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DaveTrade · 26 December 2022

The main advantage of a mechanical trading system over a discretionary system that can result in you gaining more money from the system;

There is less for a trader to think about when trading the system so you don't have to think too deeply about what the market is doing at the time you are placing orders.

The main disadvantage of a mechanical trading system over a discretionary system that can result in you losing more money from the system;

There is less for a trader to think about when trading the system so you don't have to think too deeply about what the market is doing at the time you are placing orders.

farmerge · 26 December 2022

DaveTrade said:
@Rabbithop I feel for you, a very uncomfortable situation. My 2cents, it's a family problem so let everyone in the family carry their share of the load, do it together and share the pain so all doesn't fall on one member of the family.

Morning Rabbito Davetrade is right share the problem with all Don't overburden the grey matter especially at the moment

ducati916 · 26 December 2022

DaveTrade said:
(a) The main advantage of a mechanical trading system over a discretionary system that can result in you gaining more money from the system;

There is less for a trader to think about when trading the system so you don't have to think too deeply about what the market is doing at the time you are placing orders.

(b) The main disadvantage of a mechanical trading system over a discretionary system that can result in you losing more money from the system;

There is less for a trader to think about when trading the system so you don't have to think too deeply about what the market is doing at the time you are placing orders.

So I would disagree simply on the basis of falsifiability.

I trade a system that is designed to provide a maximum loss ( your (b) ) prior to trading the system. That does not mean if a loss occurs it will be the maximum, just that there is a maximum.

With regard to (a) this is purely opinion.

The point of a mechanical system is that prior to entering the market, you have thought deeply about what it is you wish to accomplish and have developed your best foot forward via a system. There is no more magic than that involved.

The future, currently, is still an unknown factor that can rubbish your best efforts.

jog on
duc

Skate · 26 December 2022

@ducati916 I believe @DaveTrade was referencing the best & worst to have the same value. It's similar when we speak about the advantage & disadvantages of "Laptops". As an example:

The best thing about a laptop
It's portable.

The worst thing about a laptop
It's portable.

The advantages & disadvantages of an exit
This can be the same as to which side of the fence you are on, discretionary or mechanical system trading.

Skate.

Skate · 26 December 2022

ducati916 said:
The point of a mechanical system is that prior to entering the market, you have thought deeply about what it is you wish to accomplish and have developed your best foot forward via a system. There is no more magic than that involved.

I'm with @ducati916, a mechanical system affords you the privilege of exiting on your terms, "most of the time". I don't care how good a trader you think you are but if you stuff up the exit, your strategy is doomed to fail.

Skate.

Skate · 26 December 2022

ducati916 said:
have thought deeply about what it is you wish to accomplish

Without a trading background
Allowed me to have a clean slate to work with. When you have time on your hands it allows you to think clearly without interruptions. I've often said trading is not hard, making money from trading is where it becomes complicated.

When do I buy & when do I sell
In retrospect looking at charts is easy but when you are trading the next bar or series of bars not knowing what they will do next, requires skill rather than luck. "What to buy" becomes irrelevant, as "when to buy" makes more sense as @divs4ever has pointed out in a recent post that you "have to be picky" with stock selection. The rest of a mechanical strategy is filler but important.

Skate.

farmerge · 26 December 2022

ducati916 said:
So I would disagree simply on the basis of falsifiability.

I trade a system that is designed to provide a maximum loss ( your (b) ) prior to trading the system. That does not mean if a loss occurs it will be the maximum, just that there is a maximum.

With regard to (a) this is purely opinion.

The point of a mechanical system is that prior to entering the market, you have thought deeply about what it is you wish to accomplish and have developed your best foot forward via a system. There is no more magic than that involved.

The future, currently, is still an unknown factor that can rubbish your best efforts.

jog on
duc

Everyone to their own What might work for one may not for another. I have mine way of trading and it works for me most of the time, not making mega bucks but enough to make me happy and if No 1 is happy then all is good

ducati916 · 26 December 2022

Skate said:
@ducati916 I believe @DaveTrade was referencing the best & worst to have the same value. It's similar when we speak about the advantage & disadvantages of "Laptops". As an example:

The best thing about a laptop
It's portable.

The worst thing about a laptop
It's portable.

The advantages & disadvantages of an exit
This can be the same as to which side of the fence you are on, discretionary or mechanical system trading.

Skate.

Which is where the 'error' lies.

A mechanical system is no different from a discretionary system in this respect: the reward to risk ratio needs to be unbalanced.

