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  #61 (permalink)
 Sandpaddict 
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jharthun View Post
I've put real money on several systems and lost money on almost all of them. I've been trying to make a profit on iSystems for over two years with no luck. I choose a system with what appears to be an outstanding track record, but shortly after I activate the system it starts losing and continues losing for months. I'm not talking about a couple systems. I've watched this happen over and over again on almost every system I've traded. I've traded almost two dozen different systems. I wish I could tell you why this keeps happening but I can't figure it out.

My apologies for jumping in right here if this has already been stated but there is absolutely a reason for this.

In his book Market Sense and Nonsense, Jack Schwager has a whole topic on this.

The super basic answer is just like markets no equity curve goes straight up all the time.

So in essence what people generally end up doing is "Buying High" into the equity curve usually near the top as it has had the most recent good performance.

Of course once everyone piles on in at the top and the more it starts sliding from the peak the more people bail out. Especially as it nears the bottom of the equity drawdown.

Where do they go with that money?

Back into a fund/account reaching equity highs usually advancing further losses as that fund comes off it's equity highs and they exit.

To boot... to paraphrase the great Daniel Kahneman... "just because I understand certain underlying psychology human biases doesn't mean I am any more immune to them than anyones else".



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  #62 (permalink)
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Tirutrade View Post
We looked at the TradingMotion / iSystems platform. It's well done technically, but in our opinion it has one important design flaw:

There was no way to retire a system.
However, the management of systems is essential!

Only the vendor knows when a system is not viable anymore and therefore it should be the vendor's responsibility to take care of this.

Retiring could mean that a system data is still there for later review but the system is stopped, no more data is collected and nobody can be subscribed to it.

We requested such a feature but it never happened.

The result now is that there is a huge number of systems which are not taken care of. The customer has no idea if a system is still valid.

This makes it almost impossible to be profitable for the customer. How can he know when to stop a system?

We should not forget, markets change and no system will work forever. At least fine adjustments may be required over time.

I immediately thought the same thing when Big Mike first started promoting them and they were boasting about 650+ strategies!

That was shocking to me. If you are selling signals for 650+ different strategies you are just selling strategies whether they WORK OR NOT no question.

I don't care how many graphs, charts, backtests... there is absolutely NO GUARANTEE that any algo will continue to work going forward. (Of course they'll say that but still sell the systems)

Only if they were all managed together and turned on and off by some OTHER switching software that might be something.

Short of that. I'm out.

And hey, if anyone has had good results great!

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  #63 (permalink)
 Tirutrade   is a Vendor
 
 
Posts: 22 since Sep 2016
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Sandpaddict View Post
Only if they were all managed together and turned on and off by some OTHER switching software that might be something.

Short of that. I'm out.

I think this is the missing part which TradingMotion / iSystems does not seem to understand. Right now the setup is like this:

1) A developer uploads 10 systems. Let's assume they are curvefitted and have no real edge. What will happen that a few may actually look good for a few months, just by pure luck. It's pure statistics.
Then a customer subscribes and soon enough the system start to loose money.

2) Same can happen with portfolios. There still could be an issue here if the developer defines a number of different portfolios which basically represent different combinations of systems. In this case again, out of pure luck some portfolios will actually look quite good for some time, even if all the systems are curvefitted. Again. It's just statistics.

Best case for customer

From a customer perspective, the best scenario is where the customer can say: Ok developer, I want to trade 20K with you systems. Please select the best systems for this task and run those systems for me.
If your view regarding the best systems changes over time, please adjust the systems run.

In this case the responsibility of system selection is with the developer, who knows best, and NOT with the customer. We believe then the chance for being profitable longer term for the customer are highest.

This approach actually puts customer interest first.
With its current setup iSystems puts developer interest first.

But it's not really in the interest of iSystems, because they will not be able to build a customer base. Most people will loose money and will leave again after a few months.

https://www.tradingmotion.com/ actually lists the current numbers:
Gain access to 2619 Automated Trading Systems - created by 97 professional developers, tracked in real-time across 223 client accounts, at 18 different brokers.
223 customers over 18 brokers is nothing. And most of those customer are probably the developers trading their own systems over the platform in order to create a live track record.

TradingMotion / iSystems could be a nice platform if they would address those design flaws.

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  #64 (permalink)
 Tirutrade   is a Vendor
 
 
Posts: 22 since Sep 2016
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In June 2016 they actually had 312 customers:
https://web.archive.org/web/20160629200942/www.tradingmotion.com/

They went in almost 5 years from
June 2016 = 312 customers to
April 2021 = 223 customers.

Once again, as a vendor I really think they have done a great job with the platform technically. But it's 90% complete only.

And the current design flaws are significant and unless they address that, it's too difficult to succeed for the customer.

Of course this is just our opinion. We approached them 2 years ago with our suggestions, but unfortunately there was no reply.

