# System development software



## Magnyz (30 March 2007)

Hi, I'm new to the forum and I'm sure my question has been addressed many times but I would appreciate some feedback/references.

I am a fairly seasoned investor but have never developed any quantitative trading strategies (although I am not a stranger to programming). Now, I plan to start to explore this area. Since I do not plan to write my own software from scratch I wonder if somebody could suggest some software with a built-in language (with high-level functions in this area) which allows backtesting and running the system with realtime-data. 

Thanks.


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## tech/a (30 March 2007)

Magnyz said:


> Hi, I'm new to the forum and I'm sure my question has been addressed many times but I would appreciate some feedback/references.
> 
> I am a fairly seasoned investor but have never developed any quantitative trading strategies (although I am not a stranger to programming). Now, I plan to start to explore this area. Since I do not plan to write my own software from scratch I wonder if somebody could suggest some software with a built-in language (with high-level functions in this area) which allows backtesting and running the system with realtime-data.
> 
> Thanks.




There are quite a few.
but I would use a combination of either.

(1) R/T Metastock---Tradesim
(2) R/T Bullcharts---Tradesim
(3) Dont know if you can do R/T Amibroker but EOD couples with Tradesim.
Tradesim is the most powerful systems testing software i have found---but there are others like Wealthlab.

Plenty to google there for you.
I use Metastock/Tradesim combo only EOD.


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## Magnyz (31 March 2007)

Thanks tech/a. I will do some research on your suggestions.


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## Pager (31 March 2007)

Try Tradestation, its not cheap though about US$3000

I got mine on ebay as they often come up for sale there, and ive had no problems the past 4 years with it.

Great Software.

Heres a link to the standalone version.

http://www.tradestation2000i.com/

There is also a web based subscription version thats more current.

Cheers

Pager


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## Magnyz (31 March 2007)

I know about tradestation (and systemswriter) a little but maybe you can clear out some confusion that I have. It seems to me that the software is discontinued. They sell one version but it is not developed anymore. If this is the case I would hesitate to buy the software. They also seem to have another version available but then you have open a tradingaccount with them which I am not interested in.  What is going on with this?


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## Pager (31 March 2007)

Hi Magnyz

You are correct 2000i was the last standalone version of TS and not updated anymore, but IMO its still far superior than most other software.

The online version from what I have read is available without becoming a client of Tradestation securities (I think?), its just costs a bit more per month.

As I posted above, I got mine on ebay for a alot less than it costs new, and it was money very well spent, my advice is get hold of a seconhand copy and get to grips with easylanguage and if you want the latest version with all the upgrades and new features, bells and whistles then subscribe to the online version, although IMO its no better.

2000i and earlier versions are still used and preferred by many professional traders.

Good luck

Pager


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## nizar (31 March 2007)

Probably a little off topic here, but has tech or others tried older versions of Metastock (8,9) with Windows Vista?
Any dramas or all good?


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## tech/a (31 March 2007)

nizar.

Thats a good point.

I still use 7.2 with tradesim and had all sorts of trouble with XP. However XP has the ability through properties to run windows 2000 or 98. I ran on 2000 and all was/is well.

I'm just setting up Aget and Tradeguider on a suite and had the opportunity of running vista but have chosen XP so I can have the ability to run the older Windows versions.

Vista doesnt have this capability.


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## nizar (6 April 2007)

Picked up Metastock V9 EOD on ebay for au$350 yesterday.
Next step; TradeSim


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## stevo (6 April 2007)

Magnyz
Amibroker - www.amibroker.com is worth a look.

I am not into "real time" but they do have a real time version. I have used both Amibroker and Metastock and prefer Amibroker, although my Metastock version is quite old.


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## Strw23 (6 April 2007)

Nizar - As far as I know only Metastock V10 will work on Vista, the older versions will not.

