chart for one strategy, yet hold the trade for 480 bars (minutes) typically. I use 60 minute bars for another strat, yet I hold the trade for days or weeks.

The key, at least for me, is in the holding time. I would absolutely love a strategy that held for very short periods of time. Intraday would be perfect. And that is usually where I start when I create a new system.

Unfortunately, the "best" system (the way I define it) usually ends up requiring a longer holding time, days to weeks many times. This seems to get above the noise level in the price signal.

All that being said, lately I have started to focus more of my effort towards intraday systems, short holding times and 60 minute or under bars. It is harder than creating a daily bar system, but I suspect it will get easier with time.


I hope this helps!

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How do you know when your goals for the system are just too high? I had 3 main criteria: 15000$ a year, +$75 expectancy per average trade and more than 4 trades per month. I was working on the ES on a daily time frame. I am just struggling to find something that worked while keeping it simple. I knew the better I made my backtest, the worse my out of sample would become. I kept getting stuck with more trades vs bigger expected value per trade. The more trades I took, the less my average trade became. So I am wondering if my goals are creating conflict.

What are the most important baseline goals a system should have?
Are there minimum # of trades a system must have?

 
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treydog999 View Post
How do you know when your goals for the system are just too high? I had 3 main criteria: 15000$ a year, +$75 expectancy per average trade and more than 4 trades per month. I was working on the ES on a daily time frame. I am just struggling to find something that worked while keeping it simple. I knew the better I made my backtest, the worse my out of sample would become. I kept getting stuck with more trades vs bigger expected value per trade. The more trades I took, the less my average trade became. So I am wondering if my goals are creating conflict.

What are the most important baseline goals a system should have?
Are there minimum # of trades a system must have?


The biggest clue that you are aiming too high is in this statement: "I knew the better I made my backtest, the worse my out of sample would become." This is almost always a sign you are doing too much (too many rules, or too many optimizations, etc).

My advice is to just start with one criteria, maybe profit per year or average trade profit. See if that helps. You can always then add in more conditions if you find you need to.

Whatever you criteria, don't expect it to be easy to find a strategy that holds up over time. Most ideas will never hold up in testing. You have to sift thru a lot of garbage before you find your gold.

For minimum # trades, a good rule of thumb is to base it on the number of conditions/rules/optimizable variables you have in your code. Let's say you have 5 (2 entry conditions, and 3 exit conditions). Multiply that by 50 or 100, and it says you need roughly 250-500 trades. That is probably a decent amount. Obviously more is better, but at the same time, if I find a nice system with only 200 trades, I might be flexible and still accept it.

Hope this helps.

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Hi Kevin,

I'm backtesting in excel and have come across a strategy with a quite nice consistent win% and R:R using a SL/Target adjusted for ATR for each year 2007 through 2011. Apart from 2012 - that was a disaster. Various statistics seem to show a change in 2012 vs the prior 5 years so I flipped the entry from Long to Short (or Short to Long), and hey Presto the results suddenly fall into line.

Would you immediately dump this strategy (curve fitting), or consider the market (somehow) has changed and try and ascertain whether the 'new' entry trigger is viable? This strategy trades once a day - based around the opening swing - so there are quite a few data points. What struck me was how well the results fell into line with prior years. Normally I think, 'hmmmm interesting', and move on.

I suspect you would dump it, but I read (I think in your Combine thread), that you continually update parameters for latest data and adjust triggers accordingly. Probably not to the extreme of flipping entry direction I suspect.

In relation to this - we often hear "the market is constantly changing and strategies effectiveness fade out" - what is your experience in terms of life span of strategies once you actually start trading it with 'big money'? How many months/years do you 'on average' trade a strategy - and how many years of data do you have on that particular strategy? i.e - how long has it worked for?

It seems there is a general contradiction to having years of backtests, walk-forwards, Live trials, Trading with small money, then big money etc, essentially years of data - and then the market changes - and it no longer works. Said another way, as the market is constantly changing it will be damn near impossible to find a successful strategy using many multiple years of data - as it will always have periods (years) where it hasn't worked, or when it stops working. I say near impossible, as I assume that all edges will eventually be discovered and abused due to the amount of people beavering away with high speed computers. In the old days when it was all done with a pad, pencil and abacus the edges would have lasted a lot longer I bet. I'm not saying it's impossible to find an edge, otherwise I wouldn't be writing this!

So, when do you take 'price risk' and get more data, and 'info risk' when you get some good results with less years back test and jump in (once you have traded with small money to check alignment, of course).

What do you do if you see back test results where the first years are horrible, and the latest year/s are glorious. Overall it may have negative expectancy. When do you dig deeper, and when do you toss it into the bin?

I have also developed a monte carlo which adds percentile bands in excel - like you have. A great tool to 'know when to hold em, and know when to fold em'. Given this tool, do you really need to test how a strategy works in all market types - crashes, bull runs etc - i.e years of data. If you don't have the data for a particular market type, and the strategy goes through a period of bad results, as it appears the market is changing (difficult to do this in real time) your model will tell you to stop trading it, incubate etc. Do you really need back test data to tell you it sucks in a crash? I'm still talking of using 3-5 years of data with 250+ signals/data points, but perhaps thinking 6-7+ or the 10+ years I often hear people talk about is not necessary, and perhaps detrimental?

I started out with one question, and only a few lines for you to read. Sorry about that.

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sixtyseven View Post
Hi Kevin,

I'm backtesting in excel and have come across a strategy with a quite nice consistent win% and R:R using a SL/Target adjusted for ATR for each year 2007 through 2011. Apart from 2012 - that was a disaster. Various statistics seem to show a change in 2012 vs the prior 5 years so I flipped the entry from Long to Short (or Short to Long), and hey Presto the results suddenly fall into line.

Would you immediately dump this strategy (curve fitting), or consider the market (somehow) has changed and try and ascertain whether the 'new' entry trigger is viable?


There are a lot of answer and comments I could make here, so I can't do it all at once. I'll do one at a time over next few days...


Let's just look at 2012. You ran a test. You did not like the results, so you flipped the longs and shorts. Now you like the results. So really you just optimized the entry on 1 year of data, and now you want to trade live based on that in-sample optimization.

That is a really bad idea.


As an alternative, let's say you ran walk forward optimization, and sometimes it told you to "flip" long and short entries. If the test is done correctly, and it is a true walk forward test, then in theory you could do what you are saying.


But based on how you did it, I'd ditch the strategy.

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sixtyseven View Post
Hi Kevin,

In relation to this - we often hear "the market is constantly changing and strategies effectiveness fade out" - what is your experience in terms of life span of strategies once you actually start trading it with 'big money'? How many months/years do you 'on average' trade a strategy - and how many years of data do you have on that particular strategy? i.e - how long has it worked for?

I have a couple of strategies right now that I trade live that are, all of a sudden, at or near their maximum drawdown. One I have been trading live for 4 or 5 years successfully.

Are they broken, or just acting as they should? I don't know, but I do know they are having problems.

That is why I always tell people to come up with a plan to quit trading a system, based on some criteria that you develop, that make you think a strategy is broken. Then, if and when that occurs, just cease trading it.


How long will a strategy last? No one really knows. Just look at "buy and hold" for stocks - that worked for many many years, until 2008 and 2009, when it didn't work. Maybe it is working again now, who knows?


I'm afraid I haven't given you a direct answer, and that is because I do not think there is an answer.

I've always thought about developing "switching" algorithms - master algos that could sense when strategies were failing, and switch to a new better performer. Never done it, though...

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sixtyseven View Post
Hi Kevin,

What do you do if you see back test results where the first years are horrible, and the latest year/s are glorious. Overall it may have negative expectancy. When do you dig deeper, and when do you toss it into the bin?


I generally put more weight to later year's data, but if the first year's are bad enough, I assume that can happen again. If I could not handle a repeat of those years (or worse), I'll toss it.

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sixtyseven View Post

I have also developed a monte carlo which adds percentile bands in excel - like you have. A great tool to 'know when to hold em, and know when to fold em'. Given this tool, do you really need to test how a strategy works in all market types - crashes, bull runs etc - i.e years of data. If you don't have the data for a particular market type, and the strategy goes through a period of bad results, as it appears the market is changing (difficult to do this in real time) your model will tell you to stop trading it, incubate etc. Do you really need back test data to tell you it sucks in a crash? I'm still talking of using 3-5 years of data with 250+ signals/data points, but perhaps thinking 6-7+ or the 10+ years I often hear people talk about is not necessary, and perhaps detrimental?

I started out with one question, and only a few lines for you to read. Sorry about that.


No problem with all the questions, they are all good ones...

I'm in the "more data is better" camp, because I have seen so many strategies look good for a few months, or even a few years, and then fall apart. Mean reversion, back to a "no edge" situation? Very possibly, and that is what I worry about.

That said, it is a ton harder to create systems that hold up over many years. So, it is always a trade off.

This is one reason I try to trade a basket of strategies. In any given year, a few underperform, a few are breakeven, and a few hopefully outperform and give you enough profits to make all the others worthwhile. The problem is you never know which strategies will be best in the next year. But being diversified really helps.


I hope I have answered your questions, but I fear I have not. There are no hard and fast answers to them, at least that I have found. Some of strategy development is an art and a feeling type activity, based on each developer's history of success and failure.

For example, I know a guy who re-optimizes every DAY with last 6 months of data, and claims success. I think this is crazy, but if it works for him (I have to take his word on it), who am I to argue?

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kevinkdog View Post

As an alternative, let's say you ran walk forward optimization, and sometimes it told you to "flip" long and short entries. If the test is done correctly, and it is a true walk forward test, then in theory you could do what you are saying.

.

Kevin, thanks for taking the time to respond. You have helped. To clarify the above - is it classed as optimization if I redesign the strategy to sometimes flip long and shorts for all entries for '07-'12 (based on some, as yet undefined criteria) and then run a walk-forward on 2013? So far no walk-forward, monte carlo or bootstrapping has been done.
I.e when does tinkering with a strategy become optimization, and when does it become 'new' development? I'm thinking a lot of strategies are related in some way - so just because I'm redesigning the same strategy now, rather than 'discovering' the redesigned strategy in say 2 years time when I've long since forgotten about this one (and have more and better info - and come up with the 'redesigned' strategy first) actually mean it's no longer optimization? Said another way, if a group of strategies have some form of commonality, after many strategy developments over many years - aren't most of the strategies in that group a subtle form of optimization - without even being aware of it?

This probably falls into the 'Art of Development' as you mention, but thought I'd throw it out there anyway.

Btw, I realise adding filters, and running through numerous permutations of SL/Targets/indicator parameters etc is optimization - but here I'm not trying to filter out trades I'm trying ensure the trade (at a specified point) goes in the right direction. I have no idea how I will add in this criteria or whether this would improve or kill the '07-'11 metrics. I'm also not gung-ho on this particular strategy, and trying to force it to work - I'm trying to ensure I use a sound methodology for all development.

Thanks again for your time.

 
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sixtyseven View Post
Kevin, thanks for taking the time to respond. You have helped. To clarify the above - is it classed as optimization if I redesign the strategy to sometimes flip long and shorts for all entries for '07-'12 (based on some, as yet undefined criteria) and then run a walk-forward on 2013? So far no walk-forward, monte carlo or bootstrapping has been done.
I.e when does tinkering with a strategy become optimization, and when does it become 'new' development? I'm thinking a lot of strategies are related in some way - so just because I'm redesigning the same strategy now, rather than 'discovering' the redesigned strategy in say 2 years time when I've long since forgotten about this one (and have more and better info - and come up with the 'redesigned' strategy first) actually mean it's no longer optimization? Said another way, if a group of strategies have some form of commonality, after many strategy developments over many years - aren't most of the strategies in that group a subtle form of optimization - without even being aware of it?

This probably falls into the 'Art of Development' as you mention, but thought I'd throw it out there anyway.

Btw, I realise adding filters, and running through numerous permutations of SL/Targets/indicator parameters etc is optimization - but here I'm not trying to filter out trades I'm trying ensure the trade (at a specified point) goes in the right direction. I have no idea how I will add in this criteria or whether this would improve or kill the '07-'11 metrics. I'm also not gung-ho on this particular strategy, and trying to force it to work - I'm trying to ensure I use a sound methodology for all development.

