Dump it Here

[Skate]

Skate.

 

[Skate]

Why Do Trading Strategies Stop Working & Why Do They Fail?
It's hard for me to let go of these thoughts as they consume a lot of my thinking. I do realise that trading strategies can stop working due to changing market conditions, over-optimisation, lack of diversification, and human error but knowing all this in my case doesn't answer my concerns.

Knowing when a strategy stops working is of the utmost importance and it should be to all traders. Monitoring the win/loss ratio, average win/loss, drawdown, and Sharpe ratio sounds well and good but it's not the complete picture I'm looking for.

When a strategy is producing subpar performance, I review it to evaluate the changes in performance metrics. Doing so allows me to make minor adjustments to the trading plan. Before there are negative comments just bear in mind that without ongoing improvements we would still be driving around in a "Ford Model T" motor vehicle. Mechanical system trading is simply an ongoing process of refinement.

Trading methods can change and fail due to a variety of circumstances, and it is critical to understand these aspects in order to be prepared for when they do occur. I've come to the conclusion that changing market conditions are one of the most prominent reasons why trading methods fail to perform because markets are dynamic and ever-changing.

I'm just saying, with the pace of world events with easy access to up-to-date data, trading techniques that performed well in the past may not perform as well in the present climate of extreme uncertainty. For example, a trading technique designed during a bull market may not be appropriate for use during a fluctuating volatile market driven by world events.

Over-optimisation during the strategy development phase is another reason why trading techniques fail. For those who don't know, "over-optimisation" occurs when a trading strategy is overly tailored to historical data and becomes overly complex, a trap we can easily fall into. Over-optimisation can result in poor performance in real-world situations because the approach is too rigid and unable to adjust to market changes.

Another common cause of trading failure is because of human error. Trading is a highly emotional endeavour, as we have just discussed. Traders may make mistakes or divert from their trading strategy as a result of fear, greed, or other emotions. This can lead to bad decisions and losses.

In summing up, system traders should assess the effectiveness of their trading strategies using numerous criteria to determine whether they are no longer effective. If a trader detects a protracted period of low performance or a large shift in any of the original metrics, it could mean that their trading approach is no longer effective. Understanding the causes of failure allows traders to alter their trading approach and reduce losses.

Skate.

 

[DaveTrade]

One of the most common feelings that traders experience is fear which can take many shapes, ranging from the anxiety of losing money to the worry of missing out on a few dollars of profits. During times of market volatility or uncertainty, these emotions can be extremely potent, making it harder for traders to make rational decisions.

Another common psychological obstacle that traders confront is overconfidence. Overconfident traders may take on excessive risk or make hasty decisions based on hunches, limited incomplete data, or incorrect information. This can result in huge losses and make recovery from setbacks or failures difficult for new traders.

What I'm about to say regarding 'fear' and 'overconfidence' is not something that I've learnt from a book or a website, it's from my own experience and the way that I have come to view these things. Whenever I start to feel either of these it alerts me that I'm in a trading situation that I'm not fully prepared to handle, I take steps to get through this trade and note to follow up after the trade to find out what the missing information was that caused my fear or overconfidence.

Basically I'm saying that if you have too much fear or overconfidence then it's because you have gaps in your knowledge.

Just the way that I see it, hope it's helpful for some people.

 

[Skate]

What I'm about to say regarding 'fear' and 'overconfidence' is not something that I've learnt from a book or a website, it's from my own experience and the way that I have come to view these things. Whenever I start to feel either of these it alerts me that I'm in a trading situation that I'm not fully prepared to handle, I take steps to get through this trade and note to follow up after the trade to find out what the missing information was that caused my fear or overconfidence.

Basically I'm saying that if you have too much fear or overconfidence then it's because you have gaps in your knowledge.

Just the way that I see it, hope it's helpful for some people.

@DaveTrade, thank you for sharing your personal views and experience regarding "fear and overconfidence" when it comes to trading. It is critical to acknowledge that emotions can have a huge impact on our decision-making process, particularly in high-pressure situations such as trading. Your method of taking a step back and analysing the main cause of these feelings is a great way to deal with them in the present while also learning from the experience of trading in the future. Furthermore, your perspective on the significance of continual learning and remaining informed about market and industry trends in order to fill knowledge gaps is quite valuable.