Metastock V9 EOD - It is good program but limited and expensive compared to some of the others. Requires Tradesim for proper backtesting.
Amibroker is excellent - Good backtesting  reports, and half the price of Metastock. If money is short I would recomend this one.
Wealthlab - I think this is the best but hardest to learn. Does all its own backtesting but can also be teamed up with Tradesim for better reporting.
Tradesim - Must have if using metastock. Can also be teamed up with Wealthlab. If you decide to get tradesim I would buy the enterprise edition(does monte-carlo testing)

I have all the above mentioned software but use Metastock V9 EOD because it was the first program I got and spent all my time learning how to use it. I will learn the others one day. If I had my time again I would choose Wealthlab.

I hope this was of some use.

Scott


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## MichaelD (7 April 2007)

Nizar,

I've been meaning to ask you - what has prompted you to explore longer term strategies?


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## nizar (8 April 2007)

MichaelD said:


> Nizar,
> 
> I've been meaning to ask you - what has prompted you to explore longer term strategies?





Michael - For a few reasons.

I've found out the hard way that end of day stops are better than intraday stops. ie. less drawdown and whipsawing.

For some reason or another, i never used to think you can make big money trading weekly or end of day, but after doing some reading, and having a look at Stevo's blog, that perception has changed.

Another reason is that Im not gonna be a Uni student with this much time on my hands forever. Once i start working fulltime a couple of hours a nite or perhaps just on the weekend is all the time i would have to dedicate to my system (and i think this is enough if you have the right system).

Also a lifestyle choice. Even by using an end of day stop the last month or so my stress levels have improved ie. not worrying about if im stopped out while im out of the house (God im such an amateur i know - LOL).

I understand now riding longer term trends is where the big money is made, NOT in trading it every step of the way.

I really like the idea of systems trading because it can run in the background while you do other things with your life. There is no need to analyse charts or fundamentals accept maybe briefly to pick which one to enter when you have more entry signals than capital allows. But you can take comfort in the fact that whichever one you pick, it matters little in the long term (if monte carlo shows 100% profitability with narrow spreads between profits and drawdowns).

I realise now its all about reaching the maximum profit with a level of drawdown you're willing to accept.


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## nizar (8 April 2007)

Strw23 said:


> Nizar - As far as I know only Metastock V10 will work on Vista, the older versions will not.
> 
> Metastock V9 EOD - It is good program but limited and expensive compared to some of the others. Requires Tradesim for proper backtesting.
> Amibroker is excellent - Good backtesting  reports, and half the price of Metastock. If money is short I would recomend this one.
> ...




Scott - Yeh I've already for the Metastock V9 EOD so will stick with this, I figured even if I got amibroker I would still need to get Tradesim (for me monte carlo analysis is a NEED for systems development, or else I could never have confidence in my system).


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## MichaelD (8 April 2007)

nizar said:


> (God im such an amateur i know - LOL).
> 
> I realise now its all about reaching the maximum profit with a level of drawdown you're willing to accept.



Nizar - I'm impressed. You have travelled far in a short space of time during market conditions when most will not have travelled at all.

What do you feel is the most important aspect of trading?


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## nizar (9 April 2007)

MichaelD said:


> Nizar - I'm impressed. You have travelled far in a short space of time during market conditions when most will not have travelled at all.
> 
> What do you feel is the most important aspect of trading?




Thanks Michael.
The most important aspect of trading *for me* is psychology in sticking to the plan.

The hardest part is after you've identified stocks that meet your entry criteria and you take a position. Then you just sit and wait (for a stop or exit). In the meantime you have stocks like HDN and NIA and your WMTs that really tempt you, but you cant just sell something and jump on. You have to just be patient - and stick to the plan. Coz once you deviate from your plan, you're no longer trading your system.

One way to somewhat avoid this is have some (small) portion of your capital that you can use to trade in a discretionary manner. Just for some fun and extra income.


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## CanOz (9 April 2007)

nizar said:


> Thanks Michael.
> The most important aspect of trading *for me* is psychology in sticking to the plan.
> 
> The hardest part is after you've identified stocks that meet your entry criteria and you take a position. Then you just sit and wait (for a stop or exit). In the meantime you have stocks like HDN and NIA and your WMTs that really tempt you, but you cant just sell something and jump on. You have to just be patient - and stick to the plan. Coz once you deviate from your plan, you're no longer trading your system.
> ...




