Did you suffer before doing well or vice versa?

[IFocus]

As happens with so many other threads, it appears this has turned into a mech vs non-mech traders.

Why does it matter??

Some people dont backtest, it does not mean they are not successful or that their system does not work.

I would argue that fundamental analysis cannot be backtested, or can only be done so through research, not a mechanical system.

I think people need to realise there is more than one way to invest in the market, and as a generalisation it seems funny how many mech traders think that their way is the one and only and that everyone should develop a mechanical system.

Hi Prawn

Back testing and walk forward testing can be done for all trading methods IMHO.

Its just that mechanical can be coded where as discretionary is a manual process. I haven't done it but I suspect fundamental can be too.

I have heard the argument that you can not test discretionary methods because people cheat, or the brain only sees what it wants to see etc this is not testing.

 

[blaster]

Im by no means a genius, but thanks for the wrap!

Good luck with the kids! :jerry

In all seriousness, I still see no sound trading methodology explained, so its really hard to help. But all the best!

Hey I really like that little cartoon by the way, mind if I borrow it?

Cheers

 

[chops_a_must]

Would you like to offer an example of a strategy that could not be backtested adequately?

A truly scalping method. Taking a few points here and there on futures, with only the market depth to look at.

 

[Trembling Hand]

A truly scalping method. Taking a few points here and there on futures, with only the market depth to look at.

Yeah I would have to agree. I can make 10 or 20 trades without looking at a chart. Not sure how you could back test that. Not with conventional back testing anyway.

Just on trading plans I have seen successful traders (that is make a living solely from the markets for many years) on a trading plan that consisted of nothing more than this.

A maximum stop loss for the day.
A rough stop amount for each trade.
A loose time of days when they trade (not during lunch)
A couple of trading patterns that did not show up that often to explain their trade frequency.

So with years of trading and 10 to 200 trades per day their profitability could not be put down to either luck, market conditions or superior trading plan. It could only be skill. How do you test that?

 

[tech/a]

How do you test that?

Like every other discretionary theory or hypothesis,by trading it.

There are people who already know what is likely to work and what is not.
Radge is one.
Jose Silva another.
Looks like TH
Myself and quite possibly a few more here.
Some may not know why they are profitable.

I would suggest that more than likely they have learnt from expensive trial and error.
OR
They have a grounding in Backtesting and know the structure required to gain positive expectancy.

The larger majority who trade in a discretionary manner however would be in a work in progress format and have no idea the final out come of prolonged trading using their "Plan"---which I hasten to add is likely to change each time there is a few losses.

 

[Trembling Hand]

Like every other discretionary theory or hypothesis,by trading it.

Yes and those that deviate from their trading "plan" are getting a HUGE signal.

You have no confidence in your plan because your plan doesn't work.

Its like getting a road map on how to get from point A to point B.
Why would someone who has a map (trading plan) turn left (so called emotional trade) when the map calls for a right turn(taking a small loss) or no turn(no trade)?
I can come up with only three reasons.
1. they are mad, stupid or deluded
2. they are looking for entertainment because they are bored.
3. they have no confidence in the map because they know that they have no results or that the results are from luck. ie their map is wrong.

Maybe there is others but I think the main reason people make bad trades is that they have no proof that what they do is the right thing but are unable to admit it. Therefore its easier to bring out some old gem or market cliche to explain away their poor results and keep the dream alive.

 

[wayneL]

Not at all-- you've missed the point this thread has become about validation of a trading method/plan.



Absolutely correct,what it does mean is they wont know that their plan is profitable until sometime down the track.They are trading ideas not a proven plan with all the hallmarks of a plan that can be profitable.

How do you validate EW or Wycoff and its derivatives?

Your promotions of these methods seem to be at odds with your statements regarding backtesting and mechanical trading.

Are you tacitly admitting that a rule based discretionary trader can see a positive expectancy trade when he sees one, contrary to your dogmatic assertions of a few years ago?

Oops! Nope, you've come right out and explicitly stated it in post #85

Cheers

 

[motorway]

How do you validate EW or Wyckoff and its derivatives

Key point is that while you can back test what should make a horse a favorite..

That is only dealing with appearances...

The form is always ahead or behind the punter because of..
Everyone trying to manipulate this appearance for profit..
( even the Horse )
Eg a horse runs dead,,,It makes a negative appearance

Another runs hard ...

The public are always on the beaten favorite ( obvious )

Wyckoff distinguished between character and appearance
Appearance can be negative
While making a positive statement ( a down move could be accumulation )

appearance can be back tested made mechanical

eg just bet on the biggest. strongest, fastest based on past form

But that is just appearances

So the public are on the beaten favorites.

