Dump it Here

[MovingAverage]

I actually don't understand this debate about luck.

For those with a rigorous, disciplined and clear strategy to trading (whether it be trading based on fundamentals, charts, systems or discretionary) luck has nothing to do with their good fortune. Someone who blindly throws money at a stock with no basis for that decision and the stock price moves in a positive direction then that someone is lucky.

But as I said, those that have a rigorous, disciplined and clear strategy to trading are not relying or generally benefiting from luck. Their approach has a repeatable and consistent edge that is being exploited to be profitable; that is absolutely not luck. Sure the markets have a random element to it, but the market is not entirely random because if it was you would not be able to develop an edge and therefore no one would make money.

 

[qldfrog]

I actually don't understand this debate about luck.

For those with a rigorous, disciplined and clear strategy to trading (whether it be trading based on fundamentals, charts, systems or discretionary) luck has nothing to do with their good fortune. Someone who blindly throws money at a stock with no basis for that decision and the stock price moves in a positive direction then that someone is lucky.

But as I said, those that have a rigorous, disciplined and clear strategy to trading are not relying or generally benefiting from luck. Their approach has a repeatable and consistent edge that is being exploited to be profitable; that is absolutely not luck. Sure the markets have a random element to it, but the market is not entirely random because if it was you would not be able to develop an edge and therefore no one would make money.

statistically, the markets are linked to economic growth + currency/FIAT inflation which insured so far (last 2 centuries) that markets do trend higher.
As such, random investing means money making anyway on average;
So a majority of random traders will be winners;
When "luck" strucks repetitively one way, then yes you are good/bad and you have an edge, or not;
you make your luck, but that is life, same with building business, a startup, property investment;
few people are lucky, they just dare to play their odds again and again and learn from their mistakes;

 

[MovingAverage]

As such, random investing means money making anyway on average;

I'm not sure about that--have to think this through a bit more but for random investing (that is, literally picking stocks out of a hat) to work that would imply a consistent 50/50 split between advancers and decliners (which I'm pretty certain isn't the case) and the advancers would, on average, move up at a level that is greater than the move down for decliners. Like I say, need to think that through some more but I'm pretty certain the market doesn't exhibit that behavior over a reasonable period of time which is why picking stocks out of a hat is not profitable

 

[Warr87]

The Chartist "Large Cap Momentum Strategy"
There are a few members trading this strategy from the Chartist as it suits their needs for the simple reason it specifically targets "Large Cap stocks" that are outperforming their peers & trading only once a month.

I'm following with interest
@Cam019 has bitten the bullet purchasing Nick Radge Large Cap Momentum turnkey strategy because coding is so hard deciding to outsource the job as it is much easier & less time-consuming. The Chartist "Large Cap Momentum Strategy" is one of a few "TurnKey" strategies that can be purchased knowing full well they have all been professionally coded with backtest results for all to see.

https://www.aussiestockforums.com/threads/cam019-asx-weekly-superannuation-portfolio.34599/post-1145724

Customizable turnkey system
@Warr87 has purchased the same "Large Cap Momentum Strategy" from the Chartist & has been trading the strategy with pleasing results for a few months now. It should be noted that Warr has chosen to trade it somewhat differently choosing to run his system on the ASX300 & not the ASX100 as Radge suggests with 10 positions, not 5 & electing not to run an Index Buy filter (I assume). Warr to his credit has made the strategy his own whilst remarking that his custom setting in comparison may be riskier than Radge's but in his opinion, it's worth taking the extra risk.

Monthly Momentum - ASX300 Super

This thread will be for my new monthly momentum system that will be traded on the ASX300 universe within a super account. A few things: This system is based off code bought from Nick Radge. It is, however, not the original parameters and has been modified to suit my needs. It is not a...

www.aussiestockforums.com

Skate.

