# My trading summary last financial year - makes for an ugly read



## sammy84 (5 September 2012)

Like most, every year I like to analyse my trading data for the year. Figured I would post my review here to keep me honest. 

This year I changed things around a little as I moved my review period to align with my financial year to makes things easier for tax. So effectively this review covers 1.5 years.

It wasn't a good 1.5 years for me. I'm in the midst of my largest drawdown to date. Luckily the drawdown is soaking up prior year profits, so I still have enough trading capital to keep going. Nevertheless, something needs to change.

Briefly, my trading strategy comprises 3 set-ups which I trade on individual stocks:

*1. Breakout retests* - I have found these to be a reliable pattern. Look for the breakout from a good basing pattern and then wait for a meander back to support on low volume (if it happens) before entering a position.
*2. Continuation patterns* - straight from Curtis Arnold's PPS strategy. Has served me well in the past but finding it a wash cycle in these market conditions. I'm avoiding these patterns until the market established a clear trend again.
*3. Divergence patterns* - Need's confluence between the indices and individual stock to work. I typically only trade these patterns when the market is severely oversold or overbought.

*FY 2011 review*

*1. Profit and loss summary*

View attachment Summary.bmp


An ugly year and a half all round for me. Gave up a prior year profits and had a large draw down. There are three obvious ways to increase my account balance:
1)	Increase win rate
2)	Increase average win amount
3)	Decrease average loss amount

I’m fairly comfortable with riding my winners once they get going so my focus should be my average win rate and average loss amount. It’s hard to properly analyze my average loss as part way through the year I reduced my risk from a fixed risk per trade of $1000 to $500. Nevertheless, $792 average loss is too high. 

As will be shown below, I’m taken out of a lot of trades far too early. My stops were too tight this year and I didn’t adapt for the increased market noise to the downside. If I become more conservative with my stop placement this should increase my win rate. However this will at the same time reduce my average win amount. Therefore, in order to make up for a reduced average gain, I also need to reduce my average loss. Hopefully by having a wider stop this will reduce the amount of times I am stopped out in the first few days. Nevertheless, I will need to focus on bumping my stop up very quickly at obvious signs of failure to keep the average loss amount down.

*2. Profit & loss timeline*




My P&L followed the market too much. I took too many trades in the period of May to August 2011 and didn’t get defensive quickly enough. 

Mining tax announcement led to an outlier loss, but I also had an outlier gain in February 2011 so I shouldn’t focus too much on this. 

At least things have steadied since around September last year. Capital preservation is number one focus again. I may need to add a filter of some kind – whether it be a market filter or a filter where if I have X losses in a row I reduce position size.

*3. P&L scatter chart*




The above chart confirms that things have steadied since September 2011. Also it is apparent that trade frequency has also decreased. One of my takeaways here is that until I find my edge again, be selective and on the conservative side when talking trades. 

I also need to get that average loss down. Only very few trades should slip past my stop. 

*4. Days in trade summary*




It’s clear from above that my sweet spot is when a trade lasts 10 days or more. That gives time for a trend to develop. 

I’m kind of conflicted with my takeaway here. One thought is that my initial stop placement is too tight. Specially when considering my average win amount isn’t that high, so whether a tight stop increases my account balance is questionable. The other thought is that at least my tight stops have kept the majority of the losses small.  Nevertheless, something is not working so a wider stop is necessary. My positions are obliviously getting taken out by noise in their initial stages too often.

This year I'm going to test/monitor whether my stopped out positions ended up being profitable. I'm going to work out the average day held of my profitable positions. I will then record the price of positions that were stopped out early (i.e <5 days) at whatever that average day figure is.  

*5. Long/short mix*

View attachment Short_long summary.bmp


Pretty clear from above that I should stick to long only. The only short positions I would consider is a divergence set-up but to be a reliable signal it would also require the XAO and individual stock itself to also show a rejection of recent highs.

*6. Focus for this year*

1. Conservative stop placement. Looks for ways to avoid the noise. Explore using the ATR to help place stops.
2. Conservative trade management. Strictly adhere to my set-up criteria and don't get caught up in market hype.
3. Be quick to cut a loss when there is an obvious sign of failure. My deifntion of obvious failure requires volume to be above the 15 day simple moving average and price action to be either a down-trending day or a clear rejection of higher prices.
4. Focus on long-only. Be happy to spend time on the sidelines and use this time to analyse my results etc.
5. Investigate the following-
a) Index filter
b) Monitoring the price of positions stopped out early relative to my average hold time for profitable positions.