That is to say, a reward: risk ratio should be: greater:lesser. The number 3:1, 1.4:1 is of course your choice or down to competence, but a balanced 1:1 is a waste of time (after trading costs, you lose).

jog on
duc

peter2 · 26 December 2022

DaveTrade said:
So I’m asking for feedback from people that have more experience trading in a systematic manner, if they think that system drawdown is likely to be less trading a weekly discretionary system or a fully mechanical weekly system?

One of my favourite thought bubbles. There will be periods when a discretionary input beats the mechanical system. Unfortunately there'll also be periods when the discretionary input provides worse results that the mech system. Over the longer term frequent discretionary involvement will lessen the mechanical edge. Disc involvement generally lessens drawdowns but it also reduces overall profit in most cases.

If the disc involvement is mainly emotional then it's going to make things much worse than the mech system. DDs will be larger and profits will be smaller. The aim then is to make the disc involvement more rule based (mechanical).

An example of this would be discretionary selling after news of an accounting irregularity rather than waiting for the EOW signal. This news is likely to cause further selling and a quick exit may save money over the mechanical EOW signal. So long as the discretionary involvement is rule based it can be tested to ensure it adds to the edge of a mechanical system.

Skate · 27 December 2022

Making sure the metric tells a story
When we evaluate a strategy we should take a keen interest in the "Sharpe Ratio" & the "Net Risk-Adjusted Return %" & in both cases, the higher the better. Taking note of both metrics can help improve your decision-making of how you can improve the performance of your portfolio. Risk is an inherent part of trading, which is why the risk-adjusted returns & the Sharpe ratio are two important metrics when analysing any strategies.

A risk-adjusted return
There are so many ways to measure a "risk-adjusted return" but with Amibroker the formula is simple, straightforward & inbuilt. A higher risk-adjusted return & a higher Sharpe Ration means that the return is worth the risk taken. There is an argument to be had about whether it's better to have lower returns with less drawdown than to have a high return with a huge drawdown as in all things trading "it's a compromise". I personally believe these two metrics are not given the respect they deserve until you find yourself on a long losing streak.

It pays to remember
Backtesting is a test of the past & the future will always hold surprises that tend to play out differently. Calculating the risk-adjusted returns & Sharpe ratio lets you know whether the strategies are making proportional returns to the risk involved, that's it in a nutshell.

Skate.

Skate · 27 December 2022

peter2 said:
There will be periods when a discretionary input beats the mechanical system

System Trading versus Discretionary Trading
There is an argument to be had about whether one form of trading is better than the other but with system trading personal skills are removed from the argument. With system trading, the decision to make a trade & when to exit is based solely upon the trading strategy. Mixing system trading with discretionary trading in my opinion never seems to work well in the long run. In essence, it is better to be one or the other. The stories you read of how to intertwine both forms of trading are just that, stories.

The Discretionary Trader
Discretionary trading is best for traders who want to be in control of every trading decision. This method of trading is best suited to those well-versed in market movements. Discretionary traders appear that they no longer need to follow a set trading system, but they do. These traders have a set plan & execute it with precision, patiently waiting for the right setup, & then take the trade without hesitation. These traders are "competent". They appear to trade using their so-called 'intuition', but are in fact, they are applying their vast knowledge & skill to recognise low-risk, high-profit potential, trades.

Skate.

rcw1 · 27 December 2022

Enjoy
ha ha ha ha ha

Kind regards
rcw1

BoNeZ · 27 December 2022

Roller_1 said:
I've been using RT for a number of years, I was a beta user so it has evolved ALOT since it went live. Feel free to post in this thread to spread the word about the awesome piece of software.

I'm another RealTest convert.

Great software which continues to get better with every update plus VERY helpful and friendly support.

I converting my AB AFL code to RT scripts and for a while kept them in sync to make sure they gave the same results but eventually gave up. My confidence in RT grew but I also started making changes which I found difficult to copy in AB.

The best purchase I've made in ages.

qldfrog · 27 December 2022

BoNeZ said:
I'm another RealTest convert.

Great software which continues to get better with every update plus VERY helpful and friendly support.

I converting my AB AFL code to RT scripts and for a while kept them in sync to make sure they gave the same results but eventually gave up. My confidence in RT grew but I also started making changes which I found difficult to copy in AB.

The best purchase I've made in ages.

FWIW, started the trial edition of RT yesterday? and moving some of my systems from AB to RT as part of my educational path.
Still early and learning phase , but indeed my request for access to forum was well above what could be expected at this time of the year, personal, friendly and tool neat and finished.
It is a huge step going from AB where i am quite comfortable to a new script and thinking process but so far so good
Will keep you posted on my thread or the RT one

DaveTrade · 28 December 2022

DaveTrade said:
The main advantage of a mechanical trading system over a discretionary system that can result in you gaining more money from the system;

There is less for a trader to think about when trading the system so you don't have to think too deeply about what the market is doing at the time you are placing orders.