Best regards,

Michael

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  #65 (permalink)
 Tirutrade   is a Vendor
 
 
Posts: 22 since Sep 2016
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Here a summary, what TradingMotion / iSystems should change in our opinion:

1. Offer the possibility to the developer to PAUSE or RETIRE a system.

If paused, the monthly fees would not be deducted anymore. Pausing can be used if a system is not behaving like expected and the developer wants to review a system or wait for confirmation the system is still viable.
Another useful application would be special market situations: If some unexpected or significant macro event happens, is the system really ready for that? The developer may want to decide to pause the system in such a case.

Retire can be used if the developer comes to the conclusion that a system logic is broken and the system is no more viable. The system still should be visible for later review, but no subscription should be allowed.

2. Offer the possibility to the developer to create Portfolios

The developer can create portfolios and assign systems to them. The composition of a portfolio can be changed any time.

Ideally the developer creates one portfolio for different account sizes:
DEVELOPER1 10K
DEVELOPER1 50K
DEVELOPER1 100K
...

This means the customer only has to choose the developer and decide, how much capital he wants to allocate to him.

We believe this would result in the best possible result for the customer.

We implemented this approach on Striker. Since Striker.com supports Portfolios, it can be done there.

Having said that, trading futures involves risk and is no easy task. There is no guarantee of success.

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  #66 (permalink)
 SMCJB 
Legendary Market Wizard
Houston, TX
 
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Thanks @Tirutrade for all the comments and suggestions. Not sure if you saw it but I tried to develop a framework for identifying and trade profitable isystems several years ago. This was a real money experiment which can be put down as a failure. I even revisted the thread 18 months after I finished and did an update. Not a pretty picture. The thread is

Tirutrade
A developer uploads 10 systems. Let's assume they are curvefitted and have no real edge. What will happen that a few may actually look good for a few months, just by pure luck. It's pure statistics.

I think this is what happened, Maybe wasn't intentional at the beginning but that's what we ended up with. People don't realize that if you have a 1000 systems, and each system has a 50/50 chance of profitability, that in 10 years time you would expect one system to have made money in all 10 years. Great system or just pure luck? From my thread....

SMCJB View Post
I have 15498 samples of data, with 15 consecutive months of since tracked, not backtest, data. For now I am keeping back the most recent data and using 13924 samples. If a system has a 50% chance of being profitable each month, then the probability of being profitable 12 months in a row is 0.5^12 which would equate to 3.4 of my 13924 samples. In fact I have 4! Maybe surprisingly all 4 of these lost money over the next 3 months! The distribution of winning months is as follows. With a mean of 5.31 and sd of 1.89 the distribution is skewed to the lowerside


An additional issue I have is that there is no way to have a system developed use a rolling walkforward optimization. That will always lead to either a) over optimization or b) an out of date system.

With regard to stopping or pausing systems they definitely do deactivate systems as there are systems no longer available that used to be. Not sure if this is due to developer request or another issue. There are also systems on the platform that no longer trade, and haven't for years so I assume the developer has a date condition in the code.


Tirutrade
In this case the responsibility of system selection is with the developer, who knows best, and NOT with the customer.

While I like your portfolio idea, system creation and portfolio optimization are two equally complex and equally difficult tasks. In my experience of developers trying to build portfolios, systems are not being selected based upon how they work together, but how their combined equity curve looks. They are using overfitting further by using risk/reward optimization.

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  #67 (permalink)
 Tirutrade   is a Vendor
 
 
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SMCJB View Post
Not sure if you saw it but I tried to develop a framework for identifying and trade profitable isystems several years ago. This was a real money experiment which can be put down as a failure. I even revisted the thread 18 months after I finished and did an update.

Hi @SMCJB, I actually just finished reading it 10 minutes ago.

It was a very interesting read. I actually wanted to reply on that and thank you which I can now do here! It's was a very interesting experiment and worth trying.

I think the best way is that the developer decides about the viability of a system, because he can understand the results of the system in relation to market behavior. This is basically the context which is required to know if a logic is broken or not.

To make an example: Let's say we have a system which trades pullbacks in a trend. It only take trades in direction of the larger trend and only attempts to take a high probability portion of that trend.
This system will work fine if the market is trending. However when there is a trend change, losses will happen. It's normal for this strategy.
Therefore I know in advance, whenever the market changes trend the loss is acceptable and normal. However let's say the system starts to make losses in a trending market, then it would be a red flag and the system would have to be reviewed.

What I want say by this, is that it is very difficult to understand if a system is still viable by just looking at the results. If the logic is understood, then it's much more easy to see if all is normal or not. And any unexpected behavior can be identified early, hopefully before major drawdowns occur.

Therefore the best solution in my opinion is that the developer decides if a system is viable or not.


SMCJB View Post
An additional issue I have is that there is no way to have a system developed use a rolling walkforward optimization. That will always lead to either a) over optimization or b) an out of date system.