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## prawn_86 (5 September 2012)

Very detailed post Sammy. I haven't read through it in complete detail yet but im sure you will get some useful comments


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## skyQuake (5 September 2012)

Have you done stats for p/l on the patterns themselves? eg avg win/loss on breakouts etc


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## Steve C (5 September 2012)

That was a good read - thanks Sammy.

How do you monitor the above information? Do you put each of your trades in an Excel template?

Steve


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## Trembling Hand (5 September 2012)

Probably better just not trading the system when its not working rather than curve fitting to the last period and risk being in a perpetual tail chasing exercise.

That is you need some sort of filter or maybe a crystal ball?


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## sammy84 (5 September 2012)

skyQuake said:


> Have you done stats for p/l on the patterns themselves? eg avg win/loss on breakouts etc




Paper traded back in 2007. My system is very discretionary so hard to actually write a code to test it. 

I trusted that Curtis Arnold's strategy had been robustly tested. I also used to follow the Chartist's recommendations from which I have leveraged a bit. At the end of the day I have to assume robustness based on my long term average which is below:

View attachment Long term summary.bmp


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## sammy84 (5 September 2012)

Steve C said:


> That was a good read - thanks Sammy.
> 
> How do you monitor the above information? Do you put each of your trades in an Excel template?
> 
> Steve




Yep, write up each trade in excel. I record the following info for each trade:
View attachment Data entry.bmp


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## sammy84 (5 September 2012)

Trembling Hand said:


> Probably better just not trading the system when its not working rather than curve fitting to the last period and risk being in a perpetual tail chasing exercise.
> 
> That is you need some sort of filter or maybe a crystal ball?




I see where you're going. I hope that this exercise is more about creating a robust system as opposed to curve fitting. Hopefully as my time in the market increases I will be better able to identify certain market conditions and know how to respond accordingly. 

From what I gather you trade discretionary, albeit very short term. Do you apply any filters in your trading?


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## Trembling Hand (5 September 2012)

sammy84 said:


> From what I gather you trade discretionary, albeit very short term. Do you apply any filters in your trading?




Yeah a holiday : But other than that no. I just keep on hitting away but I do play lots of different games, from scalping in the seconds to hanging on to trades for as long as I can.


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## tech/a (5 September 2012)

Sammy

This is what I see.
Death by a thousand cuts.
Your win rate is very low for such a short trade duration.
I would cut my position sizing and also cut my risk by moving to B/E as 
quick as I can. 70 B/E Losses (Brokerage) is better than your $650 ish/trade.

This drawdown is what id expect for a long method in this market.
The thing that bothers me is the short losses are more! (/ trade).

So just keep plugging away.
Dont be afraid to take B/E stops even if your doing far more trades.
Work on getting thats win rate up.
I suspect your trading a method with a long trend bent.

Fine in a bull market and will win well.
Bad in a swinging market with a bearish trend.

i know i harp on about it but changing to FTSE index futs helped all things Ive mentioned above.


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## sammy84 (5 September 2012)

Trembling Hand said:


> Yeah a holiday : But other than that no. I just keep on hitting away but I do play lots of different games, from scalping in the seconds to hanging on to trades for as long as I can.




This is why I'm not a huge fan of sitting out. I would like to be able to revert to different styles depending on the nature of the market. Only time can teach me that.


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## sammy84 (5 September 2012)

tech/a said:


> Sammy
> 
> I suspect your trading a method with a long trend bent.
> 
> ...




Spot on. Worked well in a bull market and kept things ticking over. 

Agree about getting more trades to breakeven. Historically my average has been a bit higher. This year it just seems most patterns went against me from the very start.

Sorry if you have mentioned this before but how would FTSE index futures help? I imagine it would mean more screen time.


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## skc (5 September 2012)

Hi Sammy, thanks for sharing your trading. It's has not been a market for trend followers or long dominant systems. It's a market more suited for quick hit profits - i.e. trade the noise. We know that from hindsight. 

