Dump it Here

[Skate]

We all enjoy a new hobby
Recently I made a post that "I quickly deleted" asking for advice on how to get my enthusiasm back when it comes to trading. I enjoyed the thrill of trading & to be honest initially it was fun, but like a golf game, it became an obsession.

I received a private message last week
A member suggested a couple of good "system" trading books that he was currently reading & thought I might like to read them as well. Another suggestion was to investigate a different trading system "software" as an alternative to Amibroker.

Building Reliable Trading Systems (Keith Fitschen)
One of the trading books he is reading did give me the inspiration to become more involved, getting me out of a slight slump reinvigorating my mojo as trading had become boring for me. Initially I was drawn to the book because of its title "Building Reliable Trading Systems". After reading it I realised the book aligned with my belief "how to trade profitably". The similarities with my trading methodology & the words expressed by Keith Fitschen were simply amazing.

Skate.

 

[Skate]

Building Reliable Trading Systems (Keith Fitschen)
Keith Fitschen book explains how to create, test & implement a profitable trading system. While successful trading systems work in most cases, they work very well in "trending" market, but perform less satisfactorily at other times. Clear examples are displayed in his book to reinforce the point of view. Keith Fitschen book was interesting & educational.

Why did I enjoy reading the book?
Mainly because it aligned with my way of trading. Confirmation bias at times can be difficult to spot because we all have the tendency to embrace information we believe. Of the many forms of faulty thinking that have been identified, confirmation bias is amongst the worst.

"Free will" is due to causation
If we believe we have "free will" to make our decisions it's only reasonable to assume we will make that decision from sound judgment. But what if we don't have "free will" or our "decision making" process is flawed on that assumption. In essence those decisions are made not from "free will" but from an unbroken chain of causes leading up to making that decision. It’s hard to conceive of a more serious design flaw than "confirmation bias & free will" banded together when it comes to our trading decision process.

The way I see it
We don't have "free will" because all of our decisions are made from the same pool of thoughts. Until we are challenged, we won't experience the alternative. I'm hoping that this post challenges "the way you think" rather than "what you think".

Summary
I cast aside "free will" & "confirmation bias" knowing that "perception" & "emotions" drives all of our trading decisions & not sound judgement. "Perception" & "emotions" are two feelings that are more important to get "under control" before "they control you".

Skate.

 

[qldfrog]

Off topic
This post appears to be off topic but there is a purpose that will be canvassed in my next post.

I've been thinking about "Deep thinkers" & "Free will"
After reading a variety of post back in May 2018 between @cynic & @ducati916 - I've come to the conclusion that having an open mind allows you to enjoy both sides of a position.

Do we really have free will?
Our belief system is so deeply ingrained in us, most people will have a closed mind when we raise the idea that "Free will" doesn't exit. It’s only human nature to reject information contrary to what we want to believe. Meaning, a person will believe what they want to believe & reject an idea put to them that is contrary to their thinking. (But academically it's not the case)

A long read but worthy of your time
@ducati916 recently raised the idea about "free will" & referenced an article to read. I have my own view when it comes to the question of free will & personally believe "free will" is due to causation. Meaning, every choice you have ever made has been determined in advance & you wouldn’t have made a different selection if given the choice over again. In essence your actions belonged to an unbroken chain of causes.

If interested - please have a read
https://www.theguardian.com/news/2021/apr/27/the-clockwork-universe-is-free-will-an-illusion

In my opinion
"Free will" or "acting freely" is nothing more than causation of our conscious choices ultimately linked to our belief processes.

Skate.

My own belief is it is indeed linked to previous events etc, and indeed probably does not exist as fully free will but what is dangerous is the notion of " there is no free will"
For the lesser mind..can i say that?
This new certitude will have consequences:
I raped her, murdered him, bombed the place but had no choice.so i can go scotch free...
And actually society does already act like that: he is insane so not guilty of...
Religions are a good example of denial of free will: the war cry before exploding the bomb vest or crashing the plane,etc
Denying free will is in my opinion denial of society as we know it with its rules laws etc etc
whether real free exists or not, does not matter.individuals have to be responsible of their acts, and stating free will exists ensure this...
Ok..i am not a philosopher, a science guy, so definitively deterministic approach, and decision is results of firing neurones in brain which see no free will in play, just brain previous training and synapses as a results of life so far, plus random colision with various radiations.cosmic, xray, too much tv when young or sunbaking.
Ok back to shares

 

[Skate]

Missed it by that much







Summary
After two weeks of May, I'm close enough to being square.