Thanks again for your time.


Yes, if you run many similar strategies with common elements, that can be viewed as optimization too. Really, once you've tested even 2 strategies, you've optimized, since you'd pick one or the other.

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@kevinkdog

What are the core beliefs at the root of your trading ideas? I think this is something you never discussed so far. For a price action trader it may be when prices fail to do something twice for another it may be price valuation as proposed by tools like market or volume profiles for another it can be harmonic patterns etc. but what about you? Do you have any core beliefs or the markets are just a giant puzzle you need to solve and you are in an ever constant search of this elusive idea that will bring you more profit. Thanks.

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@kevinkdog

What are the core beliefs at the root of your trading ideas? I think this is something you never discussed so far. For a price action trader it may be when prices fail to do something twice for another it may be price valuation as proposed by tools like market or volume profiles for another it can be harmonic patterns etc. but what about you? Do you have any core beliefs or the markets are just a giant puzzle you need to solve and you are in an ever constant search of this elusive idea that will bring you more profit. Thanks.


For me, anything that can be programmed and tested can be part of a viable strategy. Price action, candlesticks, chart patterns, tech indicators (typically used in different ways), seasonal approaches, etc - anything is fair game.

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For me, anything that can be programmed and tested can be part of a viable strategy. Price action, candlesticks, chart patterns, tech indicators (typically used in different ways), seasonal approaches, etc - anything is fair game.

Have you formed a master mind group to discuss various ideas or bounce ideas off?

 
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Have you formed a master mind group to discuss various ideas or bounce ideas off?

Yes, but we discuss "bigger picture" topics than entries and exits. I let testing tell me if an entry or exit is good or bad - when done correctly, testing is unbiased and objective.

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...I would absolutely love a strategy that held for very short periods of time. Intraday would be perfect. And that is usually where I start when I create a new system.

Unfortunately, the "best" system (the way I define it) usually ends up requiring a longer holding time, days to weeks many times. This seems to get above the noise level in the price signal.
...

Kevin, did you ever create strategies to take advantage of the RTH opening range period on instruments like the ES, NQ, YM, CL etc.?

 
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Kevin, did you ever create strategies to take advantage of the RTH opening range period on instruments like the ES, NQ, YM, CL etc.?

Trend -
Thanks for the question.

Nothing for NQ, YM and CL. I've just never found an opening range strategy for those instruments. Doesn't mean it can't be done, it just means I have not been successful enough to find one to trade one with my own money.

I have one strategy (and variations thereof) I've been trading with my own money for a few years that uses pre-open and RTH open for ES. It is a decent strategy, not earthshaking or Holy Grailish.

Roughly 1:1 Annual Return / Max DD for the past year.


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I would be interested in getting your opinion about the various exotic bar types that exist like the popular unirenko here on futures.io (formerly BMT). Have you studied some of them and did you find any advantage in using them in your automated systems? Thanks

 
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@kevinkdog

I would be interested in getting your opinion about the various exotic bar types that exist like the popular unirenko here on futures.io (formerly BMT). Have you studied some of them and did you find any advantage in using them in your automated systems? Thanks

I can't speak directly about exotic bar types in Ninja, since I have never tested with them.

I use Tradestation, and they have exotic bar types too, so...

I think anytime you test with an exotic bar type, you run a greater risk of getting fraudulent results, depending on how the backtesting engine works. Of course, you can also get fraudulent results from running standard time bars, with stops and limit orders, too. I recommend people spend a lot of time reviewing backtest results, and look at data tick by tick - could the trade have even happened as the backtest engine thinks it did?

Another route to take is to run the system live for a few trades, and compare to the backtest engine results. If results are different, you may have a "fraud" problem. Such a test might be the best few hundred dollars you ever spend, because then you'll know the pitfalls of a particular bar type.


For years, the only way I would test is by using time based bars, and using market orders only ("buy next bar at market", "buytocover next bar at market", etc). I do more limit and stop order systems now, but I look at results and individual trades very carefully before drawing any conclusion.

So, here's my feeling:

1. Time based bars, market orders only - pretty safe
2. Time based bars, market, stop and limit orders - should be OK, but do a lot of verification too
3. Exotic bars, any kind of orders - be VERY careful, and very skeptical


The golden rule: "if it looks too good to be true, it probably is."

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kevinkdog View Post
...So, here's my feeling:

1. Time based bars, market orders only - pretty safe
2. Time based bars, market, stop and limit orders - should be OK, but do a lot of verification too
3. Exotic bars, any kind of orders - be VERY careful, and very skeptical


The golden rule: "if it looks too good to be true, it probably is."

Not sure i understand the difference between these two's...
1. Time based bars, market orders only - pretty safe
and
2. Exotic bars, market orders only - be VERY careful, and very skeptical

Why is that?

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trendisyourfriend View Post
Not sure i understand the difference between these two's...
1. Time based bars, market orders only - pretty safe
and
2. Exotic bars, market orders only - be VERY careful, and very skeptical

Why is that?


It has to do with how the bars are built in real time, versus how they are built using historical data. I remember running into this with Point and Figure charts, an "old" exotic bar type. I thought I had a great system, based on historical data. But then I watched bars in real time, and realized what I was seeing in historical results was totally different than what I could expect real time.

My point is not to disparage exotic bar types, just to warn people to be careful when testing with them. As long as you can convince yourself that you can execute your strategy live, and have results like the backtest, that is all that matters.

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And again, I'm not saying accurate testing with exotic bars is impossible. In my aforementioned experience with P&F charts, I was able to figure out what was going on, make chart and strategy ordering adjustments, and I ended up with something that worked the same real time as it did historically.

I wish trading software creators provided more instruction on backtesting, since it is so easy to create "junk" backtests that don't work the same in real time. I suppose that is a topic for another thread...

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Hi kevin. I am wondering about parameter changes in a strategy while you are holding a position. I know your a proponent of walk forward optimization and parameter selection. I am wondering how you deal with open positions especially on live strategies. If the current strategy parameters are holding a position, and you re optimize the strategy for new parameters. Do you just hold the position into the new parameters and allow the strategy to decide to exit or hold based on those new parameters? Or do you exit the position then start with a clean slate into the new optimization window?

 
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treydog999 View Post
@kevinkdog

Hi kevin. I am wondering about parameter changes in a strategy while you are holding a position. I know your a proponent of walk forward optimization and parameter selection. I am wondering how you deal with open positions especially on live strategies. If the current strategy parameters are holding a position, and you re optimize the strategy for new parameters. Do you just hold the position into the new parameters and allow the strategy to decide to exit or hold based on those new parameters? Or do you exit the position then start with a clean slate into the new optimization window?

Good question, @treydog999 . A good argument could be made for any of the options you listed. I don;t think there is a right or wrong answer...

That being said, I do option 1. I find that this is the easiest way to match real life trading and walkforward historical strategy.

So, if I am long, and at night I reoptimize, and it tells me to go flat, I will go flat.

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Working on daily bars I am wondering how reliable "setexitonclose" tradestation command has been for you? i feel like its too optimal an exit especially with movements being erratic near the end of the session. I was thinking going to market in the globex session or trying to exit 5 minutes before the close of the session but both would require more complicated code. I think maybe just as a platform to test ideas, setexitonclose is fine but for real world applications its probably not going to work well. Do you have any thoughts on this?

 
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treydog999 View Post
Working on daily bars I am wondering how reliable "setexitonclose" tradestation command has been for you? i feel like its too optimal an exit especially with movements being erratic near the end of the session. I was thinking going to market in the globex session or trying to exit 5 minutes before the close of the session but both would require more complicated code. I think maybe just as a platform to test ideas, setexitonclose is fine but for real world applications its probably not going to work well. Do you have any thoughts on this?


A couple of things to keep in mind:

1) SetExitOnClose can NEVER work in real time with standard daily bars, since the order would get send right when the market closes (which means the order is sent too late).

2) For Globex, the last trade time is not the close time. For example, Crude Oil trades until 5 PM every day. BUT, the settlement price is determined at 2:30 PM. Tradestation and Kinetick use the settlement price as the closing price. CQG doesn't. This could mess your strategy up.

3) Instead of SetExitOnClose, try "Sell next bar market" - it is much more realistic. But thin Globex markets at open may give you bad fills.


There are ways to get around this, but solution involve multiple charts, or 1 chart with multiple datastreams, or some other difficult code.

One thing I sometimes do is have a custom session that ends 5 (or any number of) minutes before actual market close. Then I can use SetExitOnClose, because when my session "closes" the daily bar hasn't closed. I use the exact same code on testing AND live trading on my NGEC strategies (link here). It works great.

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@kevinkdog

I have a question about incubation. I was wondering if you could do incubation by segregating the most recent 3 months of your data from the WFO process. This way you would not have to actually wait 3 months to see the results. For example i have 10 years and 3 months of data. I use 2 years as in sample, randomly selected but not including the last 3 months. I walk forward using the 1st 10 years. then after those results come in i then apply the walk forward parameters to the completely virgin last 3 months. Would this be the same as waiting the 3 months? Logically to me it seems like it since a segregated 3 months and a new 3 months are the same thing to the system. Something its never seen before. I was wondering about your thoughts on that process?

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treydog999 View Post
@kevinkdog

I have a question about incubation. I was wondering if you could do incubation by segregating the most recent 3 months of your data from the WFO process. This way you would not have to actually wait 3 months to see the results. For example i have 10 years and 3 months of data. I use 2 years as in sample, randomly selected but not including the last 3 months. I walk forward using the 1st 10 years. then after those results come in i then apply the walk forward parameters to the completely virgin last 3 months. Would this be the same as waiting the 3 months? Logically to me it seems like it since a segregated 3 months and a new 3 months are the same thing to the system. Something its never seen before. I was wondering about your thoughts on that process?

I actually did that with my Combine system. I developed it in March 2013, but only used data through December 2012. Once I was done, I then used the unseen data Jan 2013- Mar 2013 as incubation. This gave me the checks and confidence I needed to trade it in the Combine. But I still wanted to do live incubation, too, and I waited until August 2013 before going live.

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treydog999 View Post
@kevinkdog

I have a question about incubation. I was wondering if you could do incubation by segregating the most recent 3 months of your data from the WFO process.

IMO...

The major risk here is not seeing your system trade live. If you've developed hundreds of systems then you probably have a grasp on everything, but for the newer guys, you really must see your system trade live to make sure you've not made programming mistakes that are not visible during backtests or WFO's.

EDIT: Oops I thought this was the "taking a system live" thread, otherwise I would have kept my mouth shut

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I was wondering when you have a trade that you roll over to the next contract. How do you do it? its very difficult to get the same price on both sides. Do you usually just try to work orders so it gets that way? or just go on both sides at the market and take the new premium as a charge? How do you minimize the effect of contract rollover?

 
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treydog999 View Post
@kevinkdog

I was wondering when you have a trade that you roll over to the next contract. How do you do it? its very difficult to get the same price on both sides. Do you usually just try to work orders so it gets that way? or just go on both sides at the market and take the new premium as a charge? How do you minimize the effect of contract rollover?

Great question. If you do it correctly, you don't have to pay a premium, you may have to pay 2 bid/ask spread costs instead of 1, and you'll have to pay the equivalent of 1 round turn commission. A lot of people are under the mistaken impression that they always lose or gain premium during a rollover. While this might be true for strategies such as scale trading, it does not have to be true for algorithmic systems with a simple rollover. I'll explain all of that here, with a real world example.

Let's say I have a system that trades the Euro. I use the back adjusted continuous contract to calculate all parameters for the strategy. I am currently trading the September contract, but let's say I roll to December this afternoon.

Based on the signal from my continuous contract chart, I bought the September contract at 1.3272 a few days ago. Since a few days ago, September was the front month, the continuous contract thinks I entered at 1.3272.

This system has a $625 stop loss, and a $1250 profit target. So, my stop loss is at 1.3222, and my profit target is at 1.3372. Both of those are based on the September contract, which is what was the lead contract a few days ago.

So, now a few days later, I have to roll the position into December. Let's first look at the math, and what happens to the continuous contract, and why I don't lose the premium (difference) between the two contracts when I rollover.

