Developing a mechanical system from scratch

[CanOz]

I thought it would be interesting to develop a mechanical trading system from scratch with some of the members on ASF.

Maybe this has been tried before here, not sure. I know that it has been done a few times on ReefCap, with some obvious results, mostly positive from what i can gather.

I know very little about mechanical systems, but i am very keen to learn more about them and develop and test several of my own for application one day.

So if your interested, then drop by and add your "2 bob" as we proceed through the development stages.

How about a few ground rules:

1.) There are no such things as stupid questions or suggestions, lets brain storm this together.

2.) If you have 'been there, done that' then please let us work through some of the issues so we get a feel of ownership. Maybe a few hints now and then would be good too.

3.) Those more experienced at this are most welcomed to provide thier guidence and constructive criticsm for us, without you we cannot learn.

4.) Keep in mind we all have different software, lets try to be as generic as possible when talking about code. If you post code then at least label it for us code dummies.

Lets try to agree on the plan for the project first.

As Tech suggested to me, we could go like this to start with:


Instrument/Universe
Time Frame

Anyone to start things off?

Cheers,

 

[tech/a]

Timeframe first are we talking intraday or EOD or Weekly.

The longer the timeframe the easier it is to design a profitable system.
Are we looking to hold a few days,weeks,months,years?

Then Long or Short or BOTH?
Portfolio or a single entity?
Single entity systems are easier to design than portfolios.
(This is your universe).

Next capital base.
how much are you going to trade with.
Leveraged or not? This will have a huge bearing when we analyse drawdown.

May I suggest you keep this as simple as possible.Ive been involved with this type of thing before and it can get so messy you get no where.

If people code it up in Metastock format then I'm happy to run it through Tradesim Metastock to feed back the NUMBERS.

That should keep you all busy for a while.

 

[doctorj]

Good idea. Should be something in this for everyone.

I think it should be a long-only system that is atleast EOD if not longer as its easier to trade. I also think that it should trade a portfolio because it'll be tough for many people to trade a public system on a single instrument.

I'd also like to see it leveraged, but that's just my preference.

 

[doctorj]

Or alternatively, what about an intraday or short term long/short index system using cfds. That way liquidity shouldn't be a problem.

I think there is a lot of material around about developing techtrader-like systems (med-long term, long only, stocks etc etc), it'd be more productive to cover some ground not already covered here at ASF.

 

[wayneL]

Good idea. Should be something in this for everyone.

I think it should be a long-only system that is atleast EOD if not longer as its easier to trade. I also think that it should trade a portfolio because it'll be tough for many people to trade a public system on a single instrument.

I'd also like to see it leveraged, but that's just my preference.

Agree.

As most people work. It should be tradeable by someone who cannot continuously monitor the market.

For reasons I won't go into, I prefer a medium term system (which in practice means trailing stops not so freakin wide), but that's just me. What are other thoughts on time horizon?

 

[CanOz]

I like EOD, & i'd like to see a swing system, but i'll go with the flow on this.

Can we look at doing this with CFD's, that would take care of the leverage right? If we didn't have to worry about shorts then it would expand the universe somewhat.

Cheers,

 

[BREND]

According to academics, the success rate of system trading is far greater than discretionary trading.

First find a system, back-test it, if it not accurate, amend again, back-test it again until it becomes a profitable system.

I use system trading model when I look at copper and zinc, and it works most of the time.

 

[CanOz]

According to academics, the success rate of system trading is far greater than discretionary trading.

First find a system, back-test it, if it not accurate, amend again, back-test it again until it becomes a profitable system.

I use system trading model when I look at copper and zinc, and it works most of the time.

I'd love to try and do a futures system with CFD's...but another time maybe.

Cheers,

 

[wayneL]

& i'd like to see a swing system,

FWIW

I think swing systems are better when able to monitor intra day... or at least have a broker with buy stops, so you can stop into signals when not monitoring.

In fact, I like to think of swing trading as trend trading on lower time frame bars. ie trend trading 15m 30m or 1hr bars and this is how I approach it. I do however reference to the daily patten first, then drop down the time frame.

 

[wayneL]

According to academics, the success rate of system trading is far greater than discretionary trading.

First find a system, back-test it, if it not accurate, amend again, back-test it again until it becomes a profitable system.

I use system trading model when I look at copper and zinc, and it works most of the time.

Brend,

There has been confusion before as to what "discretionary" trading is.

For instance there may be a trader who has a definite rule based method, but will use discretion on which entry signals to take based on extraneous factors. (While NEVER using discretion on exits). The extraneous factors could range from gut feel, fundamentals, BB sentiment, visual filter etc.

This is opposed to traders who enter and exit on a pure discretion.

What are your academics refering to particularly in this regard?

 

[CanOz]

FWIW

I think swing systems are better when able to monitor intra day... or at least have a broker with buy stops, so you can stop into signals when not monitoring.

In fact, I like to think of swing trading as trend trading on lower time frame bars. ie trend trading 15m 30m or 1hr bars and this is how I approach it. I do however reference to the daily patten first, then drop down the time frame.

Well i'm easy on this, whatever is easiest to trade EOD really. As stated many including myself haven't the time, or the reliable connectivity to watch intraday.

Cheers,

 

[Captain_Chaza]

Well i'm easy on this, whatever is easiest to trade EOD really. As stated many including myself haven't the time, or the reliable connectivity to watch intraday.