I agree that you need a few more systems / setups that are suitable for this market, rather than twigging a system that is perhaps designed for trending markets. Having non-correlated systems will improve your return and reduce the volatility of your equity curve. It is of paramount to all full time traders (not sure if you are such). 

And some bold bits for you to have a think.



sammy84 said:


> Paper traded back in 2007. My system is very discretionary so hard to actually write a code to test it.
> 
> *I trusted that Curtis Arnold's strategy had been robustly tested. I also used to follow the Chartist's recommendations from which I have leveraged a bit. *At the end of the day I have to assume robustness based on my long term average which is below:






Nick Radge said:


> MRC,
> I read PPS in 1994, spend over 100 hours validating it and started trading it in 1995. In 1998 I created Reefcap which managed $12 mill based on what I learnt from that book. In 2000 I started with stocks and continue to do so today. In fact since turning off my trend following models in November it constitutes 90% of my trading.
> 
> As RichKid and TH have stated, *you need to read it and then make it your own.* There are no short cuts. I have made numerous changes but the concepts remain the same. Its like a golf coach. He can teach the about swing planes, weight transfer and alignment but then you need to do the work on the range.
> ...


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## gav (5 September 2012)

Sammy, have you considered using an index filter?


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## tech/a (5 September 2012)

sammy84 said:


> Spot on. Worked well in a bull market and kept things ticking over.
> 
> Agree about getting more trades to breakeven. Historically my average has been a bit higher. This year it just seems most patterns went against me from the very start.
> 
> Sorry if you have mentioned this before but how would FTSE index futures help? I imagine it would mean more screen time.




Short term trading will involve more screen time

I generally spend a couple of hrs between 5.30 to 7.30
That's enough for me.

Benefits

Trade long and short.
Stacks of liquidity
Reads well technically.

Doesn't take up a lifetime..


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## brty (5 September 2012)

Firstly Sammy, congratulations for having the gumption to put up something that is not working, and providing details. A few things seem obvious to me, please dont take the following as criticism, just suggestions.



> Paper traded back in 2007




In 2007 up to November had been a bull market with a 17% rise overall. Your system is therefore geared to a bull market. To me it should also be tested in a bear market to make sure it doesn't get you into trouble in those conditions. Some type of filter to determine the difference is always warranted, this could be used in the sector your potential trades are in, rather than the market as a whole.



> This year I'm going to test/monitor whether my stopped out positions ended up being profitable. I'm going to work out the average day held of my profitable positions. I will then record the price of positions that were stopped out early (i.e <5 days) at whatever that average day figure is.




You have 99 actual trades from the last 18 months to do this with. 99 trades is enough data to go back through and check precisely whether stops were too close, too far away, or the premise of the actual trade was just wrong statistically. It also gives you enough data to check if the winning trades had certain characteristics different from the losing trades, identifiable from before the trade was placed, ie the price action, volume, announcements in the prior week, month, year etc.



> One of my takeaways here is that until I find my edge again, be selective and on the conservative side when talking trades.




You either have an edge that you are confident of, or you don't. Judging by the results of the last 18 months IMNSHO, you clearly do not have an edge. Why throw money at something that is not working? Why not earn interest on your money while testing what works in the existing market until you do have confidence. 

brty


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## sammy84 (6 September 2012)

gav said:


> Sammy, have you considered using an index filter?




It was one of things I listed which I wanted to investigate.

My current thinking is that a filter will be a hindrance to a discretionary system. The beauty of trading discretionary is that you can get in on early moves without having to wait for a system to 'turn on'.

Still something I will test in my spare time.


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## peter2 (6 September 2012)

Sammy - good on you for posting your results and seeking suggestions. 

IMO your results will be similar to most, but very few people will accept the responsibility and try to improve their performance. I describe myself as a discretionary trader but over the years have evolved a set of rules to keep me trading in a consistent way. You may need to become more of a rule based discretionary trader. Even this may not be enough as discretionary traders are easily influenced by their own emotions and respond to challenging markets in an inconsistent manner. Most of my profits have been made trading break-outs (works well in bull markets). As the ASX has traveled sideways and down for the past two years break-out opportunities have decreased and many break-outs have reversed without going very far at all. It's has been frustrating and my response has been to include other trading strategies (eg. reversals). 