Right at rollover, let's say December was at 1.3303, while September was at 1.3299. This is a difference of .0004, which is what the back adjusted continuous contract needs to know.

To adjust the continuous contract to have December as the front month, you simply have to add .0004 to each price point in the existing continuous contract. So, we do this, and now have a continuous contract with December as the front month.

Now, if you have your trading strategy applied to the updated continuous contract, the strategy will think you bought at 1.3276, with a stop loss at 1.3226 and a profit target of 1.3376.

"But wait!" you say. "I didn't buy at 1.3276. I somehow got screwed!"

So, here's the math, neglecting the bid/ask spread and the commission costs, just for this example.

REAL WORLD

You bought September at 1.3272. You sold September at 1.3299. Profit = $337.50
You bought December at 1.3303. Current price is 1.3303. Profit = $0

So, in the real world, you have a closed profit of $337.50, an open profit of $0.

If your new stop loss gets hit, you will lose (1.3226-1.3303)*125000 = -962.50. Add that to the previously closed profit of $337.50, and your total loss is $625.

If your new profit target gets hit, you will gain (1.3376-1.3303)*125000 = +912.50. Add that to the previously closed profit of $337.50, and your total gain is $1,250.


STRATEGY WORLD

For the original continuous contract scenario, the continuous contract thinks I entered at 1.3272.
This system has a $625 stop loss, and a $1250 profit target. So, my stop loss is at 1.3222, and my profit target is at 1.3372.

For the new rolled over continuous contract scenario, the continuous contract thinks I entered at 1.3276.
This system has a $625 stop loss, and a $1250 profit target. So, my stop loss is at 1.3226, and my profit target is at 1.3376.


So, as you can see, the profit and loss from the real world and the strategy world is exactly the same.


Next post I'll go into details on how the rollover is accomplished.

If this is confusing to anyone, please feel free to ask questions.

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Suppose you are long the Sept Euro contract at 1.3222, and it is getting to the time in mid September when you must rollover to the December contract. When you have to perform this rollover in an algorithmic strategy, how do you actually accomplish it? I usually do it one of three different ways. Each one has its advantages and disadvantages.






Method 1: Quick Roll (most expensive typically)

In this approach, you enter a sell order at the market in September Euro, and enter a buy order at the market in December Euro. Since both orders are market orders, they will be immediately executed. Using the prices above, here is the math:

Sell September at 1.3299 (bid price)

Buy December at 1.3304 (ask price)

Closed profit = $962.50 - $5.00 commission = $957.50
Open Profit = Long From 1.3304

Advantages: guaranteed fill, quick, easy

Disadvantages: you pay 2 bid/ask spreads, and if you are not quick with second order, market could run away from you, costing you money.


Method 2: Leg In Roll (cheapest method typically, IF done correctly)

In this approach, you enter a sell order at the market in September Euro, and try to work a buy order at the bid price in December Euro. The sell is immediately executed, and the buy is a limit order, which hopefully will get filled at the price you want. Using the prices above, here is the math:

Sell September at 1.3299 (bid price)

Buy December at 1.3303 (bid price)

Closed profit = $962.50 - $5.00 commission = $957.50
Open Profit = Long from 1.3303

Advantages: you save yourself $12.50 by getting in the December contract 1 tick better than you did with method 1.

Disadvantages: more complicated, plus you may have to chase the market up to get the December fill. You can easily lose more than 1 tick by trying to be too greedy with your limit order.


Method 3: Exchange Supported Spread Roll (cost usually between methods 1 and 2)

The exchanges have a great tool to help spreaders - a dedicated quote feed and tradable symbol for executing spread orders, which is what a rollover is. In this case, you are buying or selling the spread, not the individual legs. You get simultaneously filled on both legs at the same time. Using the prices above, here is the math:

Buy Spread at 4.5 (ask price). Note that this doesn't tell you the actual execution prices. You'll see these on your statement, and they are really irrelevant in the marked to market accounting of futures (the spread price is all that really matters). So, we will just assume some prices, keeping the spread fill price correct:

Sell Sept at 1.3329

Buy Dec at 1.3329+.00045 = 1.33035


Closed profit = $962.50 - $5.00 commission = $957.50
Open Profit = Long from 1.33035

Advantages: simple, no chance of only one leg executing, cost usually in between method 1 and 2.

Disadvantages: Some brokers don't support this. Tradestation's main platform, for example, does not allow this. You can do it manually in Tradestation 4.0 platform, but that platform is not made for algorithmic strategies. It is also easy to screw up the order, and buy the spread instead of selling it. You have to be careful. Also, don't think that just because you are trading the spread symbol, you'll only pay 1 commission. Some people think this is true, and I guess those folks don't read their statements very closely. When the brokerage does its accounting, it splits the spread into a separate buy and sell fill for each leg. When this happens, commission is charged for each. There is no free lunch, commission wise, with this method!


You can see from the above example there is $12.50 cost difference between all 3 methods, with Method #1 being the most expensive, Method #2 being the cheapest, and Method #3 in between the other two. This is not always the case, but is true in general.



So, that is how a rollover is actually accomplished. Whenever I can, I use the exchange supported spreads to do my rollovers. I can do this with systems where I enter orders manually. For my fully automated systems, I generally use method 1, even though it is the most expensive. When I use Method 2, I sometimes find myself chasing the market with my order, or worse yet, I forget about the rollover for a while, leaving me temporarily doubly exposed, until I fix it.

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kevinkdog View Post
Suppose you are long the Sept Euro contract at 1.3222, and it is getting to the time in mid September when you must rollover to the December contract. When you have to perform this rollover in an algorithmic strategy, how do you actually accomplish it? I usually do it one of three different ways. Each one has its advantages and disadvantages.






Method 1: Quick Roll (most expensive typically)

In this approach, you enter a sell order at the market in September Euro, and enter a buy order at the market in December Euro. Since both orders are market orders, they will be immediately executed. Using the prices above, here is the math:

Sell September at 1.3299 (bid price)

Buy December at 1.3304 (ask price)

Closed profit = $962.50 - $5.00 commission = $957.50
Open Profit = Long From 1.3304

Advantages: guaranteed fill, quick, easy

Disadvantages: you pay 2 bid/ask spreads, and if you are not quick with second order, market could run away from you, costing you money.


Method 2: Leg In Roll (cheapest method typically, IF done correctly)

In this approach, you enter a sell order at the market in September Euro, and try to work a buy order at the bid price in December Euro. The sell is immediately executed, and the buy is a limit order, which hopefully will get filled at the price you want. Using the prices above, here is the math:

Sell September at 1.3299 (bid price)

Buy December at 1.3303 (bid price)

Closed profit = $962.50 - $5.00 commission = $957.50
Open Profit = Long from 1.3303

Advantages: you save yourself $12.50 by getting in the December contract 1 tick better than you did with method 1.

Disadvantages: more complicated, plus you may have to chase the market up to get the December fill. You can easily lose more than 1 tick by trying to be too greedy with your limit order.


Method 3: Exchange Supported Spread Roll (cost usually between methods 1 and 2)

The exchanges have a great tool to help spreaders - a dedicated quote feed and tradable symbol for executing spread orders, which is what a rollover is. In this case, you are buying or selling the spread, not the individual legs. You get simultaneously filled on both legs at the same time. Using the prices above, here is the math:

Buy Spread at 4.5 (ask price). Note that this doesn't tell you the actual execution prices. You'll see these on your statement, and they are really irrelevant in the marked to market accounting of futures (the spread price is all that really matters). So, we will just assume some prices, keeping the spread fill price correct:

Sell Sept at 1.3329

Buy Dec at 1.3329+.00045 = 1.33035


Closed profit = $962.50 - $5.00 commission = $957.50
Open Profit = Long from 1.33035

Advantages: simple, no chance of only one leg executing, cost usually in between method 1 and 2.

Disadvantages: Some brokers don't support this. Tradestation's main platform, for example, does not allow this. You can do it manually in Tradestation 4.0 platform, but that platform is not made for algorithmic strategies. It is also easy to screw up the order, and buy the spread instead of selling it. You have to be careful. Also, don't think that just because you are trading the spread symbol, you'll only pay 1 commission. Some people think this is true, and I guess those folks don't read their statements very closely. When the brokerage does its accounting, it splits the spread into a separate buy and sell fill for each leg. When this happens, commission is charged for each. There is no free lunch, commission wise, with this method!


You can see from the above example there is $12.50 cost difference between all 3 methods, with Method #1 being the most expensive, Method #2 being the cheapest, and Method #3 in between the other two. This is not always the case, but is true in general.



So, that is how a rollover is actually accomplished. Whenever I can, I use the exchange supported spreads to do my rollovers. I can do this with systems where I enter orders manually. For my fully automated systems, I generally use method 1, even though it is the most expensive. When I use Method 2, I sometimes find myself chasing the market with my order, or worse yet, I forget about the rollover for a while, leaving me temporarily doubly exposed, until I fix it.

Thanks a lot for the in depth answer. and all the other answers you provide to my questions. I really appreciate it.

 
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Thanks a lot for the in depth answer. and all the other answers you provide to my questions. I really appreciate it.

Hopefully it makes sense. If not, just let me know. I was writing too fast.

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Hi @kevinkdog

I really appreciate you answering all my questions. But I have another maybe more personal than most of my others. I have been in a big rut lately, for the last few months. Trying to turn out a system into incubation each month but without success. My development process goes like this.

1) Randomly Select 20% of total data to use for Insample
2) beat the junk out of the in sample until i get something that works. Always 5 rules or less.
3)Walk forward bench test 50% or less of the remaining data. So i can test different WFO IS OOS settings or equity curve vs net profit etc.
4) WFO against the entire data set (minus 3 months)
5)String together the WFO windows and put it into Monte Carlo
6) Use the reserved 3 months for instant incubation
7) move to normal real time incubation
8) go live.

I have tried many instruments (mostly focusing on emini dow, euro and five year notes) but from daily all the way down to 5 minute. and nothing can pass the WFO or MC. I have a lot of pre coded stuff so i will try say 20-30 ideas right away. From simple break outs to more complicated time of day stuff. Whatever Idea I had before i try again on different time frames/instruments. Maybe that's making me go in circles.

Anyway what do you do when you get stuck? How do you deal with not having any systems pass your workflow? Is my workflow to rigid and hard to beat? I dont really have any idea how to progress and am feeling like I am running around in circles. Thanks again for all your help.

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Hi @kevinkdog

I really appreciate you answering all my questions. But I have another maybe more personal than most of my others. I have been in a big rut lately, for the last few months. Trying to turn out a system into incubation each month but without success. My development process goes like this.

1) Randomly Select 20% of total data to use for Insample
2) beat the junk out of the in sample until i get something that works. Always 5 rules or less.
3)Walk forward bench test 50% or less of the remaining data. So i can test different WFO IS OOS settings or equity curve vs net profit etc.
4) WFO against the entire data set (minus 3 months)
5)String together the WFO windows and put it into Monte Carlo
6) Use the reserved 3 months for instant incubation
7) move to normal real time incubation
8) go live.

I have tried many instruments (mostly focusing on emini dow, euro and five year notes) but from daily all the way down to 5 minute. and nothing can pass the WFO or MC. I have a lot of pre coded stuff so i will try say 20-30 ideas right away. From simple break outs to more complicated time of day stuff. Whatever Idea I had before i try again on different time frames/instruments. Maybe that's making me go in circles.

Anyway what do you do when you get stuck? How do you deal with not having any systems pass your workflow? Is my workflow to rigid and hard to beat? I dont really have any idea how to progress and am feeling like I am running around in circles. Thanks again for all your help.


Here is a very long winded answer to your question. I wrote it for another purpose, but I think it applies here. I hope it addresses most of your concerns.

Back in the old days, before I developed the process I now use, I did what most other people do: I picked a market, selected a bar interval and time period, put a few rules in a strategy, and then optimized. Whatever turned out to be best is what I started to trade with live. The magic of the computer, with its ability to quickly do millions of iterations, uncovered what I was sure would be riches. Boy was I ever disappointed!

Those early failures led me to a more involved, robust and ideally trouble free development process. I can't take credit for any of the individual concepts - certainly many traders before me long ago developed most of the steps of my process - but I have tailored it to something that feels right to me, and by and large it has yielded good results in real time.