Yes, the system should be updated if required. I don't remember with TradingMotion / iSystems if it's possible, but I thought it is. Of course the reporting will be confusing, because backtest will not be valid. If I remember correctly, they leave the initial backtest and just run track / live trades with the newest version. But I am not 100% sure here. It's quite some time I looked at it.

With Striker the systems for sure can be updated or paused. We do this with Striker. Since Striker only shows live trade results, the integrity of the results is always there.


SMCJB View Post
While I like your portfolio idea, system creation and portfolio optimization are two equally complex and equally difficult tasks.

Yes indeed.
But it's really about making sure only viable systems are traded. It should be an easy subscribe and let run approach for the customer. Why else subscribe to such a service?

In my opinion with the portfolio approach it will be much easier for the customer to identify the best developers, because only those who can manage their systems well will be profitable. It's an essential part of successful systematic trading:
When to run and when to stop a system. When to review.

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  #68 (permalink)
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SMCJB View Post
Thanks @Tirutrade for all the comments and suggestions. Not sure if you saw it but I tried to develop a framework for identifying and trade profitable isystems several years ago. This was a real money experiment which can be put down as a failure. I even revisted the thread 18 months after I finished and did an update. Not a pretty picture. The thread is
I think this is what happened, Maybe wasn't intentional at the beginning but that's what we ended up with. People don't realize that if you have a 1000 systems, and each system has a 50/50 chance of profitability, that in 10 years time you would expect one system to have made money in all 10 years. Great system or just pure luck? From my thread....


An additional issue I have is that there is no way to have a system developed use a rolling walkforward optimization. That will always lead to either a) over optimization or b) an out of date system.

With regard to stopping or pausing systems they definitely do deactivate systems as there are systems no longer available that used to be. Not sure if this is due to developer request or another issue. There are also systems on the platform that no longer trade, and haven't for years so I assume the developer has a date condition in the code.


While I like your portfolio idea, system creation and portfolio optimization are two equally complex and equally difficult tasks. In my experience of developers trying to build portfolios, systems are not being selected based upon how they work together, but how their combined equity curve looks. They are using overfitting further by using risk/reward optimization.

Great read SMCJB thank you.

The whole exercise of outsourcing your system and strategy design in the first place is the problem in my opinion.

Why are you looking for someone elses system in the first place?

Maybe you don't have time to develop your own.

Maybe you have tried and failed in the past?

Maybe you just see those incredible returns (as the SORT them by highest returns at the top).

Regardless there is an inherent problem with picking systems. Its akin to picking stocks.

You buy the stocks that are rocketing up only to find you buy at the top.

Sell (with everyone else as it falters) and jump on the next red hot system.

Think your too smart? None of us are. (Unless your system takes that into account and can override your brains signals)

You have to exit your system as it's RED HOT. (Not easy) And enter another system at or near it's lows. (even harder)

And even that could be the wrong decision.

So in reality your ADDING an extra layer of complexity to an already incomprehensibly complex situation!!!

Add to that ANY system will have drawdowns...

Why? Because although the system doesn't change the market does. When the market and the system are in alignment they system will do well. On the flip side when they are out of alignment clearly things will not do as well.

Its the old "a broken clock is still right twice a day" thing. Meaning your system is the clock just waiting for time (the market) to align with it... breifly.

As always just one guys opinion.





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  #69 (permalink)
 Tirutrade   is a Vendor
 
 
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Sandpaddict View Post
Regardless there is an inherent problem with picking systems. Its akin to picking stocks.
You buy the stocks that are rocketing up only to find you buy at the top.
Sell (with everyone else as it falters) and jump on the next red hot system.

That would be true if you think all systems are just curvefitted and provide no real edge.

But if a system is a mathematical description of a high probability setup and is able to execute it reliably, then the system will outperform the market as long as the edge is there.

Now the question is, do you believe such edges exist?
If yes, do you believe they can be described with mathematical formulas?

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  #70 (permalink)
 Sandpaddict 
Legendary Market Wizard
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Tirutrade View Post
That would be true if you think all systems are just curvefitted and provide no real edge.

But if a system is a mathematical description of a high probability setup and is able to execute it reliably, then the system will outperform the market as long as the edge is there.

Now the question is, do you believe such edges exist?
If yes, do you believe they can be described with mathematical formulas?

Great discussion.

I do think that *most* systems are curvefitted and provide no real edge. In fact I would say most provide a NEGATIVE edge.

A "high probably setup" is subjective and a moving target.

If you can "mathematically" define a setup which is a prerequisite for a mechanical system anyway then it is STATIC.

The MARKET will then be the deciding factor IF the system is profitable.

The system will do well as long as its aligned with the market.

It won't when it's not and it's aggregate will be the profit/loss given the time exposure to the market.

And for it to work for an individual they must stick with the system to reap the gains. With that I %100 agree.

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