Welcome to NexusFi: the best trading community on the planet, with over 150,000 members Sign Up Now for Free
Genuine reviews from real traders, not fake reviews from stealth vendors
Quality education from leading professional traders
We are a friendly, helpful, and positive community
We do not tolerate rude behavior, trolling, or vendors advertising in posts
We are here to help, just let us know what you need
You'll need to register in order to view the content of the threads and start contributing to our community. It's free for basic access, or support us by becoming an Elite Member -- see if you qualify for a discount below.
-- Big Mike, Site Administrator
(If you already have an account, login at the top of the page)
I think all the things you describe above are typical characteristics of a curvefitted system, not of a system with an edge. I agree however that many systems are curvefitted.
For me an edge is a particular behavior of a specific market, which this market keeps doing over and over again. The system exploits this behavior. Therefore as long as the edge = behavior is there, the system will be profitable.
It's not really a moving target and it's not about the system being aligned with the market. That would apply to a curvefitted system only.
But a system with an edge does not care what the market it trades does in general, but relies only on a very specific behavior which occurs here and there. Only on that. And if it's there, the system will work. Of course if the edge is gone, then it's game over too here.
But usually it's an edge because it's a behavior which been around for a long time. Else it would not be an edge.
I hope all this is not too confusing. It's also a bit too about how your understand the term edge here. This is basically how I understand it.
Sure in that case I would say buying a dip in an up trend or selling a spike in a down trend is an edge.
You can see that on EVERY chart on ANY timeframe.
Trend-following is impossible to deny has an edge.
I do know of one fully mechanical system I've seen work first hand and work over time.
It's edge? The system is built around IF the market is in THIS environment trade THIS WAY and take these set of signals. If on the other hand the market is signaling it's in THAT environment then trade THAT WAY and take a different set of signals.
It looks to exploit certain signals IN certain environments only. The signals rely on the environment. And environment is described by the system.
Al Brooks says a 2/1 risk/reward within the proper context IS an edge.
I see. Well you are really using the term edge in regards to discretionary trading. I was never talking about that.
I am a system trader. In this context an edge is a repeating pattern in the market which can exploited by a mechanical trading system. Whatever I said was related to that.
It's really about how you use the word edge here.
I agree with what you said about discretionary trading and edge. Anything which gives you and advantage vs. random is an edge then.
But in system trading, since it's rule based, the definition of the pattern has to be much more precise.
Thank you. Noted. I can wax ecstatic sometimes about nothing lol.
The only thing I can add is I agree that in a purely mechanical/algo/quant system there really HAS to be an edge.
Like I've said I've only ever seen ONE. EVER.
At least if you don't count trend following, but then diversification would be have to be an edge because thats the main idea but thats about the only one I can think of?
I understand your looking for REPEATABLE PATTERNS leading to a slight tipping of the odds in your favor with numerous trades making up the difference but I just can't believe it works over time.
As always just my opinion.
P.S. The system I mentioned above IS totally mechanical and can be programmed. I can't trade it anyway! Even though I believe in it %100!!!
It's got probably the best equity curve I've ever seen and I just want to override it constantly. So I guess I'm the anti-edge?
I created a summary of the tracked results of all systems of a developer. This is in my view a good way to see how well a developer manages systems.
Choosing among those developers who do a good job here is probably a good strategy to be profitable.
@SMCJB, interesting fact is that the overall live PL is negative which confirms that picking good systems is not easy. You can see the totals in the PDF.
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,048 since Dec 2013
Thanks Given: 4,381
Thanks Received: 10,205
Agreed @Tirutrade. At one point I created a Random Forest Machine Learning model and feed it all my data and created a variable for Developer. While the results were not good enough to want to allocate money to it, there were quite a bit better than randomly picking systems. If I remember correctly 'developer' was not Statistically Significant when it came to identifying good systems, but if you turned the model around, and tried to predict bad systems 'developer' was Statistically Significant!
@Tirutrade since you have the data already in spreadsheet could you calculate Tracked/Total and sort based upon that percentage. Looks like Rombo Capital and Quantum Financial may have semi decent results.
I think this is very interesting. For sure if the approach of a developer is not sound, it will result result in strongly curve fitted systems which will fail quite quickly.
Reducing the eligible universe to systems of overall profitable developers would probably improve chances quite a lot.
Also I think the profitable developers with a limited number of systems may manage systems differently than those with 100s. Therefore selecting those may be more profitable live.
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,048 since Dec 2013
Thanks Given: 4,381
Thanks Received: 10,205
Thank You. Obvious issue with what I was proposing is that it doesn't take into consideration how long a system has been tracked vs its total. For example the developer with the highest ratio is GE Investment but a quick look at their two systems shows both have very short backtests vs tracked PnL but the systems are both extremely volaitile with little apparent edge.
Of the 6 largest developers, 5 have a negative sum of live PnL and the 6th is barely positive (<$1000). Eliminating developers with negative Live results eliminates 52% of the developers and 73% of the systems!
I know my journal is now several years old but this brings me back to this chart which shows the rolling 12 month pnl (x axis) vs next 3 month pnl (y axis). Clearly shows that a system being profitable in the past is not in anyway a predictor of it being profitable in the future. I might see if I can find this data and rechart for profitable developers only.