I wholeheartedly agree with your response. Emotion management is a key part of trading, and it is necessary to recognise and manage them well in order to make sound decisions. Your method of taking a step back and understanding the basis of emotions is a smart way to cope with them, and your focus on the importance of continual learning and remaining current with market and industry advancements to overcome knowledge gaps is really important.

Skate.

 

[Skate]

"Trading for Beginners - Skate's Practical Guide to Profitable Trading"
A daily series of posts aimed at those just starting out on their trading journey.

49. Financial Planning
Financial planning is an important component of obtaining long-term financial security. It requires the proper mindset toward money management, making careful, well-informed decisions, and prioritising your long-term financial goals over your present desires.

Financial fitness demands a regular focus on saving, trading, and making wise financial decisions, just as physical fitness requires a consistent focus on exercise and healthy behaviours. You can improve your prospects of long-term financial security and prosperity by making financial planning and wealth creation a priority in your attitude and everyday routine.

To increase your long-term financial stability and prosperity, you must prioritise financial planning and wealth generation in your daily routine. However, it is critical to remember that achieving financial success demands self-control, determination, and a long-term perspective. Simply considering saving and trading is insufficient.

Making decisions that are in line with your long-term financial goals is more important than simply thinking about saving and investing money. To improve your financial security, you must understand your personal finance, because knowing where you are today and where you want to be tomorrow is the starting point of this process.

You can improve your financial outcomes, attain more financial security, and build wealth over time by being committed to your financial goals and trying to acquire the knowledge and discipline needed to make wise financial decisions. In the end, getting financially fit demands a continual dedication to making wise decisions, acting, and making long-term trading decisions that can only add to your prosperity.

By frequently reviewing your trading or investment portfolio you can stay up to date with developments that may affect them. This includes adjusting your strategy as needed to ensure that the strategy remains aligned with current market conditions.

Finally, you can acquire financial security and riches over time by adopting the correct attitude and sticking to a strong financial strategy.

Skate.

 

[Skate]

"VWAP", Mechanical trading system
I want to explore a simple mechanical trading system "buy condition" with an example of a small piece of code with practical examples.

I will also examine the potential impact of "the after-effect" by applying the buy condition with a few filters. The example code will use the Value Weighted Average Price" (VWAP) as the buy condition. The VWAP is a simple well-proven technique that I have discussed in previous posts.

I have commented on each line of code for those following along. The last line of the code is for debugging and can be removed.

_SECTION_BEGIN( "VWAP" );
// The lookback period
lookback_period = Param( "LookBack", 11, 1, 300, 1 );

// Calculate the sum of the price multiplied by the volume over a lookback period
sum_price_volume = Sum( C * V, lookback_period );

// Calculate the sum of the volume over a lookback period
sum_volume = Sum( V, lookback_period );

// Calculate the volume-weighted average price (VWAP) using the sum of the price-volume and the sum of the volume
VWAP = sum_price_volume / sum_volume;

// Define the condition for buying based on the VWAP and the current and previous close prices
BuyCondition = C > VWAP AND C > Ref( VWAP, -1 );

// Output the BuyCondition value for debugging purposes
// This line can be removed in the final version of the code
printf( "BuyCondition: %g\n", BuyCondition );

_SECTION_END();

A bit of background
Mechanical system trading is a viable trading strategy that eliminates the emotional component and allows traders to make decisions based on established rules. However, even with being supplied with a "VWAP" buy condition the most difficult aspect of this strategy is establishing a complete trading system.

Starting with a clear grasp of your goals and risk tolerance is one method to construct a successful mechanical trading system. This will assist you in determining the proper parameters and filters to utilise in your system. You must also select the appropriate indicators and algorithms to generate entry and exit signals.

It is vital to realise that mechanical system trading does not have a one-size-fits-all solution. Every trader has their own set of goals, risk tolerance, and trading style. As a result, it is critical to constantly assess and change your trading system to ensure its effectiveness in a variety of market conditions.

Backtesting your trading strategy using previous data is one technique to assess its efficacy. This will assist you in identifying any flaws or weaknesses in your system and making the required improvements before risking real money in the markets.