There is certainly some safety in purchasing Radge's code. He's the only one I ever suggest to people to actually spend money on for code (I'm sure there are others who are trustworthy but there are a lot of scammers out there). Radge's code is also good 'right out of the box'. I find for the universe it was on, it had great default parametrics. Wasn't over fitted, seemed robust, so I was pretty surprised. But as mentioned I did change it to suit my risk profile a bit more. Some traders don't even like handling 10% DD, so it makes sense that Radge would make his more risk adverse. I'm fine with 20-25% DD so I was comfortable to adjust and reap the benefits that come with it.

Buying the code also served another purpose. I get to see how it was coded, how it was ranking buys, and these things helped with my other coding. I had to pay for the priviledge, but seeing a professional piece of code and its mechanics was helpful to me.

Best of luck to Cam and his trading this strategy. I'm curious to see how they match up.

 

[DaveTrade]

Without giving away your secret sauce it would be great to hear a little more about how you envisage NTW operating. Also, are you planning to use AB or something else for system evaluation?

A bit about what I’m planning with the NTW system.

My first concern with this new system is managing risk, it’s the reason why I decided to learn options when I came back to trading after temporarily losing all my trading funds in the ManFinancial collapse. I’ve come to realize that managing risk is the most important aspect of trading the markets. Options are the only thing I know of that can give me a hard stop-loss in the market.

Options will give other benefits though, they will also increase my return on investment (ROI) if I want them too. I have a choice, I can go for a similar return that I would have made if I had purchased an ETF or share but I could do it putting a much lower amount of money at risk, or, I could have the same amount of money at risk on the trade but enjoy a much larger return. I will probably end up using options in a way that will give me a bit of both as I am also managing my risk at the account level with my maximum 5% of the account exposure on a single trade.

I’m also thinking that the system will have a maximum of six trades active at the same time resulting in a maximum system exposure to risk of 30%. I know that this is very different to other systems being traded by people on this forum. These are risk parameters that I got from Larry Williams, the famous trader. He is of the opinion that a trader cannot handle more than six trades at the same time effectively. I had the pleasure of meeting him when he came to Sydney years ago. I couldn’t resist doing a bit of name dropping for fun but the truth is I don’t know him personally; I did a course with him in Sydney.

I will tell more about my system plans in a later post.

 

[DaveTrade]

I will tell more about my system plans in a later post.

I’m planning on doing manual backtesting for this system. I think that manually backtesting a system gets you closer to the experience of actually trading it, especially if you are stepping the market through bar by bar. I want to know the system, I want be familiar with what I may be seeing when trading it for real. When I’m trading with real money looking at the far right edge of the screen I want my minds dialogue to be saying to itself “yes I’ve seen this before”.

In the first backtest I’m planning to use two markets, I know I said the system can trade six but at this point I’m not sure if I will ever have six trades open or if I’ll need to have that many to obtain a good return. I think it will come down to how many markets will be required to find trading opportunities without having long gaps in time between trades.

In the initial backtest the first market that I chose is the SPY ETF. Because I’m planning to use options I need to trade markets that have good option liquidity and the SPY is one of the best. I won’t be using volume as an indicator so an ETF works fine, volume is more useful when trading stock. When looking for a second market to add, I wanted a market that may be trending when equities were not, a case in point was the year 2015 when the SPY basically went sideways for the entire year. Maybe if you were trading a smaller time frame then you would be OK but my system is based on weekly time periods. My first thought was a Bond market but I really wanted a market that trends well so I thought of Commodities. The second market I picked to test is the DBC ETF. Testing these two markets will tell me a lot about the system and with this information more decisions and adjustments can be made.

 

[ducati916]

I actually don't understand this debate about luck.

For those with a rigorous, disciplined and clear strategy to trading (whether it be trading based on fundamentals, charts, systems or discretionary) luck has nothing to do with their good fortune.

The words used, are all words that I would agree, should provide a profit. All of the same words can be employed when flipping a coin. In other words, these qualities do not establish whether luck or (pure) skill are responsible for those returns.

Someone who blindly throws money at a stock with no basis for that decision and the stock price moves in a positive direction then that someone is lucky.

Agreed.

But as I said, those that have a rigorous, disciplined and clear strategy to trading are not relying or generally benefiting from luck. Their approach has a repeatable and consistent edge that is being exploited to be profitable; that is absolutely not luck.