That is not to say it is an easy process for strategies to pass. When I first started using the basic process I use today (I have enhanced and refined it over the years, and if anything it is tougher today than it was a few years ago), it probably took me about 100-200 trading ideas for entries and exits before I found something worth trading. With time and experience, that number has dropped significantly, but coming up with tradable strategies is not an easy task.

Traders that are new to using walkforward analysis, Monte Carlo analysis, etc. frequently are frustrated by the difficulty of discovering a strategy. My answer to that dilemma usually is "but that is how it is supposed to be!" Think about it for a second - if it was easy to find a strategy, don't you think others would have already found it and exploited it? There are thousands of traders and researchers out there every day looking for edges, mining data and running tests. I guarantee you that all the easy strategies either no longer work or have been long ago discovered.

A friend of mine who is a Commodity Trading Advisor (CTA) once told me that if he finds one new strategy a year to trade, he is a happy camper. He should be, since even one strategy, with proper money management, can make you rich. But to get that one strategy per year takes a lot of work. I frequently think of the strategy development process as a factory. At the receiving door of the factory are your trading ideas and strategies, the raw material you constantly need. Your analysis tools, backtest software, walkforward algorithms are the machines in the factory. You, of course, are the skilled labor running the machines, monitoring the quality of the product. The output usually fills a big garbage bin right outside your factory, unfortunately. But, what isn't thrown away as garbage is pure gold - your tradable strategy.

The factory metaphor is appropriate because strategy development is tough work. Factory workers are among the toughest people I know of, and that is how you need to be to develop strategies. I am always amazed by educators out there who gloss over strategy development. Instead, they focus on such nonsense as getting in touch with your feelings, or writing everything down in a journal. Don't get me wrong, those items have their time and place in trading, but they are no substitute for having a strategy with an edge. If you don't have a good strategy, all the journaling in the world will not save you. As an aside, it is ironic, though, that many times "soft" skills such as psychology or journaling will be indispensable to a trader with an edge.

Since strategy development is a factory, you need to keep the factory running at all times. Here are some tips that I use or have used to keep things humming along:

· Any time you see a trading idea that intrigues you, write it down. Keep a list of ideas you want to test.

· Look for ideas anywhere. Trading books, magazines, and internet forums are all good sources of raw ideas. I would not recommend taking an idea as presented and trade it exactly as is, though. I'd look to modify it first, and put your own unique spin on it.

· No idea is too silly, too stupid or too dumb. The only dumb ideas are the ones you never test.

· If things are going bad, try the opposite. Buy when you think you should sell, and vice versa. Maybe something interesting will develop from your opposite idea.

· If you are a goal setter, try to test 1-5 strategies per week, at a minimum. It may take 6 months to a year of rigorous testing, but eventually you'll find something.

· If you run out of ideas, pull up random charts, and just stare at them. You can even add an indicator or two. After a while staring, but not thinking, walk away from those charts, and revisit them a few days or a week later. Then start to think: do you see anything in the relationship of the indicator to the chart, or in the chart itself? Write down what you see, program it, and test it.

· Find other traders roughly the same skill level as you. Offer to swap ideas or strategies. Take what these traders have, and then build strategies around their idea. I do this frequently with some of my fellow World Cup winners.

· Change your criteria. Maybe you are being too restrictive in what you consider acceptable. Open the door a bit to strategies that meet most, but not all, of your criteria. You can always tighten the criteria once your factory starts producing.

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kevinkdog View Post
Here is a very long winded answer to your question. I wrote it for another purpose, but I think it applies here. I hope it addresses most of your concerns.

Back in the old days, before I developed the process I now use, I did what most other people do: I picked a market, selected a bar interval and time period, put a few rules in a strategy, and then optimized. Whatever turned out to be best is what I started to trade with live. The magic of the computer, with its ability to quickly do millions of iterations, uncovered what I was sure would be riches. Boy was I ever disappointed!

Those early failures led me to a more involved, robust and ideally trouble free development process. I can't take credit for any of the individual concepts - certainly many traders before me long ago developed most of the steps of my process - but I have tailored it to something that feels right to me, and by and large it has yielded good results in real time.

That is not to say it is an easy process for strategies to pass. When I first started using the basic process I use today (I have enhanced and refined it over the years, and if anything it is tougher today than it was a few years ago), it probably took me about 100-200 trading ideas for entries and exits before I found something worth trading. With time and experience, that number has dropped significantly, but coming up with tradable strategies is not an easy task.

Traders that are new to using walkforward analysis, Monte Carlo analysis, etc. frequently are frustrated by the difficulty of discovering a strategy. My answer to that dilemma usually is "but that is how it is supposed to be!" Think about it for a second - if it was easy to find a strategy, don't you think others would have already found it and exploited it? There are thousands of traders and researchers out there every day looking for edges, mining data and running tests. I guarantee you that all the easy strategies either no longer work or have been long ago discovered.

A friend of mine who is a Commodity Trading Advisor (CTA) once told me that if he finds one new strategy a year to trade, he is a happy camper. He should be, since even one strategy, with proper money management, can make you rich. But to get that one strategy per year takes a lot of work. I frequently think of the strategy development process as a factory. At the receiving door of the factory are your trading ideas and strategies, the raw material you constantly need. Your analysis tools, backtest software, walkforward algorithms are the machines in the factory. You, of course, are the skilled labor running the machines, monitoring the quality of the product. The output usually fills a big garbage bin right outside your factory, unfortunately. But, what isn't thrown away as garbage is pure gold - your tradable strategy.

The factory metaphor is appropriate because strategy development is tough work. Factory workers are among the toughest people I know of, and that is how you need to be to develop strategies. I am always amazed by educators out there who gloss over strategy development. Instead, they focus on such nonsense as getting in touch with your feelings, or writing everything down in a journal. Don't get me wrong, those items have their time and place in trading, but they are no substitute for having a strategy with an edge. If you don't have a good strategy, all the journaling in the world will not save you. As an aside, it is ironic, though, that many times "soft" skills such as psychology or journaling will be indispensable to a trader with an edge.

Since strategy development is a factory, you need to keep the factory running at all times. Here are some tips that I use or have used to keep things humming along:

· Any time you see a trading idea that intrigues you, write it down. Keep a list of ideas you want to test.

· Look for ideas anywhere. Trading books, magazines, and internet forums are all good sources of raw ideas. I would not recommend taking an idea as presented and trade it exactly as is, though. I'd look to modify it first, and put your own unique spin on it.

· No idea is too silly, too stupid or too dumb. The only dumb ideas are the ones you never test.

· If things are going bad, try the opposite. Buy when you think you should sell, and vice versa. Maybe something interesting will develop from your opposite idea.

· If you are a goal setter, try to test 1-5 strategies per week, at a minimum. It may take 6 months to a year of rigorous testing, but eventually you'll find something.

· If you run out of ideas, pull up random charts, and just stare at them. You can even add an indicator or two. After a while staring, but not thinking, walk away from those charts, and revisit them a few days or a week later. Then start to think: do you see anything in the relationship of the indicator to the chart, or in the chart itself? Write down what you see, program it, and test it.

· Find other traders roughly the same skill level as you. Offer to swap ideas or strategies. Take what these traders have, and then build strategies around their idea. I do this frequently with some of my fellow World Cup winners.

· Change your criteria. Maybe you are being too restrictive in what you consider acceptable. Open the door a bit to strategies that meet most, but not all, of your criteria. You can always tighten the criteria once your factory starts producing.

Awesome answer. The factory is exactly what I believe my "trading business" is. I am supposed to develop product "systems" and put them out the door. You really struck a cord there with me on that. Its the same metaphor i been using with myself. So basically as for me the factory worker, I just need to grind out more hours and more systems.

I have ideas and concepts that i understand coming in and always looking for more. I have the factory line, my process listed above. I also have the capital to put things live. I just need to continue to do that process until i strike something. I may continue to loosen my restrictions as well just to see if anything turns up. All good stuff.

As always thanks for your honest and complete answer. i always appreciate it.

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treydog999 View Post
Awesome answer. The factory is exactly what I believe my "trading business" is. I am supposed to develop product "systems" and put them out the door. You really struck a cord there with me on that. Its the same metaphor i been using with myself. So basically as for me the factory worker, I just need to grind out more hours and more systems.

I have ideas and concepts that i understand coming in and always looking for more. I have the factory line, my process listed above. I also have the capital to put things live. I just need to continue to do that process until i strike something. I may continue to loosen my restrictions as well just to see if anything turns up. All good stuff.

As always thanks for your honest and complete answer. i always appreciate it.

If you loosen your criteria, don't necessarily trade the first strategy that passes. The point of that really is to give you more experience and confidence in developing "passing" systems. Then, tighten the criteria slowly, and hopefully by then you'll be able to improve your systems to meet the tighter challenge. Kepp repeating this, and eventually you'll have a strategy that meets your original criteria.

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Hi Kevin @kevinkdog,

I have a general question. When you are adding rules, filters, stops or targets your baseline system. Are you then optimizing those parameters over your in sample to test if its generally a good idea?

For example: Say my in sample is 25% of my total data set.
I found a basic rule(s) for my trading system that over an optimized parameter set, say 1-200 by 1. is profitable 75% of the time.

I want to add a new rule, be it a filter, a target, a stop. How do you go about doing that and testing it?

Would you add that new rule. then optimize again 1-200 over the in sample. Then see if it increased the % profitable of the entire test? Or would you just add it in and look at a particular setting? I really have no idea how to modify my basic trade idea in order to get to walk forward.


I went through your webinars and looked at your futures.io (formerly BMT) CL system. you have tested a fair amount of rules. Close Close[x] and RSI. with 3 types of exits. how did you add, test or accept those rules over others?

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treydog999 View Post
Hi Kevin @kevinkdog,

I have a general question. When you are adding rules, filters, stops or targets your baseline system. Are you then optimizing those parameters over your in sample to test if its generally a good idea?

For example: Say my in sample is 25% of my total data set.
I found a basic rule(s) for my trading system that over an optimized parameter set, say 1-200 by 1. is profitable 75% of the time.

I want to add a new rule, be it a filter, a target, a stop. How do you go about doing that and testing it?

Would you add that new rule. then optimize again 1-200 over the in sample. Then see if it increased the % profitable of the entire test? Or would you just add it in and look at a particular setting? I really have no idea how to modify my basic trade idea in order to get to walk forward.


I went through your webinars and looked at your futures.io (formerly BMT) CL system. you have tested a fair amount of rules. Close Close[x] and RSI. with 3 types of exits. how did you add, test or accept those rules over others?


If I read your question right: I would probably test the rule over the in sample dataset, then optimize again 1-200. I normally consider the in sample period as a "sandbox" of sorts, where I can try some different things before testing over the whole dataset.

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kevinkdog View Post
If I read your question right: I would probably test the rule over the in sample dataset, then optimize again 1-200. I normally consider the in sample period as a "sandbox" of sorts, where I can try some different things before testing over the whole dataset.

Is there anything your looking for in the re optimization? Like more parameter sets are profitable? or higher average net profit or something?

 
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Is there anything your looking for in the re optimization? Like more parameter sets are profitable? or higher average net profit or something?

I would look for a "significant" increase in performance. This could mean more of the optimizations being profitable, net profit increasing for most runs, etc. The hard part is determining what is significant. If you are looking at net profit, you already have a decent strategy, and you can improve net profit by 25-50% adding a new rule, I'd say that is worth keeping.

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I posted this message and you replied:


Hi all!

I am trying to write an EasyLanguage code that takes a limit entry "once into the future", but not neccessarily "at this bar" or "at next bar". Is this possible?

Yes, just save the price you want the limit order in a variable, xxxx for example.

Then, when the time is right, say: buy next bar at xxxx limit;

 
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Hi Kevin,

I was wondering how you handle strategies that trade in opposite directions. For example, if I have one strategy that goes short NG, and another that goes long NG, there is a host of problems if one triggers while the other is active. In SIM of course it will allow you to be in both positions at the same time, but in live money the second trade will null the first position and put you flat. Meanwhile any stops or targets for both strategies remain active, as well as the exit logic for the strategies, which leaves you completely swinging in the breeze and subject to all kinds of hazards.