Interesting Nizar, i am keen to know how you go with your system development. I feel that the only way i can trade with the time i have available would be to spend my time developing a robust system with a good expectancy then apply good money management to it. 

The book i am reading at the moment suggests that when you reach the point of being in control of your emotions, trading is no longer 'fun' as its just like work, or a business, hence 'mechanical' too in that you just take the signals and execute your plan. I wonder if the more experienced 'mechanistic traders still consider it fun?

Also, you've got metastock now so how do you find the programming side? I'm leaning towards Amibroker with what everyone has commented.

Etrade with Iress is ok for discertionary trading, but theres no backtesting and you can't write code for it. IG markets, fine to execute the trades and or trade descretionary but not a platform for system development obviously.

Also curious how long it took some to develop and test thier systems before they actually started taking signals from it.

PS. those that trade long term trend following systems, do you have another system developed to swing trade? When, if you have one, do you start using that system? Do you waiting until the performance of the trend following system weakens or do you use a system stop? Do you watch the general indices, in cases like the current one, to see if the trend will resume or begin a new phase?



Cheers,


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## tech/a (9 April 2007)

Nizar.

Id certainly be placing a short side in your systems developement.

You'll find it has its own characteristics quite different to trading the longside.

Dont fall for the trap of attempting to trade short long exit signals.


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## MichaelD (9 April 2007)

nizar said:


> The hardest part is after you've identified stocks that meet your entry criteria and you take a position. Then you just sit and wait (for a stop or exit).






CanOz said:


> The book i am reading at the moment suggests that when you reach the point of being in control of your emotions, trading is no longer 'fun' as its just like work, or a business, hence 'mechanical' too in that you just take the signals and execute your plan. I wonder if the more experienced 'mechanistic traders still consider it fun?



There is much here about successful trading. As a more-or-less die-hard mechanistic trader, I get quite concerned when my actual trading stops being routine and starts becoming entertaining/starts invoking emotions in me - invariably this means a significant drawdown is imminent. Entertaining trading is gambling.

For me, I find the greatest pleasure of trading to be watching a well-developed trading plan prove itself on the market. Actually executing the plan is a relatively minor aspect of my engagement of the market.

Fortunately, this mindset results in profitable trading.


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## nizar (9 April 2007)

CanOz said:


> The book i am reading at the moment suggests that when you reach the point of being in control of your emotions, trading is no longer 'fun' as its just like work, or a business, hence 'mechanical' too in that you just take the signals and execute your plan. I wonder if the more experienced 'mechanistic traders still consider it fun?




No, though this question is asked of mechanical traders all the time, they answer that they arent in the market to have fun, they're in it to win.

Another example is that professional traders focus on the trading and not on the profits. If they trade well - according to their tested and proven system - then the profits will come. The best traders make the most money, just like how the best doctors make the most money, and the best lawyers make the most money. Though their primary focus is not on the money, but on doing their job well.



CanOz said:


> PS. those that trade long term trend following systems, do you have another system developed to swing trade? When, if you have one, do you start using that system? Do you waiting until the performance of the trend following system weakens or do you use a system stop? Do you watch the general indices, in cases like the current one, to see if the trend will resume or begin a new phase?




Not sure what you mean by waiting for the performance of the system to weaken. If you system has been well designed and thoroughly tested by monte carlo analysis, then there should be no suprises, everything is known in terms of what to expect (ie. average profit/drawdown, minimum profit/drawdown, maximum profit/drawdown). But if your system starts pulling out numbers that were NOT expected, then, as tech/a once said, you are trading BLIND, and can no longer have confidence in your system, because this indicates that market conditions now are different then those endured during backtesting, so in this case you would probably exit all positions, well, i would.

Im not going to look at what the market is doing at all, i dont think its relevant unless im trading indices, but of course i will test this hypothesis during system development.


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## Temjin (9 April 2007)

Here is a link that I'm sure some of you are aware of already.

http://www.smarttraderblog.com/2007/02/position_sizing_software.php

So yes, Trade Sim and Market system analyzer comes into mind.