Cheers,

From my experience
The EOD trader will always beat the Intra-day trader each and every Financial year
If the skipper is then also allowed to place a few well-thought-out intra-day contingeccy orders based on burning some midnight oil
You will see an absolute Massacre /Blood-Bath that can only be enjoyed and witnessed to the fullest when at sea and too far off-shore to hear those screaming landlubbers' excuses and tall stories!

Salute and Gods speed

 

[wayneL]

From my experience
The EOD trader will always beat the Intra-day trader each and every Financial year

Can you please back that assertion up with verifiable figures?

Because with the range of mitigating factors, I don't think anyone can say that with absolute certainty.

 

[Captain_Chaza]

Can you please back that assertion up with verifiable figures?

Because with the range of mitigating factors, I don't think anyone can say that with absolute certainty.

I feel I can because I have tried both styles of tacking over more than 3 decades

Maybe you should put it to a poll and judge for yourself how futile it is to be an Intra-day adventurer over the only time frame that is important
ie One financial year

Salute and Gods speed

 

[Nick Radge]

Happy to add my 2c worth here if people take a genuine interest. A system, in my opinion, takes two shapes; systematic and mechanical. A systematic system is one that has a defined set of rules that are followed, but which may not be programmed into a computer. A system trader is not a discretionary trader although an argument could be made on a sub-conscious/conscious level. A mechanical is one that can be programmed into a computer which I think is what is being alluded to here.

I don't agree with intra day being worse than inter day. Afterall, when one finds a positive edge one should explot it to the maximum. A casino opens for 24-hours for a reason - so they can exploit their edge to the maximum. Trade frequency is an important element of profitability, but trade frequency doesn't mean sitting glued to a screen all day. Trade ferqeuncy on an EOD basis also means finding a system that works across numerous instruments in numerous markets, even on an EOD basis. A robust short term system trading Australian stocks should be able to trade the same in UK and US stocks. Just follow around the world.

 

[BREND]

Brend,

There has been confusion before as to what "discretionary" trading is.

For instance there may be a trader who has a definite rule based method, but will use discretion on which entry signals to take based on extraneous factors. (While NEVER using discretion on exits). The extraneous factors could range from gut feel, fundamentals, BB sentiment, visual filter etc.

This is opposed to traders who enter and exit on a pure discretion.

What are your academics refering to particularly in this regard?

For discretionary trader, I'm referring to those who does not have a trading system which they rely on.

Have you read a book call "Rules of the Turtles"? The academic part is found in this book. They are a group of traders who rely on system trading on their futures trades.

 

[wayneL]

I feel I can because I have tried both styles of tacking over more than 3 decades

Maybe you should put it to a poll and judge for yourself how futile it is to be an Intra-day adventurer over the only time frame that is important
ie One financial year

Salute and Gods speed

Personally, I find an edge intraday, but readily recognize that others may not. There are a few factors which are pertinent whether one does or doesn't.

I think Nick has answered the question sufficiently to put this argument to rest.

 

[Captain_Chaza]

Personally, I find an edge intraday, but readily recognize that others may not. There are a few factors which are pertinent whether one does or doesn't.

I think Nick has answered the question sufficiently to put this argument to rest.

Sorry I can't see how Nick has put the Intra_day V EOD to rest
If Anything he has thrown it into complete Chaos suggesting that ONE can or should trade 3 -4 markets at any one time 24 hours a day
This is Madness and Lunacy if you ask me?

I find that my EDGE is that I put the hard yards well before the ASX opens
I wake up the birds and prepare for each day
I set my "open " orders and a few continency orders

"The Wind Calls the Tune " and I go off and play some golf and freshen up for another day at sea on the ASX in the morrow

Only this form of sailing gives you the stamina and technique to last out any year and then year on and year out

The downfall of course is you must love waking up the birds
I enjoy it and it is truly wonderful to stidy the Global Exchange when she stands still for only a few moments

That is my edge!

How anyone could do the necessary preparations for 3 time zones is beyond me and I congratulate anyone who says they can

Salute and Gods speed
PS I do some Intra-day trading when the weather outside is miserable but play the market more like a the pokies /Casino with small funds

I never invest real funds on an Intra-day whim!

 

[CanOz]

Personally, I find an edge intraday, but readily recognize that others may not. There are a few factors which are pertinent whether one does or doesn't.

I think Nick has answered the question sufficiently to put this argument to rest.

So do we all think that EOD would be the best for a mechanical system?

Also, thanks Nick, for your input as well, i'm sure everyone would be very appreciative of your comments here anytime.

So EOD...

What about CFD's, as Wayne has brought up before there is the issue of counter party risk, could this be an issue?

Are we better to just look at margin on stocks?

Cheers,

 

[nizar]

Nick, thanks for your contribution. Highly valued by me and many others, no doubt.

I, too, prefer EOD trading just as a lifestyle choice. ENd of day stops especially, will keep you in the trades longer.

A robust short term system trading Australian stocks should be able to trade the same in UK and US stocks. Just follow around the world.

Tend to agree with these comments. I have a family friend of mine who trades the aussie markets, Japanese, HK, and US markets. He told me: "The money is looking for you 24 hours a day. Dont just stay in this pond [referring to the ASX is a pond compared to the sea which is the rest of the world]".

As for these comments from Captn:

If Anything he has thrown it into complete Chaos suggesting that ONE can or should trade 3 -4 markets at any one time 24 hours a day
This is Madness and Lunacy if you ask me?

Maybe madness and lunacy to you???
Maybe because YOU cannot do not assume the same for others.