Is that 'edge' truly (a) consistent and (b) repeatable?

I would argue that all edges lack consistency. They (your edge) do not perform 100% of the time. If they are not 100% consistent, then something else is a variable. If you don't have (a) how can you have (b)?

Sure the markets have a random element to it,

If there is an element of 'randomness', how do you define what that random variable is?

but the market is not entirely random

I assume because trends exist. My question is: can a trend be intact on Monday and break on Tuesday, 1 day later? The answer is yes. Why? Because something in the future changed. Surprise bad earnings, fraud, etc. The list is endless.

That future is unknown. It can be good, bad, indifferent. Whatever you want to call it, luck, uncertainty, probability: they all have the same effect, which is potentially a break from yesterday's, historical, result.

because if it was you would not be able to develop an edge and therefore no one would make money.

Actually that is incorrect. Totally random movement can be traded very profitably. Essentially what you are trading is a coin toss or luck. For good luck to exist, there must also be bad luck, where you lose. There is. In other words, there is not a risk-less trade. But in trading in this manner, you accept and embrace that luck or randomness as a methodology.

I think the issue around 'luck' is that using this word implies a lack of skill, intelligence or some other positive quality that separates the successful trader from the wannabe. This is ego. Ego can be a very dangerous quality in financial markets as it can lead you into error.

Isn't the very undertaking of a mechanical system an exercise in trying to remove as much subjectivity from trading decisions as possible and to replace it with objectivity?

jog on
duc

 

[MovingAverage]

The words used, are all words that I would agree, should provide a profit. All of the same words can be employed when flipping a coin. In other words, these qualities do not establish whether luck or (pure) skill are responsible for those returns.




Agreed.





Is that 'edge' truly (a) consistent and (b) repeatable?

I would argue that all edges lack consistency. They (your edge) do not perform 100% of the time. If they are not 100% consistent, then something else is a variable. If you don't have (a) how can you have (b)?



If there is an element of 'randomness', how do you define what that random variable is?




I assume because trends exist. My question is: can a trend be intact on Monday and break on Tuesday, 1 day later? The answer is yes. Why? Because something in the future changed. Surprise bad earnings, fraud, etc. The list is endless.

That future is unknown. It can be good, bad, indifferent. Whatever you want to call it, luck, uncertainty, probability: they all have the same effect, which is potentially a break from yesterday's, historical, result.



Actually that is incorrect. Totally random movement can be traded very profitably. Essentially what you are trading is a coin toss or luck. For good luck to exist, there must also be bad luck, where you lose. There is. In other words, there is not a risk-less trade. But in trading in this manner, you accept and embrace that luck or randomness as a methodology.

I think the issue around 'luck' is that using this word implies a lack of skill, intelligence or some other positive quality that separates the successful trader from the wannabe. This is ego. Ego can be a very dangerous quality in financial markets as it can lead you into error.

Isn't the very undertaking of a mechanical system an exercise in trying to remove as much subjectivity from trading decisions as possible and to replace it with objectivity?

jog on
duc

Duc: you and I have had a debate in the past on a similar randomness discussion so think we will always have differing opinions. But I will make the following comments -

No, you cannot use my same words for a coin flip--this is a completely incorrect and misleading statement. Over time a coin flip has a 50/50 chance of being heads or tails. There is absolute no bias in this outcome--there is absolutely no system or method you can use to predict the outcome of a coin flip over time to a point where you can beat the 50/50 split. So over time you will never be right more than 50% of the time when it comes to predicting the outcome of a coin flip.

Now let's look at just two of my systems--my swing system is right at predicting the outcome (I will make a profit) around 70% of the time. My weekly breakout system is right at predicting the outcome around 60% of the time.

