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Saqeeb · 16 December 2019

@Skate Thank you for bringing up this subject of exits. Thanks to everyone for their valuable inputs.
This has been very timely for me when I was infact rethinking my exits.
I have been struggling to comes to terms with my exits that are purely based on momentum and a far away trailing stop to counter a sudden drop. I have been following my system religiously, which was started in early Sep this year, where I have seen some respectable gains disappear into a cloud of smoke. This clearly highlights the need to think and strategise exits.

That being said a few respectable members have pointed out in @Warr87 's thread how trend following systems may be in draw down during this period.

Nevertheless, exits are very important for profitablity.

Thanks again

Warr87 · 16 December 2019

While many experienced members here have been doing well, I'm not the only one to see profits disappear as the market goes sideways. Exits definitely make a difference (but market direction obviously helps systems as well). Been a lot of good info on exits !

willoneau · 17 December 2019

I trend trade and am in DD at this time and feel it may continue,
but I take my positions as they come up and follow my system to the letter having faith in it's expectancy.

Warr87 · 17 December 2019

willoneau said:
I trend trade and am in DD at this time and feel it may continue,
but I take my positions as they come up and follow my system to the letter having faith in it's expectancy.

Gotta trust the system. But being in a DD always makes you wonder what you can be doing better. I like systematic trading since I know my backtests have proven my edge (to some degree).

willoneau · 17 December 2019

Warr87 said:
Gotta trust the system. But being in a DD always makes you wonder what you can be doing better. I like systematic trading since I know my backtests have proven my edge (to some degree).

If you agree with probabilities, expectancy and random outcomes you will get streaks of losing trades and the only thing you can do is control risk and position size forget about tweaking system to try and evade those losing streaks.

Newt · 17 December 2019

Warr87 said:
Gotta trust the system. But being in a DD always makes you wonder what you can be doing better. I like systematic trading since I know my backtests have proven my edge (to some degree).

Sometimes being in a DD larger than expected forces you to confront the possibility you're not correctly trading the system (psychology, or mistakes). It may also give you the kick to try changes in your system (entry, exit, position sizing) BUT you then need to be even more careful than usual following robust coding, backtesting, live testing checks before possibly changing your code.

I've found some very useful improvements in my code and processes after identifying significant underperformance against other trend followers here on ASF, or listening to new ideas from podcasts etc. The vast majority of ideas and tweaks show no reliable/robut benefit, but that makes it even more valuable when/if you find a "nugent in the rough". The journey never ends......

willoneau · 17 December 2019

So deciding how to control risk and position size which work together has a better chance of improving your expectancy. Do you reduce your your ISL or leave it and reduce your position size

willoneau · 17 December 2019

Newt said:
Sometimes being in a DD larger than expected forces you to confront the possibility you're not correctly trading the system (psychology, or mistakes). It may also give you the kick to try changes in your system (entry, exit, position sizing) BUT you then need to be even more careful than usual following robust coding, backtesting, live testing checks before possibly changing your code.

I've found some very useful improvements in my code and processes after identifying significant underperformance against other trend followers here on ASF, or listening to new ideas from podcasts etc. The vast majority of ideas and tweaks show no reliable/robut benefit, but that makes it even more valuable when/if you find a "nugent in the rough". The journey never ends......

Hi Newt, I was thinking more along the lines that the market was creating the DD.

Newt · 17 December 2019

willoneau said:
Hi Newt, I was thinking more along the lines that the market was creating the DD.

I guess I'm agreeing, but only after many many years of (probably gradually smaller and smaller) iterative improvements to your system and skill at executing it. That might eventually include discretionary decisions, but every learner has the earn the experience to do any discretionary decision making.

Perhaps for an experienced trader with a proven long term system the bulk of the DD will be market related, but for most of us the reality is a decent % of the DD will still be self inflicted.

peter2 made a great statement some time ago - some along the lines of "most traders are unable to realise the max potential returns of their systems, because of themselves".....

found it:

"Your current trading system can only get what it is designed to get. If you have done any backtesting then you would know what those values are. If you have been fully invested 100% of the time then you should be near your system limits. It seems that you may not know what your system is capable of achieving. You could review your performance to identify if there are any aspects that you can improve to boost the results.