My recent review showed me that I drifted from my core break-out strategy as I tried trading more reversals. My reversal trades did not make much money over the period but I missed many great break-out opportunities (SXY, AGI, BRU ) because I was focusing on something else. IMO discretionary traders are more susceptible to style drift if you try to do too much. My suggestion to you is to identify your best setup and make it your core strategy with top priority. There will be periods when the market will not suit your core strategy. Recognise them and accept it, but still put in the effort as we never know when the good times (for our core strategy) will return. 

To the right of my trading records I keep notes on my trading performance for each trade. I review my actions and the chart many weeks after each trade. I record basic scores (0 or 1, sometimes 0.5) on all my trading actions. 
Setup: Was the setup perfect? (according to my criteria)
Entry: Did I enter at the correct time? Did I delay?
Position Size: Did I buy the correct number of shares for the risk level?
Reduce Risk: Did I reduce the risk in the trade when there was an opportunity? 
Pyramid: Did I add on a subsequent opportunity?
Stop Loss: Did I exit when my SL was triggered?
Trailing Stop/ Profit target Exit: Did I exit when my TS or profit target was triggered? 

I end up with a % score and my goal is to average > 90%. Every mistake hurts my performance and too many mistakes makes me a losing trader. Last year I over traded, took too many less than perfect setups and did not sell at my initial SL too many times. 

The review showed me what I did wrong and what I need to improve on. Just as importantly, the review showed me which setups make me the most money and when to implement them. 

ps: Added after I read your last post Sammy. My most profitable edge is trading break-outs in a bear market. I use a market filter to control my portfolio heat not whether I trade or not.


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## sammy84 (6 September 2012)

brty said:


> You have 99 actual trades from the last 18 months to do this with. 99 trades is enough data to go back through and check precisely whether stops were too close, too far away, or the premise of the actual trade was just wrong statistically. It also gives you enough data to check if the winning trades had certain characteristics different from the losing trades, identifiable from before the trade was placed, ie the price action, volume, announcements in the prior week, month, year etc.




Thanks for your comments. I appreciate the honesty, hence why I posted my results.

I don't know what to say to above. It is very obvious in hindsight that this a sensible thing to do. Guess I had a brain fade.

Regarding my whether my system has an edge. I'm still confident it does as it is still in a net profit position since I have started trading. And if you look at my results, it was essentially a 3 month period prior to September 2011 which did the destruction. I think I know what happened in that time as well. I was coming off a relatively good year prior and wanted to increase trade frequency and portfolio heat. I then had a few big losses and the rest is history. A few amateur decisions by me is not helping anything. Nevertheless, you could be right. Next years review will answer that.

Thanks again.


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## Trembling Hand (6 September 2012)

sammy84 said:


> It was one of things I listed which I wanted to investigate.
> 
> My current thinking is that a filter will be a hindrance to a discretionary system. The beauty of trading discretionary is that you can get in on early moves without having to wait for a system to 'turn on'.
> 
> Still something I will test in my spare time.




I kinda agree. Indexes are lagging. Which leaves you with the need to tighten up both your entry conditions (this may include scraping them in this market) and your management once in.


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## sammy84 (6 September 2012)

Peter,

A lot helpful comments/suggestions. 

I tend to agree with what you have to say about using only one strategy. When times are good it is easy to spread myself across a few different strategies as I'm making money and I trick myself into believing this is a result of my various strategies. Agree also that when the market is like this it is tempting to find other trading strategies. Nevertheless, my three different strategies adhere to the KISS principle so it shouldn't be overly hard to keep using all. Whether using different systems hurts my focus is another story and worth thinking about. 

I'm a big fan of your scoring technique for review. I will be sure to adopt something similar. Keeping data on my own trading management actions (as opposed to generic data like position size etc) would be a very useful tool to analyse my performance and identify what works and doesn't.


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## peter2 (6 September 2012)

I'm in favour of using multiple strategies as this can reduce DD. However a discretionary trader is more susceptible to psychological biases (eg. recency bias) and favour one strategy over another at any time. This inconsistency is costly as we ignore the entries in the strategy that has just produced a few losing results. It's harder to trade each strategy independently and therefore consistently when there is too much discretion in the trading business. 