Of course whether you are profitable is not just down to being right more than wrong--it also depends on your return or loss for each outcome. So again to your coin flip analogy. The question is how much do I get when I pick the right outcome and how much do I lose when I'm wrong. Let's keep it simple and with your coin flip reference so let's assume when you are right you get back 2* your stake and zero if you lose. Guess what, you'll only ever break even unless of course the "house" pays you back greater than 2* for picking the outcome and that will never happen. You coin flip analogy is nothing more than betting on black or red on the roulette table at the casino, but have you any idea why the 0 is on the wheel--it's gives the house a skew in their favour so that there is not a 50/50 chance of picking red or black.

Bringing this back to my systems that 2* payback on the coin flip is nothing more than the profit factor of my systems. Both my swing system and my weekly both have profit factors in excess of 1. So in the case of my swing system when it picks a winner 70% of the time I make money and when my weekly picks a winner 60% of the time I make money.

If after the above explanation you still think a coin flip analogy is suitable for the market...then???

I am absolutely not "essentially trading a coin toss". Anyone that is profitable is exploiting an edge. Some may do that knowingly and other may do that by pure lucky guess. But me personally, I am absolutely not trading a coin toss...I am exploiting an edge in my favour

 

[Skate]

With trading you create your own luck by doing all the right things.

Flipping 5 heads in a row
Tossing five heads in a row comes down to luck, not skill. Luck can have all connotations & can mean something different to everyone. Sometimes luck comes down to timing. Skill is required when entering the markets but from that point on, it's in the hands of the "trading gods".

Trading gods
I don't believe there are "trading gods" even though there is a god for everything these days, it's my way of expressing a "feeling" using certain words. Randomness, probabilities, luck, timing, convictions are just expressive words, nothing more or nothing less.

Another reference
In a conversation I'll drop the word "you know that sort" they can relate the story to whatever "that sort" means to them.

"That sort"
The expression "that sort" conjures up many flavours to express a point of view or a feeling I'm wishing to get across. If we were having a conversation & at the end of the conversation I say: "you know that sort" you would know "exactly" what I mean because we can all relate to "that sort". As with the word luck, "that sort" is an expressive word & not intended to diminish the skills required to be profitable at this game.

The Bradbury effect
Australian Steve Bradbury was a former short track speed skater & four-time Olympian. He won the 1,000 metres event at the 2002 Winter Olympics after all of his opponents were involved in a last corner pile-up. Steve was a very skilled speed skater but "I believe" his win can be attributed to "luck" rather than "skill". Admittedly, Steve had to have "skill" to qualify for the Olympics & have the "skill" to make the finals but run that race five times over & the winner might have been different each time as the "luck" of your position on the last corner can ultimately decide the final result.

Skate.

 

[MovingAverage]

Flipping 5 heads in a row
Tossing five heads in a row comes down to luck, not skill. Luck can have all connotations & can mean something different to everyone. Sometimes luck comes down to timing. Skill is required when entering the markets but from that point on, it's in the hands of the "trading gods".

This is a great reference and is exactly why statistical significance is very important when it comes to understanding your system from backtests.

Picking the correct outcome of five successive coin tosses is very possible, but as the outcome is a pure random event for which NO technique or system will allow you to pick an outcome correctly so if you do it is very much down to absolute luck. It's a whole different ball game when it comes to picking the correct outcome for 1000 successive coin flips and even luck will not help you with that.

This is the very reason I gave up exploring a monthly system--I just could not get enough trades even over 20 years to give me a level of confidence that by backtests were reliable. No different to me picking 5 coin tosses and thinking "great I've got a system that will allow me to pick the outcome of a coin toss so I'm off to the casino to make my fortunes betting on red/black. That is exactly what someone is doing when they don't backtest a statistically relevant number of trades.

 

[MovingAverage]

I think a lot of traders (at least system traders) would benefit if they broke down trading into two very basic concepts used by professional gamblers and that includes asking themselves two very simple questions: a) what are the odds of me being right; and b) what is the payback. I am always asking myself that question. I find these basic principles very useful for thinking about my system expectations--look at your win % and your average profit and average loss.

Coin flip analogy: I will be right 50% of the time (the odds) and what do I get paid if I pick the right outcome? Let's assume I just get my bet back (stake + bet) then over time I will only break even because 0.5 * (2 wager) = wager. Won't make money in the long term. So if I want to make money over the long term from a coin flip I have to find someone will to pay greater than 2x my wager. Only a fool would offer a pay greater than 2x my wager as they will lose money.