The obvious solution I guess is to simply use two separate accounts, one that only goes long and one that only goes short, which would allow the strategies to work independently of each other -- you'd just be net neutral while both were active, as any gain in the one would obviously be offset by a loss in the other. But it would prevent the scenario described above at least, and possibly even give you the chance of both winning, if the time frame and constraints were loose enough.

I'm wondering though if there is a way to code the strategy to not enter a trade if the account is already in position in the opposite direction. Actually I guess there are two options -- one would be to code every strategy to not execute a trade if the account was already IN trade for that contract, but the preferable option would be to code it so that it would only prevent execution if the account was in trade for that contract AND in the opposite direction from the new strategy. This would allow you to still have multiple strategies act in the same direction, while preventing any opposing ones from cancelling them out if they're already in.

Anyway I was just curious how you (or anyone else) handles this. I talked to Ninja support about the issue, and basically their recommendation was simply pick a direction, long or short, and only use strategies in that one direction, which of course is ridiculous. Barring that, they said the best option would simply be to have two accounts, again one that only goes long in that market, and one that only goes short. I will probably move to that at some point, but it would be nice to have some kind of stop gap for the time being that would prevent opposing strategies from cancelling positions out and leaving all kinds of executions still active on the account.

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LightWeight View Post
Hi Kevin,

I was wondering how you handle strategies that trade in opposite directions. For example, if I have one strategy that goes short NG, and another that goes long NG, there is a host of problems if one triggers while the other is active. In SIM of course it will allow you to be in both positions at the same time, but in live money the second trade will null the first position and put you flat. Meanwhile any stops or targets for both strategies remain active, as well as the exit logic for the strategies, which leaves you completely swinging in the breeze and subject to all kinds of hazards.

The obvious solution I guess is to simply use two separate accounts, one that only goes long and one that only goes short, which would allow the strategies to work independently of each other -- you'd just be net neutral while both were active, as any gain in the one would obviously be offset by a loss in the other. But it would prevent the scenario described above at least, and possibly even give you the chance of both winning, if the time frame and constraints were loose enough.

I'm wondering though if there is a way to code the strategy to not enter a trade if the account is already in position in the opposite direction. Actually I guess there are two options -- one would be to code every strategy to not execute a trade if the account was already IN trade for that contract, but the preferable option would be to code it so that it would only prevent execution if the account was in trade for that contract AND in the opposite direction from the new strategy. This would allow you to still have multiple strategies act in the same direction, while preventing any opposing ones from cancelling them out if they're already in.

Anyway I was just curious how you (or anyone else) handles this. I talked to Ninja support about the issue, and basically their recommendation was simply pick a direction, long or short, and only use strategies in that one direction, which of course is ridiculous. Barring that, they said the best option would simply be to have two accounts, again one that only goes long in that market, and one that only goes short. I will probably move to that at some point, but it would be nice to have some kind of stop gap for the time being that would prevent opposing strategies from cancelling positions out and leaving all kinds of executions still active on the account.



Thanks for the question. Sometimes, I do trade different strats in different accounts, although you pay more in trading costs, and margin allocation isn't as efficient. That is Method 1.

Method 2: make one strategy, combining all your strategies into one.

Then you use a counter to figure out long and short.

Somewhere in the forum there is an example of this. Many people use this method, and just trade the net. I know of a CTA who uses this approach to trade 20-30 strategies at the same time.

It will take you a while to work out the logic.


Method 3:

Another option is to trade the 2 strategies in the same acct, if your software can handle it. You say Ninja can't do this (I am surprised), I've done it in Tradestation, and I've heard Multicharts does it with ease (I've never tried MC).

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LightWeight View Post
I was wondering how you handle strategies that trade in opposite directions. For example, if I have one strategy that goes short NG, and another that goes long NG, there is a host of problems if one triggers while the other is active. In SIM of course it will allow you to be in both positions at the same time, but in live money the second trade will null the first position and put you flat. Meanwhile any stops or targets for both strategies remain active, as well as the exit logic for the strategies, which leaves you completely swinging in the breeze and subject to all kinds of hazards.

The obvious solution I guess is to simply use two separate accounts, one that only goes long and one that only goes short, which would allow the strategies to work independently of each other -- you'd just be net neutral while both were active, as any gain in the one would obviously be offset by a loss in the other. But it would prevent the scenario described above at least, and possibly even give you the chance of both winning, if the time frame and constraints were loose enough.

You do realize Lightweight that whether you do this in two seperate accounts or in one account, the risk and trades are identical. You might have a better state of mind, but your trades, and risk are the same. The only difference is you will need more money to support the same positions if in seperate accounts.

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  #55 (permalink)
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Having two separate accounts or the corresponding margin increase really isn't an issue, I'm more concerned with how to prevent the execution of one strategy messing up an ongoing strategy that was in trade in the opposite direction. If I only had two strategies that did this then combining them could be an option, but I may have as many as 10 gold strategies alone, with 5 long and 5 short, and it wouldn't be feasible or ideal to combine all 10 into one single strategy....each of them is designed to only work during certain time frames and certain market conditions, but those conditions may overlap, or a previous strat may not have run its course yet while an opposing one is triggered by its own conditions.

Ninja can indeed do all this, but the problem of course is you're clearing all your trades through one account, and the CME or whoever doesn't know they are separate strats, just buy and sell. Like I said it will let you do this in sim, which is great for a walk forward period, but the only way to replicate that live as far as I can see would just be having those two separate accounts.

As for the risk, this is precisely why this is a concern -- I don't want to have strategies neutralizing each other out of the market, while the stop orders and exit logic continue to run, thus possibly putting me back in on accident if price moves into one or the other (or the exit logic triggers and places an exit order, which would now be an entry order). I'd much rather have two strategies offsetting each other in position, if it came to that, than a completely unpredictable result of them cancelling out trades while leaving everything else intact. I actually watched this happen once live, when I was short NG on a strat and a long NG strat triggered, and that's exactly what happened -- I was flat, but I now had stops and targets sitting on the chart, waiting to be triggered, plus the exit logic still running. I had to manually cancel out the stops and disable the strats, and then renable them, to prevent any further action, which is fine and dandy if I can watch my VPS all day, but not so much if I plan on sleeping or ever leaving the house.

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LightWeight View Post
Having two separate accounts or the corresponding margin increase really isn't an issue, I'm more concerned with how to prevent the execution of one strategy messing up an ongoing strategy that was in trade in the opposite direction. If I only had two strategies that did this then combining them could be an option, but I may have as many as 10 gold strategies alone, with 5 long and 5 short, and it wouldn't be feasible or ideal to combine all 10 into one single strategy....each of them is designed to only work during certain time frames and certain market conditions, but those conditions may overlap, or a previous strat may not have run its course yet while an opposing one is triggered by its own conditions.

Ninja can indeed do all this, but the problem of course is you're clearing all your trades through one account, and the CME or whoever doesn't know they are separate strats, just buy and sell. Like I said it will let you do this in sim, which is great for a walk forward period, but the only way to replicate that live as far as I can see would just be having those two separate accounts.

As for the risk, this is precisely why this is a concern -- I don't want to have strategies neutralizing each other out of the market, while the stop orders and exit logic continue to run, thus possibly putting me back in on accident if price moves into one or the other (or the exit logic triggers and places an exit order, which would now be an entry order). I'd much rather have two strategies offsetting each other in position, if it came to that, than a completely unpredictable result of them cancelling out trades while leaving everything else intact. I actually watched this happen once live, when I was short NG on a strat and a long NG strat triggered, and that's exactly what happened -- I was flat, but I now had stops and targets sitting on the chart, waiting to be triggered, plus the exit logic still running. I had to manually cancel out the stops and disable the strats, and then renable them, to prevent any further action, which is fine and dandy if I can watch my VPS all day, but not so much if I plan on sleeping or ever leaving the house.

I recommend you find trading software to do what you need. If Ninja indeed won't do it, then you should find something else.

One thing that bothers me: you mention 2 NG strats cancelling each other out, then you cancelled the stop loss and profit target orders because the exit logic was still running. I think those should orders remain in.

Here is an example:

Scenario: Price is at 5.0, goes straight up to 6.0


Strat A - Long at 5.0, profit target at 6.0
Strat B - Short at 5.0, stop loss at 5.5

1) Run into separate accounts:

Gain on A = 6-5 = $10000
Loss on B = 5-5.5 = -$5000

Net = $5000 - $10 commissions = $4990


2) Your proposed way, cancelling exit orders

Net = $0 (no trades)


3) Let exits work as they normally would

From 5.0 to 5.5, you will be flat. At 5.5, your stop loss for B hits, making you net long overall.

From 5.5 to 6, you are long. At 6, A profit target triggers, making you flat

6-5.5 = $5000 profit

Net = $5000 - $5 commission = $4995



Options 1) and 3) are correct. Option 2) is wrong.


Good software should be able to handle Option 3 bookkeeping internally, and execute orders properly.



So, hopefully you can see that cancelling of the exits is not the way to do it.

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kevinkdog View Post
I recommend you find trading software to do what you need. If Ninja indeed won't do it, then you should find something else.

One thing that bothers me: you mention 2 NG strats cancelling each other out, then you cancelled the stop loss and profit target orders because the exit logic was still running. I think those should orders remain in.

Here is an example:

Scenario: Price is at 5.0, goes straight up to 6.0


Strat A - Long at 5.0, profit target at 6.0
Strat B - Short at 5.0, stop loss at 5.5

1) Run into separate accounts:

Gain on A = 6-5 = $10000
Loss on B = 5-5.5 = -$5000

Net = $5000 - $10 commissions = $4990


2) Your proposed way, cancelling exit orders

Net = $0 (no trades)


3) Let exits work as they normally would

From 5.0 to 5.5, you will be flat. At 5.5, your stop loss for B hits, making you net long overall.

From 5.5 to 6, you are long. At 6, A profit target triggers, making you flat

6-5.5 = $5000 profit

Net = $5000 - $5 commission = $4995



Options 1) and 3) are correct. Option 2) is wrong.


Good software should be able to handle Option 3 bookkeeping internally, and execute orders properly.



So, hopefully you can see that cancelling of the exits is not the way to do it.

Hi Kevin,

I agree that it's possible letting the strategies continue to work may result in a fortunate outcome, but I think it's equally possible the opposite is true, and even more likely. One problem is that not every strategy I use has a stop loss and/or profit target -- some of them have both, some have just a stop loss, and some have neither, relying entirely on exit logic to close the trade. So there may or may not be pending orders to offset anything of capture a gain, and the result is that I'd end up naked in the market and subject to whatever direction it was going. Another issue is the exit logic for strategies....it's possible that after two strategies offset I may be flat, with neither stops or targets working, but the exit logic still running -- either exit on COBC, or exit on market close. If and when that triggered (as the strategy still assumed I was in trade), it would put me BACK into the market, and again naked, since the exit of course doesn't generate any further orders. My biggest concern here I think is risk avoidance, which is why I'm keen on either not having the opposite trade generate in the first place, or making sure that all of the exit logic and stops can work properly without putting me into the market either naked, or in an unexpected position, while I'm not able to monitor trades.

There's also of course the question of what was going on with the previous strategy at the time....maybe it was up on the offsetting strategy took it out for a profit, or perhaps it was losing and the opposing strategy acted as a stop loss...in some sense it may be beneficial, as one would assume that the more recent strategy was acting on more recent information, and may have thus spotted a trend change that the older strategy had not processed yet. Using separate accounts would create a kind of hedging effect in this regard, at least until one of them was out, while using the same account would prevent both trades from operating any further (until the still working stops are hit, as you mentioned, which may or may not work in your favor, and are no longer acting in accordance with the underlying strategy).

Another part of my reasoning for wanting both strategies to operate independently is the possibility they may both win, however rare that is. Say a long strategy has a $1000 target and stop, and a short strategy has a $300 target and stop -- it's possible that the short strategy could activate while the long is in, take advantage of a retracement in the uptrend to hit the $300 target and get out, and then the uptrend could resume and the long could also hit its $1000 target. If the strats simply cancel out, then neither can now work -- you're stuck with whatever profit or loss the original had already generated, and the new short has no chance to work either. And depending on the stop and target configuration of both strats, you may or may not have pending orders now on the board, operating quite randomly and independently.