TradingBlox is pretty good as well but it is also quite expensive, so I haven't got the chance to use it yet. It does not allow intraday data back testing though. 

Like MichaelD, I am a die hard automatic pure mechanical trader as well. While the psychology involved in executing trades does not concern me too much (because it is all automatic), the psychology involved in following the system and decide on whether it is performing to expectation or not is a major concern for me. (and also in the development of such system) More often there is a time the automatic trading system is not performing to what you expect and then you go and try to optimise it further or find another system endlessly and not get anywhere. 

It is also important to understand some of the advantages and disadvantages of optimising a system through backtesting data. Curve-fitting is definitely one of the major reason why such optimised system fails. However, not optimising a system will cause your system not realising its full profit potential. Thus, it is important to get the right mix. 

Forward testing your system through many different uncorrelated markets is one of "my" preferred way of optimising a system. Make sure to keep the concept simple as well so it applies to all markets. 

Going a tid off topic here, but anyway, those are your trading softwares. Good luck in your venture.


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## CanOz (9 April 2007)

nizar said:


> No, though this question is asked of mechanical traders all the time, they answer that they arent in the market to have fun, they're in it to win.
> 
> Another example is that professional traders focus on the trading and not on the profits. If they trade well - according to their tested and proven system - then the profits will come. The best traders make the most money, just like how the best doctors make the most money, and the best lawyers make the most money. Though their primary focus is not on the money, but on doing their job well.
> 
> ...




I guess what i'm wondering is...if you have a long term trend following system, what happens when the market is not in trend? I guess thats what T/A was referring to when he suggested incorporating the short side.

Cheers,


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## nizar (9 April 2007)

Temjin - can you elaborate a little on curve-fitting and other such disadvantages of optimising a system through backtesting data? Michael, tech, others, your thoughts on this also much appreciated.

Cann - does it matter if the market is not in a trend? as long as there are stocks that are strongly trending then you can still pick some winners, though there would be less of them.
The market is dictated by pretty much the top 10 or 20 or 50 stocks. Obviously in a sideways market a trend following system would not do as well as in a strongly trending market, though i would expect it to still outperform the market, and for some systems, the outperformance would still be significant.
In my opinion.
Note that i havent really tested anything, thats just my perception.


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## CanOz (9 April 2007)

nizar said:


> Temjin - can you elaborate a little on curve-fitting and other such disadvantages of optimising a system through backtesting data? Michael, tech, others, your thoughts on this also much appreciated.
> 
> Cann - does it matter if the market is not in a trend? as long as there are stocks that are strongly trending then you can still pick some winners, though there would be less of them.
> The market is dictated by pretty much the top 10 or 20 or 50 stocks. Obviously in a sideways market a trend following system would not do as well as in a strongly trending market, though i would expect it to still outperform the market, and for some systems, the outperformance would still be significant.
> ...




Yes i suppose your right, provided the system identifies short and long trades? If the market conditions change, wouldn't the overall strategy need to change in order to outperform?

Anyways, i'm digressing too much...sorry...just thinking out loud.

In any case Nizar, i'm very interested in your system development...and your software. Love to know how you get on with it.

Cheers,


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## tech/a (9 April 2007)

Nizar.

3 things here.

*(1)* Temjin has touched on a very important point.One which you and all traders should be aware of and one that all traders be it Systems traders or discretionary/systematic traders,both technical and fundamental.
And that is being the best you can be in your trade. Quite correctly stated the money WILL come. Get away from the thinking of turning $5000 to $50000
in a few months/year or whatever. Sure it can be done and sure if the opportunity arises then take advantage of it ---but DONT GO LOOKING FOR IT.
Its been said many times before that its wise and correct Money management which will make you the money---so ALWAYS trade with this in mind---those who ply the ART of money management from stops to maximising R/R to correct use (And knowing when) to leverage yourself to the max,that will not only survive but succeed consistantly and beyond the normal returns of most in the market.