This is even harder if you trade in both directions. For example do you place an order to buy the BO of a new high, or place an order to short the reversal as an indicator is overbought ?(*). Detailed records will show you where your best edges are and in what market conditions. Knowing these details helps your confidence and discipline. 

* I would place orders for both strategies as I don't know what is going to happen next. Discretionary traders sabotage their trading more often than they think.

Yes, keep it simple, but stick to the rules.


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## Mark17 (7 September 2012)

Kudos to you for full disclosure during a difficult trading time.  I hope things get better!

One comment I have is in response to your question about whether the system still has Edge.  You mentioned that it is a discretionary system and that you can't really apply objective rules to backtest it.  

With discretionary systems, I think one can always debate whether Edge is even possible.  Who can really separate discretionary traders who are lucky over the long-term from those who lose?  Those who lose often walk quietly into the darkness leaving no trace for others to see.  Who knows exactly what the rules are for others to test and replicate to confirm?  It comes down to a game of having to verify brokerage statements (rarely provided) to know who is telling the truth.

My recommendation would be to consider overhauling your system and making it algorithmic.  Run it through a system development process where all relevant statistical considerations are made (especially with attention paid to steering clear of the curve-fit).


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## Trembling Hand (7 September 2012)

Mark17 said:


> With discretionary systems, I think one can always debate whether Edge is even possible.  Who can really separate discretionary traders who are lucky over the long-term from those who lose?




You serious?


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## tech/a (7 September 2012)

> With discretionary systems, I think one can always debate whether Edge is even possible. Who can really separate discretionary traders who are lucky over the long-term from those who lose? Those who lose often walk quietly into the darkness leaving no trace for others to see. Who knows exactly what the rules are for others to test and replicate to confirm? It comes down to a game of having to verify brokerage statements (rarely provided) to know who is telling the truth.




Only debated by those who cannot trade----in my not so humble experience.
Discretionary or systematically.

A successful systematic trader knows there is no debate.
Just is there is no debate that the majority of traders fail.


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## Mark17 (11 September 2012)

tech/a said:


> Only debated by those who cannot trade----in my not so humble experience.
> Discretionary or systematically.
> 
> A successful systematic trader knows there is no debate.
> Just is there is no debate that the majority of traders fail.




A successful systematic trading system can be modeled and backtested using software for all to see and evaluate.  That's why I singled out discretionary.


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## CanOz (12 September 2012)

Mark17 said:


> A successful systematic trading system can be modeled and backtested using software for all to see and evaluate.  That's why I singled out discretionary.




Sure, but at what cost?

Take a typical descretionary method for trading intraday index futures. 

You look for interest at a level, a predetermined level that would typically bring in participants. Once you see the order book and order flow start to change, you join in. There is a huge subjective element here that may only be quantified by allot of expensive coding. Even then, is it more adaptive than the power of human intuition? 

I trade systematically, but I have traded descretionary as well with the DOM, the T & S, and a way to define good solid levels. I cannot backtest it because I cannot quantify it on my budget.

CanOz


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## Trembling Hand (12 September 2012)

Mark17 said:


> A successful systematic trading system can be modeled and backtested using software for all to see and evaluate.




And then break down the moment you turn it on. Which they have a happy knack of doing. Still cannot see your point that luck is the key to discretionary long term success.


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## tech/a (12 September 2012)

All discretionary traders know if they are profitable 
Or not. Over time they will have the exact same 
Stats as a systematic tested system. They can
Be derived from actual results.

Success can be labeled whatever you like 
Luck,genius,fluke,experience.
It's either there or it's not!


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## adt100 (12 September 2012)

I would re look at and reconsider a filter element. 

Totally understand that almost any filter will have a detrimental effect on long term profit however I believe that the benefits outweigh the negatives.

I use a range of filters including index filters to tell me what to trade and when. This can then mean you focus on the best index and stocks within it that suit your systems (discretionary or systmatic). If you just want to trade the ASX fine but cash is a perfectly acceptable position while the odds are not in your favour. Simple trendfollowing systems win rates will swing between 25-65% depending on market conditions. In poor market conditions the low win rates mean only a small amount is added to the bottom line but average DD is increased dramatically. Note hold time for my systems is days to 2 weeks approx.

Downside is you are late to market moves as TH points out the indices are a lagging indicator. Upside is only a relatively small loss of profits for a large cut in drawdown and you dont have to spend 80% of your life feeling like a loser!!