It's all a bit complicated I suppose, and something I hadn't quite foreseen until I saw my sim strategies going in at the same time, and then saw it with a live strategy. I'm honestly surprised there isn't more discussion about it or definitive solutions -- I'm not sure if most people only run strategies in one direction, or run so few strategies that they never encounter the issue. I'm currently running about 75 strategies in sim, and while it's very rare for opposing strats to be in at the same time, I do occasionally see it, and I've only seen it once live, but it did happen.

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LightWeight View Post
Hi Kevin,

I agree that it's possible letting the strategies continue to work may result in a fortunate outcome, but I think it's equally possible the opposite is true, and even more likely. One problem is that not every strategy I use has a stop loss and/or profit target -- some of them have both, some have just a stop loss, and some have neither, relying entirely on exit logic to close the trade. So there may or may not be pending orders to offset anything of capture a gain, and the result is that I'd end up naked in the market and subject to whatever direction it was going. Another issue is the exit logic for strategies....it's possible that after two strategies offset I may be flat, with neither stops or targets working, but the exit logic still running -- either exit on COBC, or exit on market close. If and when that triggered (as the strategy still assumed I was in trade), it would put me BACK into the market, and again naked, since the exit of course doesn't generate any further orders. My biggest concern here I think is risk avoidance, which is why I'm keen on either not having the opposite trade generate in the first place, or making sure that all of the exit logic and stops can work properly without putting me into the market either naked, or in an unexpected position, while I'm not able to monitor trades.

There's also of course the question of what was going on with the previous strategy at the time....maybe it was up on the offsetting strategy took it out for a profit, or perhaps it was losing and the opposing strategy acted as a stop loss...in some sense it may be beneficial, as one would assume that the more recent strategy was acting on more recent information, and may have thus spotted a trend change that the older strategy had not processed yet. Using separate accounts would create a kind of hedging effect in this regard, at least until one of them was out, while using the same account would prevent both trades from operating any further (until the still working stops are hit, as you mentioned, which may or may not work in your favor, and are no longer acting in accordance with the underlying strategy).

Another part of my reasoning for wanting both strategies to operate independently is the possibility they may both win, however rare that is. Say a long strategy has a $1000 target and stop, and a short strategy has a $300 target and stop -- it's possible that the short strategy could activate while the long is in, take advantage of a retracement in the uptrend to hit the $300 target and get out, and then the uptrend could resume and the long could also hit its $1000 target. If the strats simply cancel out, then neither can now work -- you're stuck with whatever profit or loss the original had already generated, and the new short has no chance to work either. And depending on the stop and target configuration of both strats, you may or may not have pending orders now on the board, operating quite randomly and independently.

It's all a bit complicated I suppose, and something I hadn't quite foreseen until I saw my sim strategies going in at the same time, and then saw it with a live strategy. I'm honestly surprised there isn't more discussion about it or definitive solutions -- I'm not sure if most people only run strategies in one direction, or run so few strategies that they never encounter the issue. I'm currently running about 75 strategies in sim, and while it's very rare for opposing strats to be in at the same time, I do occasionally see it, and I've only seen it once live, but it did happen.

I guess I don't understand your situation fully, because I have never had the issues you bring up. I see it as a bookkeeping issue - one for you to take care of it code if possible, or to use trading software that does it for you.

As an example, I was just talking to a trader friend in New Zealand today (tomorrow for him). He trades 10 strats at the same time, each with its own targets and stops, and he has no issues.

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Kevin--

I'm going through Pardo's stuff, and I have a question about Degrees of Freedom ("DOF").

He gives the following examples:

1. 50 Day Closing SMA on a daily chart will consume 51 DOF (50 closes plus the rule)
2. 10 Day Closing SMA and a 50 Day Closing SMA on a daily chart will consume 52 DOF (50 closes plus 2 rules)
3. 10 Day Closing SMA and 50 Day High SMA on a daily chart will consume 62 DOF (10 Closes, 50 Highs, 2 rules)

Would a simple rule like if Close[0] > Close[x] only consume 1 DOF (1 rule) or would it consume x + 1 (x closes plus 1 rule)?

Also, how would an indicator like RSI and MFI's DOF be calculated? Let's assume each is 14 periods (standard). Given that the RSI is looking at just the input (i.e., close), would the RSI consume 14 + 1 (15 DOF)? And what about the MFI, which looks at Close, Low, High and Volume? Would the MFI consume 14 Closes, 14 Lows, 14 Highs and 14 Volumes plus the rule, for a total of 57 DOF--or would it just consume 14 + 1 (15 DOF)?

Also, when calculating the beginning DOF, do you only include the items that are only being examined within the indicators? For instance, on a moving average Close cross over system that doesn't look at High, Low, Open or Volume, would the gross DOF on a 1,000 bar chart be 1000 or would you still include H, L, O, V (gross total of 5000 DOF)?

Thanks for your insights.

All best,

Aventeren

 
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aventeren View Post
Kevin--

I'm going through Pardo's stuff, and I have a question about Degrees of Freedom ("DOF").

He gives the following examples:

1. 50 Day Closing SMA on a daily chart will consume 51 DOF (50 closes plus the rule)
2. 10 Day Closing SMA and a 50 Day Closing SMA on a daily chart will consume 52 DOF (50 closes plus 2 rules)
3. 10 Day Closing SMA and 50 Day High SMA on a daily chart will consume 62 DOF (10 Closes, 50 Highs, 2 rules)

Would a simple rule like if Close[0] > Close[x] only consume 1 DOF (1 rule) or would it consume x + 1 (x closes plus 1 rule)?

Also, how would an indicator like RSI and MFI's DOF be calculated? Let's assume each is 14 periods (standard). Given that the RSI is looking at just the input (i.e., close), would the RSI consume 14 + 1 (15 DOF)? And what about the MFI, which looks at Close, Low, High and Volume? Would the MFI consume 14 Closes, 14 Lows, 14 Highs and 14 Volumes plus the rule, for a total of 57 DOF--or would it just consume 14 + 1 (15 DOF)?

Also, when calculating the beginning DOF, do you only include the items that are only being examined within the indicators? For instance, on a moving average Close cross over system that doesn't look at High, Low, Open or Volume, would the gross DOF on a 1,000 bar chart be 1000 or would you still include H, L, O, V (gross total of 5000 DOF)?

Thanks for your insights.

All best,

Aventeren


Thanks for the question. I'm not sure I am the best person to answer this question, because 1) I don't use his method to calculate degrees of freedom, and 2) I don't want to give a false interpretation of Mr. Pardo's excellent work.

That being said, here's how I would answer:

Would a simple rule like if Close[0] > Close[x] only consume 1 DOF (1 rule) or would it consume x + 1 (x closes plus 1 rule)? Kevin: If x is constant, I would say 1 DOF.

Also, how would an indicator like RSI and MFI's DOF be calculated? Let's assume each is 14 periods (standard). Given that the RSI is looking at just the input (i.e., close), would the RSI consume 14 + 1 (15 DOF)? Kevin: I would say yes.

And what about the MFI, which looks at Close, Low, High and Volume? Would the MFI consume 14 Closes, 14 Lows, 14 Highs and 14 Volumes plus the rule, for a total of 57 DOF--or would it just consume 14 + 1 (15 DOF)? Kevin: If you use H,L,C and V in your total DOF calculation, then I would use the bigger number.

Also, when calculating the beginning DOF, do you only include the items that are only being examined within the indicators? For instance, on a moving average Close cross over system that doesn't look at High, Low, Open or Volume, would the gross DOF on a 1,000 bar chart be 1000 or would you still include H, L, O, V (gross total of 5000 DOF)? Kevin: I would only include what you use for total DOF. So, if you only look at close data, just calc total DOF on the number of closes.


Again, this is just my interpretation of Pardo's rules, and I could be dead wrong!

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  #62 (permalink)
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Hi @kevinkdog

I was wondering if you could chime in on this?

I was seeking those who have good experience with this to chime in when able. If one has a successful automated strategy for the futures market (such as CL, ES, 6E, etc), what are some of the parameter/settings adjustments to the strategy one would consider when applying to the FOREX market?

If they strategy runs OK on FOREX market but not nearly as good as with the futures market what are some best practices or considerations to be made to convert the strategy to do equally well or better in the FOREX market. Of course, I have been working on several parameters to make the adjustment as well...what are you thoughts?

The futures market ticks in 10 whole cent increments or quarter cent increments or similar. The FOREX market ticks in pips which are a HUGE difference than 10 full cent moves or quarter cent moves. The pip is 1/100th of just 1 cent (penny). So, I would image part of the adjustment would have to take this into consideration (among perhaps some other variables/settings). I think this is a big one. Of course the FOREX is volatile but very liquid.

There are fundamental differences where strategies should work as good, the same, or better (but some knowledgeable adjustments need to be made in order for them to be effective in FOREX in my opinion).


 
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birdoggg View Post
I was seeking those who have good experience with this to chime in when able. If one has a successful automated strategy for the futures market (such as CL, ES, 6E, etc), what are some of the parameter/settings adjustments to the strategy one would consider when applying to the FOREX market?

Thanks for the question. The answer depends on the strategy itself. If you used parameters such as average true range to help get you stops and targets, you might not need to rewrite code, but rather just change the parameter values for different markets.

My experience is that a strategy that works good in CL or ES doesn;t necessarily work well with Forex. They might though. Even a Euro futures strategy might not work well in a EURUSD forex strategy.



birdoggg View Post

If they strategy runs OK on FOREX market but not nearly as good as with the futures market what are some best practices or considerations to be made to convert the strategy to do equally well or better in the FOREX market. Of course, I have been working on several parameters to make the adjustment as well...what are you thoughts?

It depends on the strategy, and what is specifically in it. I would first look at profits and stops, and how they are called out in the strategy. I'd probably adjust them first.

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@kevinkdog I saw your comments in BOT about the Volume Spike strategy. So I downloaded it, and started converting it into Ninja. I'm not familiar with Tradestation, so I wanted to check my understanding of the TS code.

Here are the assumptions I'm making based on what I see.
1. as far as when you can enter trades, you can enter at any time of the day
2. VP_High and VP_Low are not used
3. the trades only closes on the time exit
4. based on rule 3, you would only have 1 trade max per day. After the time exit, a new trade could be place which won't close until the next time exit

Does this sound correct?

 
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dynoweb View Post
@kevinkdog I saw your comments in BOT about the Volume Spike strategy. So I downloaded it, and started converting it into Ninja. I'm not familiar with Tradestation, so I wanted to check my understanding of the TS code.

Here are the assumptions I'm making based on what I see.
1. as far as when you can enter trades, you can enter at any time of the day
2. VP_High and VP_Low are not used
3. the trades only closes on the time exit
4. based on rule 3, you would only have 1 trade max per day. After the time exit, a new trade could be place which won't close until the next time exit

Does this sound correct?

I'm going to move this to Bot thread...


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Hi Kevin,

I've received your code

if close crosses above average(close,10) buy next bar at XXXX limit;
if close crosses below average(close,10) sellshort next bar at XXXX limit;

where XXXX is your limit price you want to enter at


It's enough to work ?

I've to ask you also how can I connect my code to my Platform, I use Global Zen; is it necessary another program to interface it or ?

 
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Giox View Post
Hi Kevin,

I've received your code

if close crosses above average(close,10) buy next bar at XXXX limit;
if close crosses below average(close,10) sellshort next bar at XXXX limit;

where XXXX is your limit price you want to enter at


It's enough to work ?

I've to ask you also how can I connect my code to my Platform, I use Global Zen; is it necessary another program to interface it or ?


Sorry, I have no idea about how to connect to your platform. Also, I don't know if the code will do what you want it to, but it is the best I could do from your requirements (limit order entered after moving average cross). It should give you the basics though, so you can modify it to do exactly what you want.

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My idea is to go long or short when moving average change color or direction or when the two averages line crosses, setting stop loss some tick away from entry in the market, and try all on my Platform.




you can see my image to understand what I nedd to codify.

thank you

 
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Hello Kevin,

I am a big fan of your book and studying it in detail.