You can only judge character not back test for it

It goes down to go up this time
next time it goes up to go up ( An up move is accumulation )

what happens on the next bar is important until it changes to the third bar
being important

Wyckoff distinguished

between

mechanical methods ( pure appearance )
discretionary ( pure appearances of appearances )

And Judgemental... principles observed that proscribe

no discretion no mechanical
just the way of least resistance
through busy traffic..
false moves, manipulation ever changing cycles...

Demand and Supply and nothing else...

No appearances .. They are artifacts

Character

Yes singers use microphones
but people using microphones need not be singers

stocks breakout on buy signals
but all "buy signals" do not lead to breakouts

You can only back test appearance and see if that appearance
in any way correlates to some reality at some time in the past..

And then the "interests" will make sure you are on the beaten favourite
The interests are both everyone and someone..

Crowd behavior and "them" ....

Jockeys, Owners , Trainers & the public

Eemergent behavior

All interacting .... .... That is why there is bear and bull

Three Wyckoff Questions
What.........it goes down
How........... Price Volume Time
WHY....... Accumulation or distribution

Identify principles that proscribe

act..........NO DISCRETION

Character is of the present not the past
A singer is only one who can sing NOW

The fact they are reputed to have sung well in the past is only appearance as far as NOW is concerned

It is the subsequent action that matters

motorway

 

[MRC & Co]

Maybe there is others but I think the main reason people make bad trades is that they have no proof that what they do is the right thing but are unable to admit it. Therefore its easier to bring out some old gem or market cliche to explain away their poor results and keep the dream alive.

I gather this is another point of insinuation.

Can I ask, why have so many hedge funds taken ENORMOUS hits lately?

With their "prooven" mechanical trading systems?

Volatility at the moment is out of the stratosphere, I also know 3 professional discretional traders who are loosing at the moment, due to volatility and out and out change to market dynamics (many momentum chart patterns are not working at the moment, including simple out of the ordinary big up moves accross all indicies followed by subsequent up-days, of which 70-80% of the time by research I have read (back-tested ) is evident.

Gil blake' research on mutual funds found that if a daily price change was greater than the average daily price change over the past 7 days I beleive, it had a 70-82% chance of following through the next trading day in the same direction (look up the research yourself if you want). This observation, where extreme price moves in the DOW, S&P, NASDAQ 100 and Russell 2000, are evident, also stands correct.

To the contrary lately.

I will challenge anyone right now with their positive expectancy in this market, to post your trading statements to the forum, for those who claim they are making good profits at this time with their methods. I gather some can, but I BET MANY will not do it!

Also, if you are making good profits, what are the methods you are using and what is your system based upon?

Wonder how many with their systems will see their maximum drawdown reached before they realise their system is invalid in this environment. Just as how many will change a winning trading style because quote:

"1. they are mad, stupid or deluded
2. they are looking for entertainment because they are bored.
3. they have no confidence in the map because they know that they have no results or that the results are from luck. ie their map is wrong".

It works both ways.

As far as what I beleive works at the moment and what I will mainly be trading, I agree with Chops. Quote "Mechanical testing and trading, for me, is a complex way of developing a statistical/ probable/expectational bias for trading.

But until then, it will remain simple. Continue to trade breakdowns in this market, and breakouts if we go flat to up. And gaps throughout".

 

[tech/a]

Are you tacitly admitting that a rule based discretionary trader can see a positive expectancy trade when he sees one, contrary to your dogmatic assertions of a few years ago?

I'll elaborate a bit further on your observation.

Everyone who places a trade has an initial expectancy of profit.
Few know how to best setup a trade for the best chance of returning a positive expectancy.
Even fewer have any idea of how to guage or design a trading plan with positive expectancy.

The singular preparation of any trade to return a positive expectancy is a far cry to completing many many trades and returning a positive expectancy.

Also, if you are making good profits, what are the methods you are using and what is your system based upon?

There are places where you can see this in action.
You of course have to pay to be a member.
There you'll also learn how what Ive been ratting on about is so important.
You to can take the exact trades and gain the same return---which currently is 69% profit since 7/1/08
You can also learn how to follow the exact same methodology rules to mirror similar returns.

PM me if you wish for details.

 

[nioka]

Another angle on trading to contemplate.
When traders operating from charts dominate the trading scene then the buying and selling will follow the charts because a buy signal will be followed by a lot of buying that will increase the price and "prove" that the chart was right. The same will apply for sell signals.
However, in times like now, when other factors are dominating the scene, past history, charts, foolproof plans etc aren't worth the proverbial @$#@$%. The only help they may be is to help second guess the next days trading. Try and guess what the market manipulators are going to do next will be a more reliable plan to follow.

 

[Wysiwyg]

I'll elaborate a bit further on your observation.

Everyone who places a trade has an initial expectancy of profit.
Few know how to best setup a trade for the best chance of returning a positive expectancy.
Even fewer have any idea of how to guage or design a trading plan with positive expectancy.