*Trade the Money management *

*(2) Optimising.*

Most definately a place for it but MY VEIW is when trading a SINGLE or very small universe.To expect a larger universe to conform to a maximisation of parameters is not feasable as this is likely to alter daily and definately weekly.
But I have heard of systems within systems---something I have not investigated-- but it works like this. 
(1) Base system
(2) Trade triggered than that singular trade traded on its oprimised parameters through to exit or stop.

There are systems of course which are optimised to the max on single futures contracts and even singluar stops---each traded as an entity on itself which as a whole encompasses a system.
IE 10 trades in a portfolio each traded using their own individual optimised system.The optimised parameters are *re checked *and altered IF NECESSARY after each trade is closed,then those parameters are adopted for the next trade.---endless ideas as you can see.

*(3) Short trading*
Much has altered in the time I have been developing systems.
There are now CFD's which give access to the short side on more stocks and cheaper than ever before.
Market conditions are unlikely to remain the rampant bull we have seen for 4 yrs.Managing ones trading with a Long and Short methodology makes sence to me.Each different characters and each traded in a different way yet can be combined into a trading system. Again its about management.

While this looks complex if you write it down--the goals of your business---then your business plan---the testing (Which is your cashflow reports) then your application and monthly your reported balance sheet---we all strive to become better business managers.


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## CanOz (9 April 2007)

Nick Radge said:


> Here is a brief video I had put together showing my trend following model running through TradeStation:
> 
> http://www.projectstreamer.com/users/reefcap/chartist_system/chartist_system.html




Excellent, thanks Nick. Definately a must see for those looking to develop a system. I wish i could look at the others, like Stevo's and Tech's, but for some reason their sites won't come up for me.

Cheers,


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## nizar (9 April 2007)

CanOz said:


> In any case Nizar, i'm very interested in your system development...and your software. Love to know how you get on with it.
> 
> Cheers,




Thanks for your interest, ill keep you informed on my progress.

As for short trades, i posed the question a while ago about if there were brokers out there that allowed you to short sell *without leverage *.
Theres not many out there. Michael mentioned one where they charge $140/trade and only take phone orders.

I'll be looking at long only at least initially for the ASX.

I plan to also develop a system to trade US markets, and over there, its just as easy to go short as it is to go long (according to Wayne), so over there a system that trades both long and short would work better.


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## nizar (9 April 2007)

CanOz said:


> Excellent, thanks Nick. Definately a must see for those looking to develop a system. I wish i could look at the others, like Stevo's and Tech's, but for some reason their sites won't come up for me.
> 
> Cheers,




Can,

Look at Stevo's blog, that guy is a legend, his weekly systems REALLY COLLECT!

Also - have a look at Nicks forum (ReefCap) as there is extensive discussion of systems trading, design, and development. And tech/a's techTrader system as well.


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## nizar (9 April 2007)

Nick Radge said:


> Here is a brief video I had put together showing my trend following model running through TradeStation:
> 
> http://www.projectstreamer.com/users/reefcap/chartist_system/chartist_system.html




Thanks for the link Nick.
Excellent video.

How does tradeStation differ from tradeSim?
In your opinion is it better/worse?

Also in your video you state that its a fully mechanical system. Say, If you have 3 buy signals on a certain day and only 10k left (and your money management is 10k per trade) i suspect at this point you do look at the chart and apply some discretion?


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## Nick Radge (9 April 2007)

Nizar,
My problem is that I've worked with TradeStation for 10-years now and so I have never attempted any of the newer software. There are two bad points with TradeStation; it doesn't scan an entire universe and it doesn't do portfolio work. 

I get past the scanning by using the little brother of TradeStation called SuperCharts, but I really don't do much scanning anyway.

The portfolio work is where TS really falls down and where Amibroker or Tradesim come into their element. If I weren't so stuck in my ways I'd go with Amibroker. When I need portfolio work done I send it off to Kaveman to do it for me. 

As a matter of interest, below is the exact same system as shown in the video above, except here it's trading 1-minute data instead of daily data. Note the trend following statistics prevail here as well; low win rate, high win/loss ratio, high profit factor. Same principles, yet higher trade frequency which makes for higher profitability. 