Risk management is another critical part of mechanical system trading. Trading will always include some element of risk, regardless of how effective your strategy is. To minimise potential losses and protect your capital, proper risk management procedures, including setting stop-losses, position score ranking, and position size, must be implemented.

Finally, if done correctly, mechanical system trading can be a highly effective trading strategy. To remain effective in diverse market conditions, however, rigorous planning, thorough testing, and constant review and change are required. Traders can increase their chances of long-term trading success by using adequate risk management tactics.

Disclaimer
The above code is for educational purposes only. In the next post, I'll show a backtest using the buy condition in isolation and another backtest after filters are applied.

Skate.

 

[DaveTrade]

one of the most common questions that new traders have is how much money they need to start. While it is conceivable, to begin with a small amount of money, keep in mind that anything less than $50,000 or $60,000 can soon be eaten up by commission and other expenses which can reduce profitability.

Some people that make the decision to learn trading either don't have $50,000-$60,000 or are not prepared to risk this much of their hard earned and saved capital, and prefer to allocate a smaller proportion of their funds to trading while they increase their skill and confidence to a level where they would be prepared to invest more of their money. If such people really want to learn mechanical system trading, the type of trading that @Skate uses then this can be done for a fifth to a tenth of the capital indicated by Skate if you are prepared to learn how to do it with Options.

I know that not new traders have the amount of capital indicated by Skate, that may be one of the reasons why they want to learn trading in the first place, so I just wanted to let those people know that there is a way.

 

[Skate]

"VWAP", 365 Day backtest
To be fair the "VWAP" backtest result on the left is using the "VWAP buy condition in isolation". The backtest on the right has "conditional filters" applied. Meaning, even if the "VWAP" buy condition is met it will be conditional on the other filter to generate buy signals.

No cherry-picking
365 days are used in the first backtest so there is no cherry-picking to establish my point about how the use of "conditional buy filters" can increase the backtest results.

Footnote
It's also worth noting that other than "conditional buy filters" being removed the other risk management filters have been left in place. The exercise is to demonstrate the effectiveness of using filters to fine-tune a strategy.



Skate.

 

[Skate]

Some people that make the decision to learn trading either don't have $50,000-$60,000 or are not prepared to risk this much of their hard earned and saved capital, and prefer to allocate a smaller proportion of their funds to trading while they increase their skill and confidence to a level where they would be prepared to invest more of their money. If such people really want to learn mechanical system trading, the type of trading that @Skate uses then this can be done for a fifth to a tenth of the capital indicated by Skate if you are prepared to learn how to do it with Options.

I know that not new traders have the amount of capital indicated by Skate, that may be one of the reasons why they want to learn trading in the first place, so I just wanted to let those people know that there is a way.

@DaveTrade thank you for sharing your thoughts and comments. You've highlighted an important point that many new traders face, which is the question of how much capital is needed to start trading. While it's true that trading with a small account can be challenging, it's not impossible, and there are ways to learn trading with a smaller capital allocation.

When it comes to trading, it's essential to be disciplined and clinical in everything you do. Trading small accounts require strict risk control and money management. You'll need to be precise with your timing and use risk-management tools such as conditional buy filters, trailing stops, stale stops, position sizing, and take-profit stops to give yourself a fighting chance of survival.

It's also important to note that trading doesn't have to be complicated or time-consuming. Even if you have little money or experience, there are several easy and accessible ways to start trading, such as buying and selling shares in a licensed investment company or practicing with paper trading.

Ultimately, finding profitable entry locations is just one aspect of trading success. Risk management and exit strategy planning are equally crucial to avoid significant losses. So, it's important to start small, use risk-management tools, and progressively increase your trading size as you gain experience and confidence.

Skate.

 

[Skate]

"VWAP", 5 year backtest (25th of June 2018 to present)
To be fair the "VWAP" backtest result on the left is using the "VWAP buy condition in isolation". The backtest on the right has "conditional filters" applied. Meaning, even if the "VWAP" buy condition is met it will be conditional on the other filter to generate buy signals.