Add the fact that there is nearly always some market showing the right characteristics. 

Looking at your approach two of the three are clearly trend following or momentum. So only trade them when the odds are in your favour. Takes discipline if you have a 'need' to trade, I suggest a proper hobby!

The way I look at it is if 80% of my profits come from 20% of my trades (not far off for trend followers) and 80% of these trades occur 20% of the time (in a trending market) then I am happy to lose 20% of my profits to lose 80% of my effort and minimise my drawdown in each market. Stay in cash or look elsewhere for opportunity. Your time will come again but you will need to make it there!

Lastly my filters on each market work just below 50% of the time. But when they are right avaerage win is approx 45% and when they are wrong I lose approx 9% of overall portfolio equity. I am invested overall approx 60% of the time accross 3 different markets the rest in cash.


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## Trembling Hand (12 September 2012)

adt100 said:


> The way I look at it is if 80% of my profits come from 20% of my trades (not far off for trend followers) and 80% of these trades occur 20% of the time (in a trending market) then I am happy to lose 20% of my profits to lose 80% of my effort and minimise my drawdown in each market.




That hurts my brain but is a good one.


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## cynic (12 September 2012)

adt100 said:


> I would re look at and reconsider a filter element...
> 
> 
> ...Lastly my filters on each market work just below 50% of the time...




Am I to understand that your filter is actually no better than the mere toss of a coin (i.e. if heads then trade, else tails then no trade) ?


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## Mark17 (12 September 2012)

tech/a said:


> All discretionary traders know if they are profitable
> Or not. Over time they will have the exact same
> Stats as a systematic tested system. They can
> Be derived from actual results.
> ...




I don't disagree with the first paragraph.

With regard to the second, consider two things.  First, stats suggest 80-95%
of these traders fail in their first (or second) year.  Most of these are probably
discretionary traders.

Second, don't ignore the fact that much about the trading industry is a huge
psychological game aimed to make money either through trading or by selling
trading strategies/systems/education/services that may or may not pay out in 
the end.

In the USA it is usually said that people are innocent until proven guilty.  As 
scam-laden as the financial industry is, though, one would be a fool not to 
consider prospects guilty until proven innocent.  While each trader knows if 
s/he has been successful according to his/her definition of the word (most 
will go quietly into the night, as mentioned above), what can't be accepted 
as truth is what others tell you about their trading success.  See the 
difference?

With regard to luck and success, I believe the two are intimately related
when it comes to trading.  Trading may be a successful endeavor until (and
if) the dreaded year presents when one loses many times what s/he made
in each of the previous successful years.  This is the point where many 
traders realize they have been lucky, not good, because their risk management 
plan was poor.  

A good read on trader luck is _Fooled By Randomness_ by Nassim Taleb.


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## Mark17 (12 September 2012)

CanOz said:


> Sure, but at what cost?




I agree CanOz... it can be expensive.  I paid for software and I pay for a data subscription--not to mention over 16 months of a steep (for me) learning curve figuring out how to program and I'm _still _just getting started.

But why should making money from the luxury of your own home on your schedule ever be cheap or easy?


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## tech/a (12 September 2012)

Best trades I have made ( most profitable ) were systems trades ( are still shown on the net whilst live trading it)
Point is I was in the trades.
Same with my best discretionary trades.
Same with property purchases in 1995/6/8/2000
Point is I was in the market.

Luck?
Genius?
Sound judgement? 

Well my view was they were all good judgment ---- placing myself in
Front of a potential train
And LUCK that they moved so far for so long.

So when I sold--- LUCK?


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## adt100 (13 September 2012)

cynic said:


> Am I to understand that your filter is actually no better than the mere toss of a coin (i.e. if heads then trade, else tails then no trade) ?





Not exactly. All my filters are 100% right at the time they give a signal. It is only the future that disproves them.

I am not sure what you are getting at. My filters are pretty sensitive and get me into cash or invested quickly and return back again as necessary. I don't consider below 50% to be a surprise....we are hardly in a stable market environment. I am quite happy with a 50% chance of making a 40% return on my account or losing 10%. Seems simple maths to me. Opportunity is the next equation.

Cynic I assume you are perfectly comfortable that win rate has only limited correlation to returns?