The main disadvantage of a mechanical trading system over a discretionary system that can result in you losing more money from the system;

There is less for a trader to think about when trading the system so you don't have to think too deeply about what the market is doing at the time you are placing orders.

ducati916 said:
So I would disagree simply on the basis of falsifiability.

I trade a system that is designed to provide a maximum loss ( your (b) ) prior to trading the system. That does not mean if a loss occurs it will be the maximum, just that there is a maximum.

With regard to (a) this is purely opinion.

The point of a mechanical system is that prior to entering the market, you have thought deeply about what it is you wish to accomplish and have developed your best foot forward via a system. There is no more magic than that involved.

The future, currently, is still an unknown factor that can rubbish your best efforts.

jog on
duc

Skate said:
@ducati916 I believe @DaveTrade was referencing the best & worst to have the same value. It's similar when we speak about the advantage & disadvantages of "Laptops". As an example:

The best thing about a laptop
It's portable.

The worst thing about a laptop
It's portable.

The advantages & disadvantages of an exit
This can be the same as to which side of the fence you are on, discretionary or mechanical system trading.

Skate.

@ducati916 falsifiability is a word I haven't come across before, I had to look up the definition, and yes I think my statement would be falsifiability but I was making a statement as @Skate described. Thinking further on Drawdown between Discretionary & Mechanical systems I'm now wondering if there may be a difference not based on the type of system but on the type of structural money management that is employed. Money management will have an extra layer of complexity for me as I'm planning on using options to trade this system. If you have thought about this aspect of systems I would appreciate your feedback.

Skate · 28 December 2022

DaveTrade said:
Thinking further on Drawdown between Discretionary & Mechanical systems I'm now wondering if there may be a difference not based on the type of system but on the type of structural money management that is employed.

I'm sure @ducati916 will answer your question in good time but in the meantime, I'll make a comment about system trading.

It is always compromise
It's the age-old dilemma of whether it's better to have lower returns with less drawdown than to have a high return with a huge drawdown as they go hand in glove. Money management is only the start of the discussion & oh, I wish it was that easy. As with baking a cake, it's never left to one ingredient to decide how delicious the eating is.

Strategy Construction
To me, it's very complex & it would be exhausting to discuss the small nuances needed to make any strategy profitable. No matter how you trade, it all boils down to trend trading & that is where the journey should begin. Money Management, filters & parameter are just bread & butter ingredients.

The market is fascinating
One of the reasons that the market is so fascinating is that it combines elements of psychology, business, mathematics, & numerous other disciplines. Like most worthwhile things in life, if it were extremely easy to learn & do well, it wouldn’t be so potentially lucrative.

Skate.

Skate · 28 December 2022

Backtesting is a test of the past
The future will always hold surprises that tend to play out differently. The Backtest below is one of my trading strategies. I've renamed it to "Skate's 200k Strategy" for clarity. The backtest period is from the 1st of January 2022. This strategy is robust having a decent return with a low drawdown. At times with system trading, "good enough is good enough". I'm just saying don't overstretch & don't shoot for the moon.

P.H.D.
With Persistence, Hard work & Determination most things are possible.

Portfolio Equity
Realistically, how many traders "could" sit out of the markets for "extended periods" waiting for the next move up?

Skate.

DaveTrade · 28 December 2022

Skate said:
Backtesting is a test of the past
The future will always hold surprises that tend to play out differently. The Backtest below is one of my trading strategies. I've renamed it to "Skate's 200k Strategy" for clarity. The backtest period is from the 1st of January 2022. This strategy is robust having a decent return with a low drawdown. At times with system trading, "good enough is good enough". I'm just saying don't overstretch & don't shoot for the moon.

P.H.D.
With Persistence, Hard work & Determination most things are possible.

View attachment 150979

Portfolio Equity
Realistically, how many traders "could" sit out of the markets for "extended periods" waiting for the next move up?

View attachment 150980

Skate.

I'm liking the 'Max system % drawdown' on this of -7.33%. I think that most if not all would be happy with that.

Skate · 28 December 2022

DaveTrade said:
I'm liking the 'Max system % drawdown' on this of -7.33%. I think that most if not all would be happy with that.

@DaveTrade, coding a system with half-decent returns with a low drawdown is hard to achieve. There is a lot of mathematical gymnastics involved to achieve this.

Skate.

Trendnomics · 28 December 2022

Skate said:
@DaveTrade, coding a system with half-decent returns with a low drawdown is hard to achieve. There is a lot of mathematical gymnastics involved to achieve this.

Skate.

....and also involves curve fitting (so many system traders have "re-fitted" their index filters this year ??).

Skate, what MA period are you using now for your index filter?

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