The singular preparation of any trade to return a positive expectancy is a far cry to completing many many trades and returning a positive expectancy.

I think expecting is flawed.Time and again traders say they expect the price to do such and such.Ones expectancy doesn`t move the price in ones favour.
Que sera, sera.

Yes, in preparation of a trade it is advantageous to have a positive outlook.

 

[Trembling Hand]

I gather this is another point of insinuation.

Can I ask, why have so many hedge funds taken ENORMOUS hits lately?

Simple, because their trading plan is quiet evidently not profitable in changed market conditions. But that wasn't my point. If you can have a 65% draw down as the market changes, like the punter that started this thread, you trading plan is obviously wrong. And as the errors start popping up you know that your plan isn't worth the paper it isn't written on and then start deviating from that plan(so called emotional trades).

Why else would someone trade outside a plan they know is profitable?

 

[Mike Trader]

hi ,i got caught in in the '97 into 98 "crash"trading futures,yes a big loss or losses stops you thinking straight.If you need the money it may force you to take marginal trades in desperation.First thing I would do is to stop trading.The hard lesson I learned was to always protect yourself,always look at downside risk and minimise your losses,and always expect the worst from a trade,look after that side of it and profits can look after themselves.i would check your method by paper trading the current market-to see if the system still works,or when it starts working again-but don't throw any more real money at it,until you can prove to yourself you can make money again.Take it or leave it.But thats what I've learnt through being knocked out pretty heavily.Mike

 

[MRC & Co]

There are places where you can see this in action.
You of course have to pay to be a member.
There you'll also learn how what Ive been ratting on about is so important.
You to can take the exact trades and gain the same return---which currently is 69% profit since 7/1/08
You can also learn how to follow the exact same methodology rules to mirror similar returns.

PM me if you wish for details.

Yes, at the chartist.com.au?

Which I am going to sign up to, in order to learn EW by example. I already briefly talked to Nick about this, however, stating I wanted to use his analysis along with my own, to trade, so selectively choosing what I see as the highest probability and R:R trades. He stated this is genearlly where the best results are seen.

Cheers

 

[MRC & Co]

Simple, because their trading plan is quiet evidently not profitable in changed market conditions. But that wasn't my point. If you can have a 65% draw down as the market changes, like the punter that started this thread, you trading plan is obviously wrong. And as the errors start popping up you know that your plan isn't worth the paper it isn't written on and then start deviating from that plan(so called emotional trades).

Why else would someone trade outside a plan they know is profitable?

I agree.

However, at what point (how much % drawdown), does the mech trader know his trading plan is not profitable and tweak it? Its the same for a discretionary trader. Wait for a larger % drawdown to ensure your plan is now invalid, you are now "sure" but you have lost a large % of your capital base. Change it following a smaller drawdown, you are not quiet as "sure" but you use your intuition and minimise potential drawdown on the current plan.

This is why I beleive its important to backtest, to gain a statistical/probable positive bias, but why I also beleive plans become unprofitable VERY QUICKLY (in this current environment), and as to why some are forward testing various methods.

Very few plans would currently be profitable, hence the current havoc in both the retail and instituational investment worlds.

 

[peter2]

Skillful traders recognise when the market conditions change because they are closely monitoring their results and the market. They have a range of strategies that work in different market conditions so it is very easy to switch to a system that is suited to the market. Prior research and backtesting of many systems means that they are not guessing which strategy will be better.

Stating that very few plans would currently be profitable is ignoring the fact that many plans that were unprofitable in the bull market are profitable in this bear market.

We retail traders must be flexible and be able to adapt in an ever changing business. Recognising the time to change is crucial to our survival. I will not wait for a signal like losing >25% of my capital in order to change.

This flexibility is our huge advantage over the funds that must invest according to their constitution (charter). Don't limit your imagination and accept that losing is OK because most people are losing. There are an unlimited number of opportunities each day for a trader who is prepared.

 

[Trembling Hand]

:iagree:

 

[IFocus]

A couple of charts of the XAO 1st starts late 2006 2nd current time.

1st is a guru maker the 2nd guru breaker. No drawn down in the account required to see some thing has changed.

I guess if its your 1st bear market then you could / will get sucked in, easily done but as a discretionary trader the 1st question I ask every day is what sort of market am I trading.

 

[MRC & Co]

I agree somewhat Peter.

Hence as I stated above, downward breakdowns are more reliable than upward breakouts.

Skillful traders are so due to experience and their intuition, picking up nuance's which others may miss or take more time to observe, including changing market dynamics.

I am the first to admit (some here enjoy willy waving too much to admit), I am years away from this kind of experience and intution yet. It takes a LONG time to gain this, not just a few years in the market, at least thats my theory and observation from studying actual successful traders.