You could consider how your results compare to the MAE and MFE of the moves (swings) you traded. You may like to calculate an efficiency factor for your trading.

My general observation is that most traders do not get anywhere near what their systems are capable of. The human is the weakest point in most trading systems."

https://www.aussiestockforums.com/threads/realistic-rate-of-return.26829/page-2

willoneau · 17 December 2019

Newt said:
Perhaps for an experienced trader with a proven long term system the bulk of the DD will be market related, but for most of us the reality is a decent % of the DD will still be self inflicted.

I totally agree and changing or tweaking system will not fix that problem

willoneau · 17 December 2019

So a big step in the right direction is to find out which is the cause of DD. If market ignore it and continue to follow system and if self inflicted look at why

qldfrog · 18 December 2019

All the above comments also point to another problem.
We all know markets are dynamic and what could be a good system yesterday may be obsolete today
After soso results or DD, when do you decide that a specific algorithm is now passé?
After becoming more popular or due to fashions, market movements, whatever :
Your system is past its time and has lost its edge

For the experienced system traders here: how did you reach that conclusion and close a system?
Ideally, i assume you do not want to ask this question in the heat of a DD or in the middle of a crash?

Warr87 · 18 December 2019

willoneau said:
If you agree with probabilities, expectancy and random outcomes you will get streaks of losing trades and the only thing you can do is control risk and position size forget about tweaking system to try and evade those losing streaks.

I agree. Also, with some of the reading I have done, the illustration of this through the appreciation or Monte Carlo sims is good to help. If there is only a 10% chance of having so many losing trades in a row, or having your max DD reaching xx%, you are either in a statistical improbability or something else is askew.

willoneau · 18 December 2019

qldfrog said:
All the above comments also point to another problem.
We all know markets are dynamic and what could be a good system yesterday may be obsolete today
After soso results or DD, when do you decide that a specific algorithm is now passé?
After becoming more popular or due to fashions, market movements, whatever :
Your system is past its time and has lost its edge

For the experienced system traders here: how did you reach that conclusion and close a system?
Ideally, i assume you do not want to ask this question in the heat of a DD or in the middle of a crash?

A great question to ask and one I would be interested in others thoughts,
as I have seen here from peter2 I think would be to chart your returns against an index

qldfrog · 18 December 2019

I doubt there is an easy answer.you can underperform vs an index for s while yet still be overall relevant
It will be hard to admit defeat and say system 1 or 2 gone, i need to stop
Back to psyche..as per a SP..it will catch up.. etc
But would like to hear from experience system traders
Not thinking of stopping any system yet

Newt · 18 December 2019

Like so many questions in trading, there will be a big grey area detecting system deterioration or failure. For longer term trend following, you would probably need an extended period of underperformance against an index. The variability of most trend following returns means how far (standard deviations?) and how long (months, years) could be tricky to define.

Howard Bandy recommends determining your failure criteria for a system when you finish development and start trading. He also pushes for much shorter holding periods in systems, which would likely make it somewhat easier to define "how much" and "how long" for failed performance.

Sir Burr · 18 December 2019

qldfrog said:
I doubt there is an easy answer.you can underperform vs an index for s while yet still be overall relevant
It will be hard to admit defeat and say system 1 or 2 gone, i need to stop
Back to psyche..as per a SP..it will catch up.. etc
But would like to hear from experience system traders
Not thinking of stopping any system yet

Interesting topic about admitting defeat.
In the past 14 years I have dumped 3 systems.

First time was when I tripled capital over a few years leading up to 2008 and lost maybe 20-25% as the index filter exited. Took me a while to feel comfy enough to get back in, missing the 2009 recovery but overall let me pay most of the mortgage.

