Did you suffer before doing well or vice versa?

[chops_a_must]

Not sure what you mean by "truly", but I'm actually in the middle of backtesting a scalping method myself.

Based on tick charts though, not the market depth.

If you read TH's posts, you would see why it can't be backtested, and why charts can't be used.

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.

I'd say there are other reasons. If your trading has unintended consequences, like not being able to sleep, regardless of position size and success. If the markets you need to trade are messing with your ordinary life. But this is probably got more to do with what I said with matching trading plans with your own personality. Not sure if can know this fully until you start doing it however...

I cannot figure out how you went from my statement of
"you KNOW in advance when the strategy will be declared not to be working any longer"
to
"unless you believe that markets are inherently predictable by way of analysing historical data, in which case, every system once profitable will always remain profitable"

Such a belief system would be illogical, irrational and ultimately lead to blowing up. All backtesting does is show you what worked in the past and give you some idea of how it worked in the past. As such, it is an invaluable tool - if it has never worked in the past, then it is not likely to suddenly start working tomorrow. It is also able to provide you some indication of when you should say "enough - this system is not performing to expectation".

But just because it's not performing to expectation, doesn't mean it isn't working. You simply just cannot know in avance when/ if a system will stop working, regardless of its performance. In my mind anyway.

Efficient market hypothesis may suggest that something not working in the past, may well have the possibility of working in the future...

Same thing I've been trying to get through to tech, find out the origin of the word "expectation", and a lot of this will make sense.

However, I have not yet come across a strategy that cannot be backtested and walk-forward tested adequately - it may be very time consuming and labour intensive to examine some edges, but they can be tested if you really want to.

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

I doubt you could backtest options strategies adequately as well. Especially, those with a writing bias. One couldn't deny that even a conservative strategy has a great chance of increasing income, but because of volatility, the effect on the premiums, I doubt you could ever really test that. You could only test the underlying strategies you would then trade options on, but that is no guarantee you can make money from the options trades based on it.

dogmatic

I think you've described mechanical traders rather accurately in one word.

Cheers.

 

[MichaelD]

But just because it's not performing to expectation, doesn't mean it isn't working. You simply just cannot know in avance when/ if a system will stop working, regardless of its performance. In my mind anyway.

Efficient market hypothesis may suggest that something not working in the past, may well have the possibility of working in the future...

I'm sorry, but I simply find these statements outrageous.

When does one accept that a strategy is not working? When you blow up? It's a bit late then.

 

[theasxgorilla]

I think you've described mechanical traders rather accurately in one word.

I prefer efficient but as the saying goes, if the shoe fits...

 

[nizar]

I think you've described mechanical traders rather accurately in one word.

Maybe you should read the book Market Wizards.
It describes mechanical traders in many words

 

[AMR]

TH, then how would you know if a discretionary system has an edge? Simply thru practice?

 

[Trembling Hand]

TH, then how would you know if a discretionary system has an edge? Simply thru practice?

Not sure what comment of mine this question is related to but..

Well yes. The problem of course is the sample size and data you are trading. As a few have found out even 4 years of bull markets trading isn't sufficient to answer the question 'have you a trading edge'.

And I guess if you can afford to be patient you don't have to have an edge in all markets just recognize when you edge has disappeared is probably more important (capital preservation).

 

[chops_a_must]

Maybe you should read the book Market Wizards.
It describes mechanical traders in many words

I have read it.

Obviously not all mechanical traders are dogmatic, but certainly most appear to be on these boards.

I'm sorry, but I simply find these statements outrageous.

When does one accept that a strategy is not working? When you blow up? It's a bit late then.

Nice... we went from system to strategy in one sentence... nice obfuscation.

 

[MichaelD]

Nice... we went from system to strategy in one sentence... nice obfuscation.

And this contribution advances the discussion somehow?

When I design a system I have a defined endpoint at which I decide the system is no longer working as I thought it would - I define the maximum amount of my trading capital the system will be allowed to lose and that maximum is set at a point where recovery is not problematic.

At what point do you accept that a trading method is no longer working? 10% drawdown, 30% drawdown, 50% drawdown, 65% drawdown, 100% drawdown?

Going full circle back to the initial poster, they are at 65% peak-to-trough drawdown and have now just realized there is a problem. Recovery from such a major drawdown is difficult on many, many levels, especially if it comes as a surprise.

 

[It's Snake Pliskin]

When I design a system I have a defined endpoint at which I decide the system is no longer working as I thought it would - I define the maximum amount of my trading capital the system will be allowed to lose and that maximum is set at a point where recovery is not problematic.

At what point do you accept that a trading method is no longer working? 10% drawdown, 30% drawdown, 50% drawdown, 65% drawdown, 100% drawdown?

Going full circle back to the initial poster, they are at 65% peak-to-trough drawdown and have now just realized there is a problem. Recovery from such a major drawdown is difficult on many, many levels, especially if it comes as a surprise.

Michael,

You have raised a good question regarding what level they would allow for a drawdown to represent normal operation or failure.

65% in my mind is ridiculous. What needs to happen before the mind clicks and says "What the...?"

 

[MRC & Co]

What needs to happen before the mind clicks and says "What the...?"