This is the last 3-months results for BHP:


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## Nick Radge (9 April 2007)

As for number of positions, I really don't have that much of an issue. My system is very selective. I've never had two buys on the same day and it can be weeks between new orders. However, in this kind of environment you will still get to the end of your capital eventually. It's really a matter of deciding how many total positions you want. I tend to be nearer 10 than 20. The more positions you get the more likely you'll replicate the broad market.

I think its an important element to have a very selective system. No point running a full mechanical system if it spits out 5 trades each day so you then add an element of discretion to actually choose the trade you will take. I know of one vendor provider whose system generates up to 10 signals each day. Now its a long term trend following system, so it falls down in real time replication.

A more complex system will not have these issues. I developed this one back in 1999 for futures trading, but made some small changes in 2001 to trade equities.


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## CanOz (9 April 2007)

nizar said:


> Can,
> 
> Look at Stevo's blog, that guy is a legend, his weekly systems REALLY COLLECT!
> 
> Also - have a look at Nicks forum (ReefCap) as there is extensive discussion of systems trading, design, and development. And tech/a's techTrader system as well.




Will try to have another look at Stevo's site tonite. I Have started going through the ReefCap stuff, but theres allot there. Its all good.

I definiately need to use Nick's resource more than i currently do.

Cheers,


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## nizar (9 April 2007)

Nick thanks for your response.

Just a question regarding your exits as seen in the system on the video link provided.

What exit did you use?

It was impressive how you were out of the stock during almost the entire sideways period. The entry seems like a white candle into new highs or something like that.

Tech/a - thanks for your post with those 3 points, it will all be taken into consideration.


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## Temjin (10 April 2007)

nizar said:


> Temjin - can you elaborate a little on curve-fitting and other such disadvantages of optimising a system through backtesting data? Michael, tech, others, your thoughts on this also much appreciated.




My understanding is that if you over-optimised a system via historic data only, you will only get a system that will tell you how to trade to produce the most profit only during those past period. There is no guarantee that the system will exhibit the same type of performance if being traded in the future and thus, one of the best practices out there to system optimisation is to use forward testing over many different uncorrelated markets. 

What I meant by forward testing is to optimise your system, for example, the period from 1995 to 2000, then test the system from 2001 to present. (again, FOR EXAMPLE ONLY!) If the system provide you with a consistent positive expectency and trading opportunities that you desire, and that you can meet your own objective by trading an appropriate position size that produces a "theoretical" drawdown that you can tolerate, then you will have a very solid system. 

I really don't have a true answer to all this, at least from my readings so far. 

However, my belief is that the more complex a trading system is (i.e. more degree of freedom), the less its ability to withstand changes to the market. My another belief is that if a trading system works in the past, it does not necessary mean it will continue to do so in the future. 

The best thing you can do to minimise the chance of that happening is by designing the system so it is conceptually simple so it can be applied to all kind of markets, and that it has the ability to produce consistant profit through forward testing. This is, in my opinion, would produce a system that has a higher probability of withstanding all the "uncertain" changes in the future and can still be profitable without further major intervention. 



tech/a said:


> Nizar.
> 
> 3 things here.
> 
> ...




Spot on here, I agree. Unfortunately, there are still too many people chasing that "get rich quick" idea because they have the mindset that if somebody can do it, why can't I? 

Dr Tharp did mention that even though he believed trading can be taught to everyone and that everyone has the "potential" to make money consistently in the market, not everybody can do it because they all have different mindset on how to do things. It is usually difficult, if not impossible, to change their core beliefs because they are the same beliefs that they have developed through their experiences in life. 



nizar said:


> Can,
> 
> Look at Stevo's blog, that guy is a legend, his weekly systems REALLY COLLECT!
> 
> Also - have a look at Nicks forum (ReefCap) as there is extensive discussion of systems trading, design, and development. And tech/a's techTrader system as well.




Can someone post me a link to this Stevo's blog? Can't seem to find it. Thanks.