So why didn't I continue that system, good question and not looked at it since. Instead decided to let a signal service take over (saving me time and effort) and lost at least a 1/4 capital on each of the systems over 3 years plus the "opportunity cost".

So why stay 3+ years in negative? We are talking about running our own systems here but some points about my situation:

- over that time the systems were "revised" due to poor performance (plus a fault in system risk) so there was hope of better performance
- signal service suggested it being normal (ok)
- paid subscription in advance to save money (locked-in)
- system one, a long term and who likes to break system signals
- system two, a short term and had an investment in time and effort setting up as a company in order to trade margin plus the effort to trade a short term system

I admitted defeat, pulled the plug and regrouped. What brought me to stop those systems was the rising fear of continuing that trend with retirement looming plus no point if your not ahead of the index.

Skate · 19 December 2019

Sir Burr said:
Interesting topic about admitting defeat. In the past 14 years I have dumped 3 systems, systems were "revised" due to poor performance (plus a fault in system risk) so there was hope of better performance. What brought me to stop those systems was the rising fear of continuing that trend with retirement looming plus no point if your not ahead of the index.

Trading & Boxing - Well done Jeff Horne

Jeff Horn last night won against Michael Zerafa in a rematch with the man who almost ended his boxing career earlier this year. Jeff Horn took some hits & kept standing - his one job as a boxer (the picture above is what a winner looks like, even when you win your body doesn't feel like it did)

The nature of the trading game
I've been reading the recent comments with interest. It's a perfect time to remember that trading is not always a bed of roses, losing days/weeks & heaven forbid even a few losing years are inevitable. Even after you have learnt to trade successfully, you will still take your hits. No matter how smart you are, or how hard you work, we will regularly be hit by news, circumstances & developments that are unforeseen and unknowable & frankly there is nothing we can do to prevent it, so we have to be ready and mentally prepared. Very few people succeed in this process as the learning curve is too steep & the correct psychology is too hard to implement.

Staying disciplined & focused is hard
To a great degree, our success or failure in the market is a function of our luck. We like to think that our results are a direct consequence of our insight and efforts, but the reality is that luck plays a big part in how we do. Even when you are skilled at trading/boxing at some stage you will experience pain. Pure & simple, good traders are calculated risk takers. After reading the recent posts maybe a pep talk is in order.

Skate.

Skate · 19 December 2019

A “New Year’s resolutions” just for you
Grab a pen & an exercise book & write down anything that you read on this forum that gels with you otherwise you’ll forget, referencing over important materials will condition you "how to think"

Education is something that is done to you. Learning is something you do for yourself.
You should continually seek further knowledge. You can read almost any trading book that has been written and discover gems in them. Yet most people fail to follow them because they forget or are undisciplined to action them. If what you learn leads to knowledge, you become a fool - but if what you learn leads to action, you can become wealthy.

Discipline
We need to learn discipline as at some stage we will all face the same challenges. Learning to be disciplined when it comes to trading lets you better cope when the unexpected happen. Being disciplined & being in the correct head-space is important in this game - as other factors are almost irrelevant when it comes to trading.

Skate.

Skate · 19 December 2019

Confidence & Consistency
Your trading ability comes from within, desiring to learn & develop the skills necessary to develop a solid trading plan – one that you will execute consistently with confidence. Finding your trading plan that is right for you "might just be your Holy Grail"

IMO
Trading is straight forward, yet many make a mess of it. When trading gets tough some realise that trading isn’t easy so they try to over complicate their approach, search for better entries & exits believing that a complex solution has to be better & they honestly believe it’s certainly required. Unfortunately, this approach often leads traders down the wrong path. One of the main reasons that people fail in the market is because they don’t have a plan, or if they do - they don’t follow it.

A simple example
Traders enter a position not knowing at what point they are going to sell. Even if traders have a robust trading plan they find all sorts of reasons not to follow the rules. Successful traders understand the importance of having a plan to guide them when the going gets tough or a little pear shape. Our species have a terrible habit of making poor decisions when "under pressure"

Skate.

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