Same principles should be applied to trading. If I have low "odds" of picking a winner (stock going up if I'm long) then I have to look for trades with a bigger payback if I'm to be profitable. Profit Factor is effectively the payback in my coin flip example

 

[DaveTrade]

All I can say about luck is that I’m lucky I’m not involved in that conversation. Continuing the talk about systems, I’d like to say that although my approach is different to other systems that are being used by members of the forum I’m not inferring that it will be better. The value of any system depends on if it works or not, and, if it suits the mentality of it’s user.

Some people may think that I’m too focussed on having minimum risk but I look at it in a slightly different way. What I mean is that I look at risk as a variable that I manage depending on the situation. An example from my life experience; I started surfing in my early 50’s, at first I avoided larger surf conditions because I didn’t have the knowledge or skill to handle them, so the risk was high for me to be hurt or to hurt someone else or worse. Now I’ve gained more knowledge and skill to handle larger surf safely, so the risk is less than it was before even though the surf is the same size. Another way to look at it is that the risk is the same in the larger surf as it was before but now I’m able to manage the risk better resulting in a safer surf experience now than it would have been before.

When I try to explain myself I start to feel like I’m rambling, apologies to anyone that hasn’t stopped reading at this point.

Anyway, I have incorporated another element of risk management into my system. The system will have a trailing stop which I have coded to have a maximum distance from the current market of a certain percentage. I’ve coded the stop-loss indicator to have an input for this value so I can set it to whatever I wish. The stop-loss indicator does not trail the market by this value, the percent value merely provides a limit. For example, in a long trade if the trail stop calculates a value that is 8% below the current close and the percent limit is set to 7.5% then the stop-loss indicator will print on the chart at 7.5% below the market for that period. This feature will give me good risk management at the trade level so that a single horrific trade can’t over influence the system effectiveness.

 

[Skate]

As a registered bookmaker for over 14 years & my brother a professional gambler for the past 47 years I want to say that most commentator sometimes gets some of the story correct but most times they don't understand. As with trading, bookmaking isn't gambling it's a numbers game, it mathematics '101'. Its fast, it furious, with complicated mental mathematical multiplications all done in the blink of an eye whilst calling out the calculations to a clerk to be pencilled in to the ledger. (The adrenalin rush was exciting). The mental gymnastics correlating the entire book was demanding but it was a required "skill" to evaluate the risk/reward & how each runner affected the outcome.

Skill versus Luck
When you are betting on anything whether it's racing or the markets there is always a degree of "skill" required but at times the outcome is a matter of "luck". Also, let's not get fooled by "randomness".

Skate.

 

[MovingAverage]

Skill versus Luck
When you are betting on anything whether it's racing or the markets there is always a degree of "skill" required but at times the outcome is a matter of "luck". Also, let's not get fooled by "randomness".

Skate.

Games of pure chance are very easy for casino to skew the house edge in their favour--there is no skill so input variables that are used to determine odds and payback can be set and forget. Horse racing etc etc have lots of real-time variables that must be factored in to adjust odds and paybacks otherwise the house could drop its edge

 

[Skate]

Continuing the talk about systems, I’d like to say that although my approach is different to other systems that are being used by members of the forum I’m not inferring that it will be better.

@DaveTrade when we start coding a new strategy we are being directed from the interpretation of what we have read. Most of our reading centres around trading-related material but at times we "focus" too narrowly & at times fail to understand the bigger picture.

The One Thing
"The One Thing" by Gary W. Keller & Jay Papasan.
The book discusses the value of simplifying one's workload by focusing on the one most important task in any given project. The book discusses the general business principle of choosing a single task to work on to theoretically maximize the efficiency of that task & the "extraordinary results", that can be achieved by actioning those principles.

Skate.