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## nizar (10 April 2007)

Temjin said:


> My understanding is that if you over-optimised a system via historic data only, you will only get a system that will tell you how to trade to produce the most profit only during those past period. There is no guarantee that the system will exhibit the same type of performance if being traded in the future and thus, one of the best practices out there to system optimisation is to use forward testing over many different uncorrelated markets.
> 
> What I meant by forward testing is to optimise your system, for example, the period from 1995 to 2000, then test the system from 2001 to present. (again, FOR EXAMPLE ONLY!) If the system provide you with a consistent positive expectency and trading opportunities that you desire, and that you can meet your own objective by trading an appropriate position size that produces a "theoretical" drawdown that you can tolerate, then you will have a very solid system.




Solid post.
Thanks.


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## Nick Radge (10 April 2007)

> if you have a long term trend following system, what happens when the market is not in trend?




This is the type of comment where I believe people fail in trading. To undertake a journey, any journey - including trading, you need to understand what will lay ahead of you. If you understand what will lay ahead and you then *accept* those issues, then you will be one large step toward being profitable. Problem is that rarely do people understand what will lay ahead, so when things get a little tough they drop the method/system and go looking elsewhere. This I call the "beginners cycle". Always looking for something better rather than travelling the journey in full. 

This is where backtesting is crucial or understanding why a method will work. Rather than look at the end result, look at how that result came about and what that journey entailed. A long term trend following system will have prolonged flat periods when bearish conditions prevail. That is part & parcel of the journey. If you are unwilling to accept those flat periods, then there is no point trading a trend following system. 

Think of trend following like driving from Sydney to Brisbane. You know its going to take 12-hours. You know its going to involve several rest stops. You know its going to involve possible detours or delays due to roadworks or traffic. You know you may even get lost or need to take an overnight stop if you get tired. Yet, you accept these factors before leaving and as a result you make the journey successfully. Trading _should_ no different Understand what a system entails first, then decide whether it suits you, then trade it. Unfortunetaly most people just look at the end result without knowing how they intend to get there.

Take a look at the following equity curve and tell me if you'd like it? I have no doubt most will. It represents a system with a 50% win rate and a win/loss ratio of 3:1, very similar to a trend following system.






Here is the same system - exactly the same, yet it shows just a small part of the journey. After 17 trades its breakeven. Most people would throw in the towel and go looking for something else once this has occurred







If one was unwilling to accept equity curve 2, then they will never achieve equity curve 1.


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## ezyTrader (10 April 2007)

Hi Nick, in your opinion then, would you encourage beginners to participate in a couple of different systems? ie. A long term trend following, and a shorter term?


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## Nick Radge (10 April 2007)

ezyTrader,
Yes, I'd highly encourage a new trader to pursue trend following to some degree. I moved to longer term trend following in futures back in 1999. It really works a lot more in ones favour, such as:

Less comm's
Less costs
Less work
Less anxiety
Better tax efficiency
Benefits from dividends

From a short term trading perspective, all these work against you, rather than for you.


Nick


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## CanOz (10 April 2007)

Nick Radge said:


> This is the type of comment where I believe people fail in trading. To undertake a journey, any journey - including trading, you need to understand what will lay ahead of you. If you understand what will lay ahead and you then *accept* those issues, then you will be one large step toward being profitable. Problem is that rarely do people understand what will lay ahead, so when things get a little tough they drop the method/system and go looking elsewhere. This I call the "beginners cycle". Always looking for something better rather than travelling the journey in full.
> 
> This is where backtesting is crucial or understanding why a method will work. Rather than look at the end result, look at how that result came about and what that journey entailed. A long term trend following system will have prolonged flat periods when bearish conditions prevail. That is part & parcel of the journey. If you are unwilling to accept those flat periods, then there is no point trading a trend following system.
> 
> ...




Thanks Nick. I guess what i was wondering is, what if the bearish period were to last a decade, a sideways move, how could a trend following system outperform a swing trading system?

Cheers,


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## nizar (10 April 2007)

CanOz said:


> Thanks Nick. I guess what i was wondering is, what if the bearish period were to last a decade, a sideways move, how could a trend following system outperform a swing trading system?
> 
> Cheers,




The last bearish period was the 70s bear.
Design both systems and test them during this period.

Trading is all about probabilities - how likely is a bearish period to happen and last 10 years?