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## sammy84 (13 September 2012)

adt100 said:


> Not exactly. All my filters are 100% right at the time they give a signal. It is only the future that disproves them.
> 
> I am not sure what you are getting at. My filters are pretty sensitive and get me into cash or invested quickly and return back again as necessary. I don't consider below 50% to be a surprise....we are hardly in a stable market environment. I am quite happy with a 50% chance of making a 40% return on my account or losing 10%. Seems simple maths to me. Opportunity is the next equation.
> 
> Cynic I assume you are perfectly comfortable that win rate has only limited correlation to returns?




Without giving too much away, I'm curious what sort of filters you use? 

I would imagine if your filter is sensitive to switching to cash that it would do this quite often. Most filters I have seen thus far are based on MAs.


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## Trembling Hand (13 September 2012)

sammy84 said:


> Without giving too much away, I'm curious what sort of filters you use?
> 
> I would imagine if your filter is sensitive to switching to cash that it would do this quite often. Most filters I have seen thus far are based on MAs.




You don't have to have MAs on index prices which in Oz are basically 8 stocks. A/D line for example.


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## cynic (16 September 2012)

adt100 said:


> Not exactly. All my filters are 100% right at the time they give a signal. It is only the future that disproves them.
> 
> I am not sure what you are getting at. My filters are pretty sensitive and get me into cash or invested quickly and return back again as necessary. I don't consider below 50% to be a surprise....we are hardly in a stable market environment. I am quite happy with a 50% chance of making a 40% return on my account or losing 10%. Seems simple maths to me. Opportunity is the next equation.
> 
> Cynic I assume you are perfectly comfortable that win rate has only limited correlation to returns?




Thanks adt100, that makes it much clearer. 

When I read your earlier post I misunderstood it to be talking about the efficacy of the filter element (as distinct from the overall trading strategy/system into which it is incorporated). Based upon the content of your posts I think I can fairly safely assume that you've already identified/confirmed that your filter is making a positive contribution to the overall efficacy of your strategy/system. Given that the figures you're quoting amply surpass bank interest rates, they would undoubtedly be the envy of many aspiring traders. Well done!

As to what I was getting at (which I now recognise to be inapplicable to your trading scenario), some years ago a fellow trading enthusiast (whom regularly avails himself of the "wisdom" of stock market "gurus") once told me how one such trading "genius" extolled the virtues of disregarding indicators unless they were correct at least 40% of the time. I promptly advised my friend that said "guru" was unwittingly confessing his own ignorance and then went on to explain that when faced with binary conditions (i.e. up/down, kinetic/inert etc.) any indicator that is approximatley 50% correct confers no advantage above the flip of a well balanced penny! However, a binary indicator that is reliably over 60% incorrect might confer a useful edge if its output is inverted!


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## Trembling Hand (16 September 2012)

cynic said:


> once told me how one such trading "genius" extolled the virtues of disregarding indicators unless they were correct at least 40% of the time. I promptly advised my friend that said "guru" was unwittingly confessing his own ignorance and then went on to explain that when faced with binary conditions (i.e. up/down, kinetic/inert etc.) any indicator that is approximatley 50% correct confers no advantage above the flip of a well balanced penny! However, a binary indicator that is reliably over 60% incorrect might confer a useful edge if its output is inverted!




Not sure of the exact details but a 40% win rate would be good enough for most systems. In fact pretty good. What I'm guessing at is the when a system wins 40 % of the time thats only part of the story.

Its not a binary outcome, up or down at all. Its win 2-10R or stop at BE or lose 1 R. The outcome is nowhere near binary. And cannot be inverted to get 60% win rate.


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## cynic (16 September 2012)

Trembling Hand said:


> Not sure of the exact details but a 40% win rate would be good enough for most systems. In fact pretty good. What I'm guessing at is the when a system wins 40 % of the time thats only part of the story.
> 
> Its not a binary outcome, up or down at all. Its win 2-10R or stop at BE or lose 1 R. The outcome is nowhere near binary. And cannot be inverted to get 60% win rate.




I quite agree. My comment about inversion was in reference to a binary indicator only!!! I am well aware that their is usually a sizable difference between between indicator efficacy and the win rate of trading strategies deployed in response!!! My apologies if my post didn't make this clearer!


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