Skate.

 

[qldfrog]

View attachment 124273

Missed it by that much





View attachment 124276

Summary
After two weeks of May, I'm close enough to being square.

Skate.

vs the frog who lost 3.8% while hardly invested...That's why it is hard to believe Mt Skate being scared by a 1% fall in his portfolio

 

[Skate]

vs the frog who lost 3.8% while hardly invested...That's why it is hard to believe Mt Skate being scared by a 1% fall in his portfolio

Being scare is the wrong terminology
@qldfrog, FYI, I’m fully invested “all the time” as every soldier is “put in the battle” to fight the good fight.

1% seems insignificant but dollar wise it’s enormous
I recently made a post how talking about percentages you quickly become desensitized to its real value. Relating a loss in percentage & converting it to dollars is sobering.

Skate.

 

[qldfrog]

Being scare is the wrong terminology
@qldfrog, FYI, I’m fully invested “all the time” as every soldier is “put in the battle” to fight the good fight.

1% seems insignificant but dollar wise it’s enormous
I recently made a post how talking about percentages you quickly become desensitized to its real value. Relating a loss in percentage & converting it to dollars is sobering.

Skate.

To be clear
The "hardly invested" relates to the current mostly cash position of most of my systems.
Not a deliberate position but the result of systems many sells but no buy.

 

[peter2]

@Skate Thanks for the recommendation to read the Keith Fitschen book. I read it this afternoon and I also enjoyed it. It's disappointing that he didn't attempt to create a trend following system on stocks. I understand why he chose to use commodity markets for that. The system created for stocks was a mean reversion model.

There were lots of interesting comments throughout the book and he debunked many misleading trading statements.
eg "The exit is more important than the entry". How did you like his argument there?

One interesting point was that his Nasdaq-100 equity MR back-testing revealed that 45 positions was the optimum number for the best "gain for pain".

I liked his distinction between Max DD and Average Annual Max DD (AADD). The aim for the trader is to have a system where the AAR is many times the AADD but must also be prepared for the MaxDD to appear again.

The most interesting note for me was the effect of the addition of hedging into the long only portfolios. Including only two short positions ( long inverse ETFs) in a 45 position portfolio significantly reduced the DD without significantly reducing the overall profit. That is worth more research I think.

The pièce de résistance was seeing how the two systems together (commodity trend system, equity MR system) massively reduced the DD.


Thank-you and the member who suggested it to you.

 

[Skate]

@Skate Thanks for the recommendation to read the Keith Fitschen book. I read it this afternoon and I also enjoyed it. It's disappointing that he didn't attempt to create a trend following system on stocks. I understand why he chose to use commodity markets for that. The system created for stocks was a mean reversion model.

There were lots of interesting comments throughout the book and he debunked many misleading trading statements.
eg "The exit is more important than the entry". How did you like his argument there?

One interesting point was that his Nasdaq-100 equity MR back-testing revealed that 45 positions was the optimum number for the best "gain for pain".

I liked his distinction between Max DD and Average Annual Max DD (AADD). The aim for the trader is to have a system where the AAR is many times the AADD but must also be prepared for the MaxDD to appear again.

The most interesting note for me was the effect of the addition of hedging into the long only portfolios. Including only two short positions ( long inverse ETFs) in a 45 position portfolio significantly reduced the DD without significantly reducing the overall profit. That is worth more research I think.

The pièce de résistance was seeing how the two systems together (commodity trend system, equity MR system) massively reduced the DD.

View attachment 124290 View attachment 124291
Thank-you and the member who suggested it to you.

@peter2 the other book that was recommended for me to read was - “The Ultimate Trading Guide” by Pruitt Hill. The private message was from an experienced well respected member that heightened my interest in both books. There were additional articles referenced for me to read that I’m working my way through. It never ceases to amaze me the generosity of others.

Skate.

 

[jats]

Extract of Peter2's commentary directed at Skate, focusing on the importance of exits.

There were lots of interesting comments throughout the book and he debunked many misleading trading statements.
eg "The exit is more important than the entry". How did you like his argument there?

Having watched this forum for a while before registering I've recognised that Skate appears to have crafted a brilliant combination of exits within his strategies, I've been wondering for a while if Skate would humour us using a random function or something equally unintelligent as an entry criteria just to highlight the importance of a well controlled exit.

J

 

[Skate]

There were lots of interesting comments throughout the book and he debunked many misleading trading statements.
eg "The exit is more important than the entry". How did you like his argument there?