What i would do is simple;
Design a system based on data which is still significant to market conditions which the system in forward trading is likely to experience (post-1992 for ASX because the introduction of compulsory super gives an upwards bias to the market ever since it was introduced in July 1992, and thus data before this is no longer relevant due to the change in market dynamics) and then trade it.
You would know the max/min/average drawdown, max/min/average returns, largest string of losses, etc. When your trading results fall outside the parameters expected from the backtest results, then your system is no longer worth trading.

Then its back to tha drawing board.

Nick and others feel free to add please and correct.


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## Temjin (10 April 2007)

ezyTrader said:


> Hi Nick, in your opinion then, would you encourage beginners to participate in a couple of different systems? ie. A long term trend following, and a shorter term?




I agree that everyone should design a couple of different systems that is valid to the current "big picture" of the market in which they are trading in.

If the market is in a trend, then trade it with a trend following system, whether it's longer or shorter term. 

If the market is not trending with alot of volatility involved, trade it with a system that could capture and profit consistently from these short trending moves. (i.e short term swing trading, etc) 

Both systems can be optimised and back tested in a time period that is appropriate for them. And when you can identify the market is in a mode that is more suitable for a particular system, then consider switching to adopt to it. (and more importantly, have confidence and discipline to follow it)


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## CanOz (10 April 2007)

nizar said:


> The last bearish period was the 70s bear.
> Design both systems and test them during this period.
> 
> Trading is all about probabilities - how likely is a bearish period to happen and last 10 years?
> ...




I guess your right Nizar, i should just pull my finger out and develop a system and test it. 

Cheers,


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## CanOz (10 April 2007)

Do we have a thread on the 'how to' develop a trading system, specifically how to design a system's buy and sell signals ( not looking at the money mgt. side just yet), where to start etc.? I've been playing around with EMAs, WMA, and MA's, but i feel there must be alot more to it. 

Cheers,


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## CanOz (10 April 2007)

CanOz said:


> Do we have a thread on the 'how to' develop a trading system, specifically how to design a system's buy and sell signals ( not looking at the money mgt. side just yet), where to start etc.? I've been playing around with EMAs, WMA, and MA's, but i feel there must be alot more to it.
> 
> Cheers,




Got it.

Cheers,


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## nizar (10 April 2007)

Temjin said:


> My understanding is that if you over-optimised a system via historic data only, you will only get a system that will tell you how to trade to produce the most profit only during those past period. There is no guarantee that the system will exhibit the same type of performance if being traded in the future and thus, one of the best practices out there to system optimisation is to use forward testing over many different uncorrelated markets.
> 
> What I meant by forward testing is to optimise your system, for example, the period from 1995 to 2000, then test the system from 2001 to present. (again, FOR EXAMPLE ONLY!)




Though i didnt get it initially, now i understand your strategy to avoid curve-fitting.


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## Synergy (10 April 2007)

Has anyone developed a system without using a purpose made program and used something like Excel and started from scratch?

I'm playing around with Excel and seeing what sort of system i can come up with. Only playing at this stage though.

Cheers


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## nizar (10 April 2007)

Synergy said:


> Has anyone developed a system without using a purpose made program and used something like Excel and started from scratch?
> 
> I'm playing around with Excel and seeing what sort of system i can come up with. Only playing at this stage though.
> 
> Cheers




Synergy
Where are you getting your data from?


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## ozymick (10 April 2007)

Hi all!

Anyone using IC Investor?

If so please some feedback.

thanks

Michael


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## Synergy (10 April 2007)

nizar said:


> Synergy
> Where are you getting your data from?




Just playing at the moment so I'm just downloading stuff from comsec...
So I dont have very much data.


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## tech/a (10 April 2007)

Synergy.

Yes.
I believe Radge has.
There is no reason why not.
Only limitation is your skill.

Which when it comes to Excel---I'm hopeless.


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## CanOz (10 April 2007)

Ok, well i've just purchsed AmiBroker. Luckily i my GF has some programming experience. If the penny drops with the logic, we will be on our way to building a system to test within the year! lol!

Cheers and thanks for all the posts.


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