 

[Skate]

Games of pure chance are very easy for casino to skew the house edge in their favour--there is no skill so input variables that are used to determine odds and payback can be set and forget. Horse racing etc etc have lots of real-time variables that must be factored in to adjust odds and paybacks otherwise the house could drop its edge

@MovingAverage all the discussions so far have centred around the expressive word "luck". Others may think we are on different pages when it comes to "our view" let alone @peter2 views on the use of the word when it is related to his trading. But in reality, we are saying the "same thing" with more emphasis slated from a certain perspective or prominence. The two words "Skill" & "Luck" are both subjective & at times intertwines expressing the same meaning. We are flawed creatures & easy fooled by the randomness of events as well as the random outcome of those events.

Fooled by Randomness
"Fooled by Randomness" by Nassim Nicholas Taleb
This book explains why some people are successful where others aren't so lucky. It's a great read & highly recommended.

Skate.

 

[qldfrog]

I think a lot of traders (at least system traders) would benefit if they broke down trading into two very basic concepts used by professional gamblers and that includes asking themselves two very simple questions: a) what are the odds of me being right; and b) what is the payback. I am always asking myself that question. I find these basic principles very useful for thinking about my system expectations--look at your win % and your average profit and average loss.

Coin flip analogy: I will be right 50% of the time (the odds) and what do I get paid if I pick the right outcome? Let's assume I just get my bet back (stake + bet) then over time I will only break even because 0.5 * (2 wager) = wager. Won't make money in the long term. So if I want to make money over the long term from a coin flip I have to find someone will to pay greater than 2x my wager. Only a fool would offer a pay greater than 2x my wager as they will lose money.

Same principles should be applied to trading. If I have low "odds" of picking a winner (stock going up if I'm long) then I have to look for trades with a bigger payback if I'm to be profitable. Profit Factor is effectively the payback in my coin flip example

Yes, for once i agree with @MovingAverage ? win rate plus profit factor on significant statistically or/and otherwise data determine profitability.
Please please please. Statistically relevant data is different in stock market from your random generator in std stats.
You want big enough numbers sure but also relevant data.
Having 100 or even 1000 trades in the june to september post covid market boom is not relevant.

MA and I disagree :-( but i also consider too old data as irrelevant.
You do not look at highway incidents stats including carriage crashes in the 1800's to determine road improvement today.
Well same with your trading system design..

 

[othmana86]

without disclosing too much (actually disclosing MUCH), one way is to be long on bears..
What i mean here is some ETFs are bear and so a long only system including them allows for short play,
you can also see Gold miners positions as "short" etc;
So my hope is that in a crash, my long only systems will go long into the "artificial" shorts and allow gain in crash
Works in BT..but backtests...

nice idea!

 

[MovingAverage]

Please please please. Statistically relevant data is different in stock market from your random generator in std stats.

Why is it different?

Isn't conventual wisdom that the market is random--smarter people than I think so: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3708927/

 

[othmana86]

I'm a trend trader
I trade mainly one type of strategy that has been proven to be profitable over the long run. I'm only interested in making the most money with the least amount of time & for these reasons I'm drawn to Mechanical System Trading.

Hindsight
We are chart "experts in hindsight" but system trading picks the moves in real-time. Also using a "Take Profit Stop" these days is certainly a sign of the times by adopting this feature in your strategy allows you to advantage of the shift in trading since COVID.

A recent trade
This is one of my recent trades that indicates the use of a take-profit stop.

With a "Take Profit Stop" activated
The security is (VUL)

View attachment 132672



With no "Take Profit Stop"
You can argue that holding (VUL) a little longer (an additional 5 weeks) was fractionally advantageous but after the "Take Profit" exit & with the profits locked in we can "immediately" look for the next ride.

This is the point I want to get across (in Hindsight) the move eventually went higher but when we "Took Profits" we had "NO IDEA" how the next series of bars would have played out. (better safe than sorry)

View attachment 132673


Skate.

Yep. Sold on the profit taker. My system CAR increased by 10% once I implemented it. I will say though it was discovered by complete accident (so was penicillin). The intention of the code wasn't to be a profit taker, ill put that down to good luck .