I programmed the euronight strategy in NT and trade it in the simulator

What happened with the euroday and night strategy?
I noticed you did not update for november and december?

Results are still not going as expected even now the volatility is slowly catching up (euro night strategy):

http://screencast.com/t/PmxTXLkzIRj9


Did you toss the strategy?
Did the wfo have to many optimization?

Eagerly trying to learn from your experiences, (even when a strategy does not go as expected, actually even better, because learning is always better when things don't go as expected).

Thank you so much for sharing all your knowledge

Deeply appreciate it

yeshe

Ps can't find a working link to your recent webinar (17 december).

 
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yeshe View Post
Hello Kevin,

I am a big fan of your book and studying it in detail.

I programmed the euronight strategy in NT and trade it in the simulator

What happened with the euroday and night strategy?
I noticed you did not update for november and december?

Results are still not going as expected even now the volatility is slowly catching up (euro night strategy):

2014-12-19_2155 - yeshe2's library


Did you toss the strategy?
Did the wfo have to many optimization?

Eagerly trying to learn from your experiences, (even when a strategy does not go as expected, actually even better, because learning is always better when things don't go as expected).

Thank you so much for sharing all your knowledge

Deeply appreciate it

yeshe

Ps can't find a working link to your recent webinar (17 december).


Thanks for the kind words. I did stop live trading the strategy, although I am still tracking it.

I will post an end of year update after Dec 31. I missed Nov review.

Last time I looked, the strategy was still barely trading, even with increased volatility, which I think is the major reason it started underperforming. I don't believe it was an optimization issue, but I can't discount that entirely.



Big Mike postponed all December webinars. We hope to do it in January sometime.

THANKS!

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Hello Kevin,

Thank you for your reply.

Recently the volatility is catching up and you already mentioned it has a major influence on the strategy (like many others).

Is it not better to choose the new parameters for the next period based on an optimization period that has the same volatility as now?

In other words ATR is around 0.02 now. Would it be correct to optimize from may till now to find the new parameters starting in January 2015?
Maybe better to use an optimization period starting at 10/4/2013?

Please your feedback from a statistical and experiential point of view

regards

ps is everything ok with Big Mike?

 
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yeshe View Post
Hello Kevin,

Thank you for your reply.

Recently the volatility is catching up and you already mentioned it has a major influence on the strategy (like many others).

Is it not better to choose the new parameters for the next period based on an optimization period that has the same volatility as now?

In other words ATR is around 0.02 now. Would it be correct to optimize from may till now to find the new parameters starting in January 2015?
Maybe better to use an optimization period starting at 10/4/2013?

Please your feedback from a statistical and experiential point of view

regards

ps is everything ok with Big Mike?


When I do walkforward optimization, the reoptimization times are set in advance. So, for instance, the reopt may be every 1 year. In that case, I will redo the opt 1 year from the last time I did it.

I have never tried reoptimizing based on the method you suggest. I think if you adequately tested such method, it might yield good results. But for me it would be a radical change.

Kevin

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kevinkdog View Post
When I do walkforward optimization, the reoptimization times are set in advance. So, for instance, the reopt may be every 1 year. In that case, I will redo the opt 1 year from the last time I did it.

I have never tried reoptimizing based on the method you suggest. I think if you adequately tested such method, it might yield good results. But for me it would be a radical change.

Kevin

Was just flabbergasting if you optimize on a period that had unusual behavior and at the same time is based on something that makes the strategy perform bad (low volatility), this will probably end up with parameters for the next period that will not do very well.... iff volatility is back to "normal" in the next period...
On the other hand who can predict the future and maybe volatility will be bad next year too....

When reading your book i was wondering through what process and reasoning you went to come to the 105 minute chart for the euronight strategy. Did you initially optimize on different time frames first or look at different timeframes to find the patterns or.....

 
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yeshe View Post
Was just flabbergasting if you optimize on a period that had unusual behavior and at the same time is based on something that makes the strategy perform bad (low volatility), this will probably end up with parameters for the next period that will not do very well.... iff volatility is back to "normal" in the next period...
On the other hand who can predict the future and maybe volatility will be bad next year too....

When reading your book i was wondering through what process and reasoning you went to come to the 105 minute chart for the euronight strategy. Did you initially optimize on different time frames first or look at different timeframes to find the patterns or.....

I'd have to go back and look at my notes, but I believe that the 105 came about primarily because I wanted equal size bars through the night session. It did not come about from trying a bunch of different timeframes, and then picking the best one (that would have been optimizing).

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Hi Kevin,
Would you have any recommendation on historical market data?
I am half way through your book and start realizing the importance of good backtest data.
I'll be happy with 1mins charts for CL, ES, NQ, E6 (and maybe a few others) pair dating back 5 to 10 years.

Backtest Data sell a future package for $1300 but it's tick data and contain way more than I need.
Any thoughts on cheaper or better alternatives would be appreciated.

Cheers,
Chris

 
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Christophe View Post
Hi Kevin,
Would you have any recommendation on historical market data?
I am half way through your book and start realizing the importance of good backtest data.
I'll be happy with 1mins charts for CL, ES, NQ, E6 (and maybe a few others) pair dating back 5 to 10 years.

Backtest Data sell a future package for $1300 but it's tick data and contain way more than I need.
Any thoughts on cheaper or better alternatives would be appreciated.

Cheers,
Chris

There is ES tick data for the last 12 years on futures.io (formerly BMT), CL, NQ for at least many many many years.

Mike

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Big Mike View Post
There is ES tick data for the last 12 years on futures.io (formerly BMT), CL, NQ for at least many many many years.

Mike

Thanks Mike
All I could find is 1 min historical from 2000 to 20009.
Still pretty good tho.

https://futures.io/local_links_sort.php?catid=12&filter=&sort=d&page=1&pp=10&keyid=205

 
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Christophe View Post
Thanks Mike
All I could find is 1 min historical from 2000 to 20009.
Still pretty good tho.

https://futures.io/local_links_sort.php?catid=12&filter=&sort=d&page=1&pp=10&keyid=205





etc
etc

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Christophe View Post
Hi Kevin,
Would you have any recommendation on historical market data?
I am half way through your book and start realizing the importance of good backtest data.
I'll be happy with 1mins charts for CL, ES, NQ, E6 (and maybe a few others) pair dating back 5 to 10 years.

Backtest Data sell a future package for $1300 but it's tick data and contain way more than I need.
Any thoughts on cheaper or better alternatives would be appreciated.

Cheers,
Chris


I would recommend that for any data you buy, purchase, download, etc. --- make sure the data source you backtest with is the same data you trade live with. Otherwise, you run the risk of data differences leading to invalid results. A tick or 2 here and there could make a big difference. And then, if your use a continuous contract, different rollover dates can have a huge impact.

You are on the right path though with questioning data. Too many people use data without a second thought, and that can be dangerous.

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Big Mike View Post

Mike

Thanks Mike for the reply.
I have been struggling to get the GOM data to load. I made a post about it in the above thread.

We are actually two traders with with the exact same issue.
I know you aren't using NT anymore but if by any chance you could spot something obvious that would be awesome.

 
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Kevin,

Apologies if this has been addressed already. How do you keep track of your performance and stats across your entire portfolio?

If im not mistaken you trade dozens of strategies simultaneously, which means they've all got their own risk and performance metrics each of which combine to create your portfolio as a whole.

Why I ask is because I like keeping very detailed stats on my performance including all the usual suspects like MAE, MFE, Sharpe, R:R, expectancy, and many more. However this has up to date just been for one strategy. Im thinking it gets a little more complex when you're trading dozens of strategies.

So I guess what im asking is, do you keep stats for each individual strategy. And then also keep stats for your portfolio as a whole.

Then in practical terms, how do you actually do that? I presume you don't do all of this using spreadsheets given the sheer number of strategies. Do you rely on your trading platform for all your stats?

Thanks.

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DarkPoolTrading View Post
Kevin,

Apologies if this has been addressed already. How do you keep track of your performance and stats across your entire portfolio?

If im not mistaken you trade dozens of strategies simultaneously, which means they've all got their own risk and performance metrics each of which combine to create your portfolio as a whole.

Why I ask is because I like keeping very detailed stats on my performance including all the usual suspects like MAE, MFE, Sharpe, R:R, expectancy, and many more. However this has up to date just been for one strategy. Im thinking it gets a little more complex when you're trading dozens of strategies.

So I guess what im asking is, do you keep stats for each individual strategy. And then also keep stats for your portfolio as a whole.

Then in practical terms, how do you actually do that? I presume you don't do all of this using spreadsheets given the sheer number of strategies. Do you rely on your trading platform for all your stats?

Thanks.

Great question!

For most strategies, I use Tradestation reports for reporting, when I need to look at detail. In addition, I track all strategies with just net profit each month, and compare that to the profit I expect. That is a "high level" view that is sufficient for most purposes. I do that and can quickly see which strategies are not doing well, and then I can dive deeper into them if I need to. Most months, that might be a handful of strategies at most.

Of course, I give up a lot of detail this way, but I am more concerned about the bigger picture - how everything is doing overall. For example, the MAE of Strategy #15 doesn't matter to me at all. And if it ever did, it was when I was evaluating the strategy. One it passes that evaluation, I give up seriously watching most of the detail.

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Hi Kevin,

I can certainly see the benefits of having in and out of sample data when developing a system. You don't want to curve fit your system to a certain set of data, or a certain market cycle.

However my question is what about developing swing trading systems (where trades last roughly 3 to 20 days), and backtesting the system from the year 2000 till now. Over the last 15 years we've had bear markets, bull markets, sideways markets, crashes. I think we've had a wide variety of market cycles/types over the last 15 years.

Do you think one can include the entire 15 year period during their swing trading system development, rather than worrying about the whole in/out of sample issue, simply because you wouldn't be curve fitting your system to a certain type of market.

Im not sure I see the benefit of backtesting for example 2000 - 2004. Then once you're happy with that you test 2004 - 2008 etc.

I think it would be a mistake to backtest 15 years worth of data if the market was in a constant bull the entire time, but that has not been the case since 2000 (although admittedly the 2008 crash didn't last very long in the broad scheme of things I guess?).

Looking forward to hearing your thoughts.

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DarkPoolTrading View Post
Do you think one can include the entire 15 year period during their swing trading system development, rather than worrying about the whole in/out of sample issue, simply because you wouldn't be curve fitting your system to a certain type of market.

I normally use walkforward testing, so I end up using all the data, and most of it becomes out of sample.

If you are saying test and optimize the whole 15 year period, and then using the best results from that, because of the many market types, I would personally never do it, but I see your point. I think regardless of how many years you test, the more out of sample data you have, the better off you are.

I'm not sure I addressed your real concern. If not, just let me know.

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Hi Kevin,

Thanks for taking the time to answer my last few questions, I appreciate it. I have another for you,...

You trade several strategies which combine to form an overall portfolio. This makes a lot of sense. Do each of your strategies focus on different markets (or at least different timeframes - intraday vs swing). The reason I ask is, if you have more than one strategy trading the same market is there a risk of getting conflicting signals? Or perhaps getting confirming signals for the same market/instrument but from different strategies?

Im just wondering how you keep everything separate. Is it just a case of sticking to one strategy per market/instrument, or do you have multiple brokerage accounts with one strategy per account (thus allowing you to trade more than one strategy on a particular instrument).

Many thanks.

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DarkPoolTrading View Post
Hi Kevin,

Thanks for taking the time to answer my last few questions, I appreciate it. I have another for you,...

You trade several strategies which combine to form an overall portfolio. This makes a lot of sense. Do each of your strategies focus on different markets (or at least different timeframes - intraday vs swing). The reason I ask is, if you have more than one strategy trading the same market is there a risk of getting conflicting signals? Or perhaps getting confirming signals for the same market/instrument but from different strategies?

Im just wondering how you keep everything separate. Is it just a case of sticking to one strategy per market/instrument, or do you have multiple brokerage accounts with one strategy per account (thus allowing you to trade more than one strategy on a particular instrument).

Many thanks.

I mix it up. Different instruments, different timeframes, different strategy types, etc. To keep it simple, I have a handful of ES strategies - I trade each in its own account. That keeps things simple (for me). There are other ways to do this - trading multiple strategies in the same account for the same instrument.