I've been wondering for a while if Skate would humour us using a random function or something equally unintelligent as an (1) entry criteria just to highlight the importance of (2) a well controlled exit.

@jats, I'm unsure if I understand your question. @peter2 referenced Keith Fitschen book that debunks what I've been preaching for many years. I believe "exits are more important than the entry". I now admit that the "entry" is "significant" but still not as significant as timing the exit correctly. The exit "determines" the profitability of the trade "not" the entry.

The jury is still out
There are many who support my view that "the exits are more important than the entry" & there are many who express the alternative view. I gave a fleeting second to the idea of making this post "long & boring" as a reference when I'm asked this question again but I have decided to spread my answer over a series of posts.

Let me summarise
Summaries are normally at the end of my posts but I know from experience readers will either (a) skim the post or (b) become exhausted before getting to the end.

So here it is
The fear of loss is greater than the desire to win. Cut your losses, let your winners run "that is the exit talking". With that in mind the exit becomes more important, whether in profit or loss.

Here is the fallacy
1. Good entries can work with "ok exits", but "ok entries" will require "great exits". We are only average traders applying "ok entries" making the exit so much more important.

More to follow.

Skate.

 

[Skate]

Before going any further
@jats you spoke about the entry as well as the exit & the relationship between the two. If I've deciphered your question correctly this post might help.

I want to pose a question to you
Would it be an advantage "having only two colours displayed on a chart" to indicate when to be on a position & when to be off it?

Simple & clean
All charts are hindsight charts but as every trader knows our decision is made on the right-hand side of the chart (the very last bar) not knowing what the next bar holds. Well, trading the "Ducati Weekly Blue Bar Strategy" you don't need to worry about that as the colours guide you in what to do next.

"The Ducati Weekly Blue Bar Strategy"
As you have referenced @peter2 I would like to take the opportunity to display (4) of his current positions (1) VMY, (2) ASO, (3) MLX, & (4) PAN to make my point for you to understand when to get on & off a trade. Using Peters signals means the positions haven't been "cherry picked".

Why do we enter a trade & why do we exit?
The reason you get on & off the trade has already been discussed many times before in this thread. The charts below are easy to understand as it comprises only red & blue bars. The colour of the bar indicates what you should do next. If you follow the colour coding you would be rolling in money trading this strategy.

Buy Bar versus the red bars
If you only traded the "Ducati Weekly Blue Bar Strategy" signals you would be handsomely rewarded. There is no simpler strategy to understand & follow because the first "Blue Bar" is the signal bar, meaning we enter the position on the next day at the open. We sell the position on the 2nd red bar as the first "red" bar is the signal bar.

In a nutshell
We buy on the 2nd "Blue" bar & sell on the 2nd "Red Bar"

Lots of big down bars and consecutive down bars this week indicating time to sell.

Open positions: (1) VMY, (2) ASO, (3) MLX, (4) PAN

# (1) VMY




# (2) ASO





# (3) MLX





# (4) PAN




Recent posts
I've recently posted about "The Ducati Blue Bar Strategy" & the "Duc Indicator" both brilliant ideas. Since Duc has dropped those gems, I've been hard at work trying to develop them further but I'll bet you pounds-to-peanuts not one reader is running with @ducati916 ideas.

Turning points of a trend
I displayed "The Ducati Blue Bar Strategy" to demonstrate that it picks turning points within a trend, whether it be a trend continuation or a start of a new uptrend. "The Ducati blue bar strategy" is definitely not a "Mean Reversion" system.

Use the search feature (it's your friend)
I've also mentioned "Ducati Stop & Go Indicator" that is just as simple to use & it worthy of a search or two. "The Ducati Stop & Go Indicator" displays red & green bars indicating when it's safe to trade & when it's not. (Knowing this one fact can be rewarding)

Rule number #2
If you want to be a consistently profitable trader "keep your trading simple"

Summary
@peter2 has acquired skills to determine when to exit a position where I have "Red Bars"

Skate.

 

[Skate]

"The exit is more important than the entry"
@peter2 remarked that there were lots of interesting comments throughout Keith Fitschen book & going on to say that the book debunks many misleading trading statements. As an example, "The exit is more important than the entry" & wondered how did I like his argument. All I can say I have my opinion & he has his.

I've elevated the "entry" to "significant"
Most traders concentrate on the entry believing if the "right" stock is bought at the "right" time all will work out in the end.