Already been asked with no answer, amongst my dogmatic thoughts

 

[It's Snake Pliskin]

Already been asked with no answer, amongst my dogmatic thoughts

But if one really knew, or could see, feel it, then that question wouldn't need to be asked. Not only from a tested perspective but from an expertise perspective.

 

[Trembling Hand]

At what point do you accept that a trading method is no longer working? 10% drawdown, 30% drawdown, 50% drawdown, 65% drawdown, 100% drawdown?

You have raised a good question regarding what level they would allow for a drawdown to represent normal operation or failure.

Why wait for any drawdown. IMO every trade should be looked at as information as to the success of your plan. People are wasting very valuable information and daily feedback if you wait for a drawdown to issue a message.

At the end of every day or before I start a new day I review how my trading went, good or bad, and have something to work on for the next session.

The punter that started this thread has now got to the end and has no answers to what went wrong.

 

[MRC & Co]

But if one really knew, or could see, feel it, then that question wouldn't need to be asked. Not only from a tested perspective but from an expertise perspective.

Agreed, I dont get your angle. Maybe you should review my previous comments in their entirety.

 

[MRC & Co]

Why wait for any drawdown. IMO every trade should be looked at as information as to the success of your plan. People are wasting very valuable information and daily feedback if you wait for a drawdown to issue a message.

At the end of every day or before I start a new day I review how my trading went, good or bad, and have something to work on for the next session.

The punter that started this thread has now got to the end and has no answers to what went wrong.

I agree TH, however, doesn't this refute your left-right turn hypothesis?

 

[Trembling Hand]

I agree TH, however, doesn't this refute your left-right turn hypothesis?

No. Reviews are about improving mechanics not about hoping for something better. My plan is to continually weed out mistakes as I'm a discretionary trader. And improve what is working.

That has nothing to do with so called emotional trades or trades that don't fit into my plan like, holding past stop losses, hanging on to daytrades over night, taking to large a position etc etc.

 

[It's Snake Pliskin]

Agreed, I dont get your angle. Maybe you should review my previous comments in their entirety.

I have contributed to the discussion that seemed to be going nowhere. There is no angle just observation and comments.

TH,

Thanks for the comments from your perspective.

 

[MichaelD]

Why wait for any drawdown. IMO every trade should be looked at as information as to the success of your plan. People are wasting very valuable information and daily feedback if you wait for a drawdown to issue a message.

At the end of every day or before I start a new day I review how my trading went, good or bad, and have something to work on for the next session.

With 200-odd round trips a day you have a well-and-truly statistically significant sample of data on your trading methodology every day to work with, including intraday drawdown.

You would be wasting invaluable real-time information if you were NOT to examine this data frequently, but would you simply focus on one specific trade within your sample and modify your strategy? No, you look for consistent patterns in your intraday equity curve.

With other methodologies, it takes considerably more time to build up an equally statistically significant sample of trades you can use to feedback into improving your trading; long term trend following takes many years to complete 200 trades.

 

[chops_a_must]

And this contribution advances the discussion somehow?

When I design a system I have a defined endpoint at which I decide the system is no longer working as I thought it would - I define the maximum amount of my trading capital the system will be allowed to lose and that maximum is set at a point where recovery is not problematic.

At what point do you accept that a trading method is no longer working? 10% drawdown, 30% drawdown, 50% drawdown, 65% drawdown, 100% drawdown?

It was just a niggle in regards to you thumbing your nose at the laws of possibility.

Just because you have a pre-defined end point, does not mean the system no longer works, just that you think it is no longer working.

From a practical stand point, you have to have your own limits. But from a theoretical stand point, no-one ever has enough capital to test if a system works or not. If it is even slightly possible, it could happen.

Why wait for any drawdown. IMO every trade should be looked at as information as to the success of your plan. People are wasting very valuable information and daily feedback if you wait for a drawdown to issue a message.

At the end of every day or before I start a new day I review how my trading went, good or bad, and have something to work on for the next session.

Pretty much.

It's one of my gripes with mechanical traders. The premise being that to operate a mechanical system, it is at the limits of optimal performance for whatever reason, for the person operating it - otherwise they wouldn't be using it.

But to me, that is just complacency, because in the face of a large drawdown or what have you, the operator is not looking for a better way, a better system, until by some pre-determined notion, it is decided not to be working. And that goes against every notion I hold.

If you aren't constantly looking for a better way, what is anyone actually doing?

 

[MRC & Co]

No. Reviews are about improving mechanics not about hoping for something better. My plan is to continually weed out mistakes as I'm a discretionary trader. And improve what is working.

That has nothing to do with so called emotional trades or trades that don't fit into my plan like, holding past stop losses, hanging on to daytrades over night, taking to large a position etc etc.

Ok, I get you. Yes, I agree.

 

[Trembling Hand]

You would be wasting invaluable real-time information if you were NOT to examine this data frequently, but would you simply focus on one specific trade within your sample and modify your strategy? No, you look for consistent patterns in your intraday equity curve.

Yeah for sure, I agree. I think we are on the same point.

Somewhere in this thread confused I was talking about straying from the strategy. Tweaking mechanics and even subtle tactic changes to improve profitability is a world away from taking dumb trades.

Imagine how useless I would be as a system trader having to wait 200 days or more for some significant feed back. I bet I would start really messing up the system after about...... 2 days