Hope this helps!

Kevin

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kevinkdog View Post
I mix it up. Different instruments, different timeframes, different strategy types, etc. To keep it simple, I have a handful of ES strategies - I trade each in its own account. That keeps things simple (for me). There are other ways to do this - trading multiple strategies in the same account for the same instrument.

Hope this helps!

Kevin



I read few chapter of the books and will complete this weekend. Seems quite excellent book. Congratulations!.

searched online and went thru couple of presentation of yours on system designing and topsteptrader webinar....again impressed with your work.

My question 1.

i am working on few strategies couple of them are based on simple open close of the day, ie i do not have any parameter that can be optimized. How to do optimization or walk forward in such cases?


My question 2.

few strategies are giving good results but again no optimization parameter as stop loss-target all are fixed

for instance check this for 9 months data (5m in and 7 min) success rate is less 40%

Net profit : above 135% net Including slippage commision
max dd is less than 45%,
sharp ratio payoff ration/profit factor all above 1.5
k ratio below : 0.0500


The Following stats was for 2years data with 10m tf
(success rate is great(over 50%) hence less dd)

Net profit : above 225% net Including slippage commision
max dd is less than 25%,
sharp ratio payoff ration/profit factor all above 1.5
k ratio below : 0.0500

expectancy is above .85



can i go with strategy? is it good to go for intraday? or swing ? how can i improve such strategy? without optimization or i need to add some optimization parameter?



My question 3.

how to design strategy for options(only)?

can i go for competition with less capital.(say strategy needs 1m) but can work with 10000/ and competition entry is the same.

minimum capital gives a change of winning as 20000 or 30000 can end up as winning but that cannot be done with 1 min or 100 thousand).


thanks for book/seminars and this thread
happy trading.

 
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haraj View Post
I read few chapter of the books and will complete this weekend. Seems quite excellent book. Congratulations!.

searched online and went thru couple of presentation of yours on system designing and topsteptrader webinar....again impressed with your work.

My question 1.

i am working on few strategies couple of them are based on simple open close of the day, ie i do not have any parameter that can be optimized. How to do optimization or walk forward in such cases?

If you have nothing to optimize, then you cannot do optimization. You can do walkforward, but your parameters will never change. You could develop the strategy of 2000-2005 data, for example, the the "walkforward" would be 2006-present - all out of sample results.



haraj View Post
My question 2.

few strategies are giving good results but again no optimization parameter as stop loss-target all are fixed

for instance check this for 9 months data (5m in and 7 min) success rate is less 40%

Net profit : above 135% net Including slippage commision
max dd is less than 45%,
sharp ratio payoff ration/profit factor all above 1.5
k ratio below : 0.0500


The Following stats was for 2years data with 10m tf
(success rate is great(over 50%) hence less dd)

Net profit : above 225% net Including slippage commision
max dd is less than 25%,
sharp ratio payoff ration/profit factor all above 1.5
k ratio below : 0.0500

expectancy is above .85



can i go with strategy? is it good to go for intraday? or swing ? how can i improve such strategy? without optimization or i need to add some optimization parameter?

How does the strategy perform on truly unseen (out of sample) data? That is the real key.



haraj View Post
My question 3.

how to design strategy for options(only)?

can i go for competition with less capital.(say strategy needs 1m) but can work with 10000/ and competition entry is the same.

minimum capital gives a change of winning as 20000 or 30000 can end up as winning but that cannot be done with 1 min or 100 thousand).


thanks for book/seminars and this thread
happy trading.

Options are hard to design strategies for, unless you have access to all the options price data. I typically don;t backtest options strategies, because of the difficulty in getting good data.

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kevinkdog View Post
If you have nothing to optimize, then you cannot do optimization. You can do walkforward, but your parameters will never change. You could develop the strategy of 2000-2005 data, for example, the the "walkforward" would be 2006-present - all out of sample results.

I use amibroker and it does not perform walk-forward if we do not have optimization parameter? how to do it manually?


i am working on some systems all with static parameter, but confused how to select the strategy.

I want to trade 2 index, all the strategies work well with one index but fail miserably with other.

some strategy have good net profit decent trades good profit factor good sharpe but drawdown is huge and payoff ratio is bad


other strategy has all the components good with less drawdowns but no of trades are huge just like intraday and winning trades ration less than 40%

one strategy has all the parameters and expentancy excellent ...winning less than 30% net profit is over 300% 2 years data but dd is huge. If we book profit after certain levels winning increases and dd also decreases but it eats up profit and annual return....


all the above are performing well on incubation period(paper trades) in lines of expected equity curve, but how to select which to trade as trading all of them is not possible for me with limited funds and it also gives contra trades so cant trade together. Please suggest.

thanks for your time kevin
happy trading

 
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haraj View Post
I use amibroker and it does not perform walk-forward if we do not have optimization parameter? how to do it manually?


i am working on some systems all with static parameter, but confused how to select the strategy.

I want to trade 2 index, all the strategies work well with one index but fail miserably with other.

some strategy have good net profit decent trades good profit factor good sharpe but drawdown is huge and payoff ratio is bad


other strategy has all the components good with less drawdowns but no of trades are huge just like intraday and winning trades ration less than 40%

one strategy has all the parameters and expentancy excellent ...winning less than 30% net profit is over 300% 2 years data but dd is huge. If we book profit after certain levels winning increases and dd also decreases but it eats up profit and annual return....


all the above are performing well on incubation period(paper trades) in lines of expected equity curve, but how to select which to trade as trading all of them is not possible for me with limited funds and it also gives contra trades so cant trade together. Please suggest.

thanks for your time kevin
happy trading


If you have no parameters, and did no optimization, then you'd just evaluate the strategy performance on unseen data. Technically it is walkforward / out of sample, although there is nothing to do, other than evaluate the single strategy performance during the time in question.

What are your goals for annual return, and for maximum drawdown? Do either of these strategies meet your goals? I use my goals to determine if a strategy is acceptable. It either is, or it is not. Maybe both are acceptable to you, maybe neither. If both are, then you have to decide which one best meets your goals, or trade both if possible (I don;t understand why you can;t trade both together if they are different indexes)...

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  #91 (permalink)
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kevinkdog View Post
I mix it up. Different instruments, different timeframes, different strategy types, etc. To keep it simple, I have a handful of ES strategies - I trade each in its own account. That keeps things simple (for me). There are other ways to do this - trading multiple strategies in the same account for the same instrument.

Hope this helps!

Kevin

Kevin - out of diff strategies, do you do day trade and swing trade?

 
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emini_Holy_Grail View Post
Kevin - out of diff strategies, do you do day trade and swing trade?

Thanks for the question. Most of my strategies are swing trade, lasting days to weeks (one even last months). I have a few day trading strategies, but many more swing.

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kevinkdog View Post
If you have no parameters, and did no optimization, then you'd just evaluate the strategy performance on unseen data. Technically it is walkforward / out of sample, although there is nothing to do, other than evaluate the single strategy performance during the time in question.

What are your goals for annual return, and for maximum drawdown? Do either of these strategies meet your goals? I use my goals to determine if a strategy is acceptable. It either is, or it is not. Maybe both are acceptable to you, maybe neither. If both are, then you have to decide which one best meets your goals, or trade both if possible (I don;t understand why you can;t trade both together if they are different indexes)...

Thanks kevin!

my goal is more than 200% for competion for less dd, ok with different position size if needed.

Cant trade them as all of them are successful only with one index ,with other index DD is huge cant cover up in longer version and on top of it all the strategies give trades opposite of each other. working on pair trade or option trade on them.

working for competition...confused to trade only one index or trade basket of stocks (for competition only)...


In long term view what u find more stable/successful with risk reward( option day trading/ option swing trading/ futures index day trading/ futures index swing trading/ basket of stock options or futures /day/swing)


thanks
happy trading

 
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haraj View Post
In long term view what u find more stable/successful with risk reward( option day trading/ option swing trading/ futures index day trading/ futures index swing trading/ basket of stock options or futures /day/swing)

I'm not sure any one of those is more "stable" than any other. It all depends on your strategies.

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  #95 (permalink)
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Hi Kevin, I have one doubt I'm asking myself. I have some automated systems and all passed walk forward and have good montecarlo results and backtested over 15 years. I'm trading them live since two years and I'm profitable. They are all intraday.
When I launch walk forward, usually one time every 6 months it suggests me some inputs to use for the next 6/12 month. I never moved my inputs, my theory is that something should not work at the best of the optmization otherwise is fitting so better to stick to some input and keep adding strategies to diversify, but now I'm also asking myself that market changes and maybe I should change my inputs as walk forward suggest me, maybe once a year or so...
I add that inputs suggested by walk forward would not substancially move strategy results, but still are an improvement and maybe a way to keep a strategy in tune with the market.
what do you think? Thank you in advance

 
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montanajtt View Post
Hi Kevin, I have one doubt I'm asking myself. I have some automated systems and all passed walk forward and have good montecarlo results and backtested over 15 years. I'm trading them live since two years and I'm profitable. They are all intraday.
When I launch walk forward, usually one time every 6 months it suggests me some inputs to use for the next 6/12 month. I never moved my inputs, my theory is that something should not work at the best of the optmization otherwise is fitting so better to stick to some input and keep adding strategies to diversify, but now I'm also asking myself that market changes and maybe I should change my inputs as walk forward suggest me, maybe once a year or so...
I add that inputs suggested by walk forward would not substancially move strategy results, but still are an improvement and maybe a way to keep a strategy in tune with the market.
what do you think? Thank you in advance

If I ran my initial walkforward optimization and I re-optimized (and possibly changed parameters) every 6 months, if I went live with the strategy, I would still do the same thing (that is, re-optimize and adjust parameters every 6 months if needed).

I don't see the logic in doing an initial re-optimization every 6 months, going live, and then deciding to re-optimize at some different frequency than 6 months. But if you see benefit in doing it this way, then you should do what feels right to you. After all, at the end of day, you (and not I nor anyone else) have to live with the results.

I hope this helps!

Kevin

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Thank you, I have never changed my parameters in two years. My doubt came from a reading I made…I think it was Robert Pardo and he was saying that the more your strategies have a short time frame the more you need to re optimize frequently.
But I guess there isn't a general rule.

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Hi Kevin, big fan, xoxo and whatever :P

Anyways, I like the concept of your SF webinar, but I'm too novice to step that far forward. Would you say that I can learn the same/similar concepts in just your book?

 
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FABRICATORX View Post
Hi Kevin, big fan, xoxo and whatever :P

Anyways, I like the concept of your SF webinar, but I'm too novice to step that far forward. Would you say that I can learn the same/similar concepts in just your book?

Thanks!

The book and the Strategy Factory workshop I run are 2 different things - you do not need to do one to do the other.

The book teaches all the basic things you need to know to create mechanical trading strategies.

The workshop teaches all the basic things you need to know, plus it walks you through a few example strategies, plus I spend a lot more time talking about diversification, and creating multiple strategies to work together. It is more for intermediate level traders. It is ideal for people who have tried to create strategies, but had no success. I follow up with support, and my goal is to get you developing your own strategies.


How much of a novice are you? My book assumes you know about trading and futures markets a bit. It doesn't teach you trading basics - I suggest books by @decarleytrading (Carley Garner) or Brent Penfold for that.

By the way, if you order my book, shoot me an e-mail with the order confirmation. I'll give you 5 bonus reports free, as part of the 1st anniversary of the book release.

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Thank you Kevin @kevinkdog for your time.

I am very novice. I have a managed acct with an algo trader (5 years now), and have been interested for some time. Now I have the career that gives me the time to make this a hobby. The owner of the algo shop has been a mentor for me, so while my learning has been very succinct (cutting out BS) I am still in the early stages.

I have a background in cognitive psychology (hobby, not professionally) and know that we can't be trusted to be consistent, so algo has been my focus.

I'm in the reading phase, and have been devouring your blog and others. I have most of the books you mentioned on your site on my list, but haven't pulled the trigger on yours yet. Those 1 star reviews have quite the effect, being that we're innately risk averse lol. After speaking with you, however, I will download soon.

I will look at the SF program in the next year.

Thanks for being awesome. You're a family man and I'm proud of you for keeping your family in focus. Good work


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