In my experience, the correct timing of the exit is where the money is ultimately made
Cutting losing trades early & holding better positions is the secret of being a profitable trader. Alternative views have already been expressed in this thread that "buying" is most important to successful trading. Recently I've changed my thinking & now have elevated the entry to "significant" however, with mechanical trading, timing the "exit" is still the hardest part to get right & the most important.

Case for the affirmative (exits are more important)
1. The most important part of any trading system is capital preservation.
2. Preserving capital in the way of taking a profit when it is given & taking your loss according to your trading plan.
3. Picking where a trend might end is difficult but not impossible
4. Momentum is easy to spot so entry is pretty straight forward but an exit isn't.
5. The list goes on & on..

@jats, your question
Merely re-opened a tired old debate as to which is the most important (entries or exits) is a futile exercise as most traders have a "closed mind" when either is mentioned. I truly believe there won't be a flood of responses as to which is more important as it's been canvassed to death many times before. The views I hold when it comes to trading is not the views that's held by many. The "Dump it here" thread is the perfect platform to express an alternative view rather than debating which is correct. Expressing your view is the point of this thread.

Skate.

 

[Skate]

Holding on to a trade too long
I've heard too many tales of traders hanging on to a position too long to make a few extra bucks. Also, traders get into the habit of watching their accumulated profits vanish because they were hoping that prices would go back up.

Don't focus all your energy on entries
Traders want the best entry possible but studies have shown that it is the exits from your trade that really matter. It's hard to comprehend that performance of a random entry strategy can be improved by a proper well-defined exit strategy. I've recently posted a YouTube video where Martyn Tinsley explains this very scenario. Many professional traders often comment that one area that they have "never mastered" is of exiting their trade at the right time. Nonetheless, exiting from a trade makes all the difference to a trader’s profit.

Skate.

 

[Newt]

As enjoyable as it is to debate the importance of entry, exit, money management, psychology the real answer might be in the 2nd post of Skate's thread:
The table isn't going to work too well without all of them, so perhaps what we're really debating is the height and shape of the table??? i.e. every trade may have their own preference on system rules, and equity curve.


On market filters and taking positions, could I quiz you for a moment please Skate? Many of us have incorporate market regime and "GTFO" filters to some degree. Just listening to Qldfrom and youself discuss this a few posts ago, it sounds like you have few (no?) filters that stop you taking your general entry positions. Rather, diffiicult regimes (e.g. XAO down, VIX up) trigger a tightening of trailing stops (e.g. % trailing stop) which is more likely to tip you out weak positions. However you continue to but replacement positions until every dollar is invested presumably unless market is in a full blow COVID GTFO situation?


Just occured to me, comparing the way systems handle the number of positions held and those purchased may end up like another table discussion too. No one right way way to do it obviously. In Sat afternoon detective mode and curious, that's all.......

 

[Skate]

Trade exit strategies form the part of your trading plan (that help you profit)
Buying the correct position & the correct number of shares is all to "no avail" if you do not know when to exit a position. In fact, having a definitive exit strategy is as important as defining your entry.

Watch this short 3:49 minute YouTube video from Nov 2009
It perfectly demonstrates why exits were important back in 2009 & just as important in today's trading

(7) Perfecting Trade Exit Strategies - YouTube

@Newt, Ill break my concentrated to answer your question in my next post as it requires a metered response.

Skate.

 

[Skate]

could I quiz you for a moment please Skate? - Many of us have incorporate market regime and "GTFO" filters to some degree. Just listening to Qldfrog and yourself discuss this a few posts ago, it sounds like you have few (no?) filters that stop you taking your general entry positions.

@Newt that's a great question
Let me start off - you have used the terminology "market regime filters" where others use the term "Index Filters". If I understand your question correctly, they are one & the same.

First off
I want to say I use "heaps of filters" with my trading.

I've changed my thinking
When I first started out trading in July 2015, I followed the recipe of Money management, Index Filters, Position sizing & all the crap touted at the time. Using what I'd read got me started as I knew nothing about trading back then. Strictly staying with what I'd read ended with me making a few bucks but nothing to write home about.

Being an average trader was not my ambition
There is nothing wrong with being average but I strive for perfection in everything I do. Let me qualify "perfection" as it relates to my trading. Perfection, means doing everything right to the best of my ability & anything short of that is not acceptable. (AFAIC)

Index filter
Everyone has heard the expressing that a "tide lifts all boats" well that to me is like saying "buy low & sell high" both expressions mean very little until it's been explained in more detail.

Let's examine an Index Filter a little closer
The Aussie market is driven by a handful of companies (banks & miners) so should that really dictate when I should buy a position? "Absolutely not". I want to buy positions that display momentum & volume. When the "Index Filter" is off doesn't mean there are no other opportunities, that's just silly.

No Index Filter for me on the buy side
So, it's correct to say my trading is not reliant on an Index Filter to enter a position.

I have a multitude of filters
Basically, an "entry condition" changes into a "buy condition" when all filter parameters have been met to "time the entry". @peter2 explained one of those filters that I use a few posts back being the ROC. How I use the ROC varies between strategies but it's the main decider if the trend is worthy to enter. (The Index Filter plays no part)

With boxing
You can't win a fight without constantly throwing punches, not all land but that's not the point of the exercise. You don't win fights by "sitting on your hands" in the corner. Every punch needs to be executed with precision while protecting yourself. It's this combination that ultimately decides if you will be successful in the end. I hope you can see the similarities between the two sports (boxing & trading)

T.I.N.A.
Let's say there is no alternative other than "Term Deposits" how much would you commit to this endeavour? I don't know about you or @qldfrog but rest assured I'd invest "it all" & that's how I handle my trading. Having soldiers in the barracks doesn't win a war. If I had to fight a battle, I would employ every soldier to get the job done, leaving "some" back in the barracks just don't cut it for me.

Long posts
No one likes to read long posts, so I'll conclude it here.

Skate.

 

[Newt]

Thanks Skate and sorry if disturbed you being "in the groove" with something.

I should have mentioned in my question that even with no index filter (yes, agree, same thig as market regime filter) in strong bear markets the opportunities for breakouts on price and volume will dry up and obviously then your number of positions will fall.

Appreciate the measured response. As background to the question, I've recently been trying to get away from limiting my trading to the XAO universe where possible. While trying this, some systems perform better with an index filter buy condition, whereas I almost never did so in the past.

One might expect the All Ords (XAO) universe to be a little more predictable, so it might be that in this case additional Buy filters around market regime have more value than in the "limited to XAO" situation.

 

[Skate]

Thanks Skate and sorry if disturbed you being "in the groove" with something.

I should have mentioned in my question that even with no index filter (yes, agree, same thig as market regime filter) in strong bear markets the opportunities for breakouts on price and volume will dry up and obviously then your number of positions will fall.

Appreciate the measured response. As background to the question, I've recently been trying to get away from limiting my trading to the XAO universe where possible. While trying this, some systems perform better with an index filter buy condition, whereas I almost never did so in the past.

One might expect the All Ords (XAO) universe to be a little more predictable, so it might be that in this case additional Buy filters around market regime have more value than in the "limited to XAO" situation.

A simple explanation
Put four traders in a room together & they will all have their reason why they "enter & exit" a position. Put four "system traders" in another room & their reasoning behind why they enter a trade can be just as dramatic & diverse.

Trading is a basic process
We all tend to over think trading but when you strip back trading to the bare basics it's all about trading the price differential, catching trends, knowing when to get in & more importantly when to get out. Money management takes care of the rest.

Price differential
I'm not a fancy trader, I jump on confirmed trends & hop off in a timely manner looking for the next ride. Trends are happening in all timeframes & market conditions. Picking the strong movers is the secret. Knowing when to hop-on & hop-off is the tricky part & the purchase "needs to be timed". Timing is everything in this game & boxing.

Skate.

 

[Newt]

# (1) VMY
View attachment 124305



# (2) ASO

View attachment 124306



# (3) MLX

View attachment 124307



# (4) PAN

View attachment 124308

Just on the subject of caution around trading stock index universes, some of these stocks were in the All Ords at various times, but if I'm correct none of the 4 were in the XAO at the point of Buy for the nice trend trades shown.

Survivorship bias is tricky where something like platinum Norgate isn't available. Another option of course is selecting suitable buy and sell conditions on all listed ASX stocks regardless of index universe.

This doesn't mean the Ducati Blue Bar strategy isn't a powerful system - I'm only suggesting people be careful that by using the XAO universe you may think you're finding entries in backtests for a stock that has moved up quite a lot, but might not have actually appeared as a buy in the past (before entry to XAO) or possibly after removal from XOA (e.g. MLX left XAO around June 2020).

PAN left XAO June 2020, re-entered March 2021, and so might appear in a backtest using current XAO.