No cherry-picking
I've used a 5 year backtest going back from today's date in the second backtest so there is no cherry-picking to establish my point about how the use of "conditional buy filters" can increase the backtest results. Without "buy condition restrictions" a perfectly good strategy having excess freedom will through caution to the wind.

Footnote
It's also worth noting that other than "conditional buy filters" being removed the other risk management filters have been left in place. The exercise is to demonstrate the effectiveness of using filters to fine-tune a strategy. I've highlighted a few metric with red boxing that demonstrates my point of using "condition buy filters".



Skate.

 

[Skate]

In summary
The VWAP is a useful tool for identifying potential trading opportunities, giving greater importance to positions with higher volumes in a volume-weighted trading system. Using the "VWAP" is useful because it concentrates on "price & volume" two separate factors that traders use to analyse the market & make trading decisions.

A volume-weighted trading system takes into account the volume of trades when making buying decisions. A volume-weighted trading system assigns greater importance to trades with higher volumes, as they are seen as more significant & can provide a more accurate representation of market sentiment.

Calculating an asset's VWAP over a specific time period can be used as a benchmark for buy and sell signals.

The VWAP trading strategy is becoming more popular in identifying patterns in heavily traded companies, with the period for calculating the VWAP tailored to the trader's objectives and market conditions.

Using the VWAP as a filter can also be used to eliminate false signals to improve trading success by setting specific conditions for buying and selling based on the VWAP.

In conclusion, the VWAP is a powerful tool for making buy and sell decisions in a volume-weighted trading system. Optimizing the period for calculating the VWAP and using it as a filter can reduce false trades and enhance overall trading success.

Skate.

 

[Skate]

My next-door neighbour came over for a cup of coffee this morning and she noticed I was posting a few comments in the "Dump it here" thread about trading.

After explaining my simple trading methods, and showing her a few backtests results, out of the blue, she said to me, "I could marry you".

I couldn't believe it, you do something nice for someone and they threaten to ruin your life in return.

Skate.

 

[Skate]

Use the search feature to locate additional information on any topic I post
Our forum contains a wealth of valuable information, and it's highly likely that any question you have has already been answered. We encourage you to make use of the search function (located in the top right corner as a magnifying glass icon) to quickly find relevant threads and posts. Doing so will save you time and help you make the most of our forum's resources.

Skate.

 

[farmerge]

My next-door neighbour came over for a cup of coffee this morning and she noticed I was posting a few comments in the "Dump it here" thread about trading.

After explaining my simple trading methods, and showing her a few backtests results, out of the blue, she said to me, "I could marry you".

I couldn't believe it, you do something nice for someone and they threaten to ruin your life in return.

Skate.

You never know Skate a bird in the hand..............................................

 

[Skate]

Only 5 trading days until the end of the financial year
Trading in the Australian market has undoubtedly been difficult this year but not impossible to crack a return. Our market over the last 12 months has been notorious for its volatility, catching some traders off guard, even seasoned traders have been put to the test. I'm sure those traders that remain focused handled these challenges without too much difficulty.

# Trading systematically with a solid trading plan, and a risk management system in place has its advantages.

My Weekly and Monthly results for 2022-2023
Up until last week, the end of the year was building nicely for an end-of-year sprint to the finish only to be confronted with more uncertainty. Let's just hope the last 5 days turn out to be kinder than the last week. (5 Losing months and 7 winning months)

The odds haven't been any kinder with 26 losing weeks so far with a string of consecutive losses between the 10th of February 2023 to the 24th of March 2023


Trading is a non-linear activity as a result of uncertainties
Greed, fear, and emotions have an impact on trading that induce traders to make irrational decisions. The influence of psychological variables, trading is not a linear activity. To consistently generate profits, traders must be able to adjust to shifting market conditions, manage uncertainty, and restrain their emotions.

Skate.

 

[Skate]

"Trading for Beginners - Skate's Practical Guide to Profitable Trading"
A daily series of posts aimed at those just starting out on their trading journey.

50. There is good debt & bad debt
Even while debt can be a heavy financial burden, not all debt is the same. In fact, with good management, some debt may even be advantageous. Debt is a financial tool that can help you achieve your goals and generate wealth, however, not all debt is equal. Understanding the distinction between good and bad debt is essential for making sound financial decisions and achieving long-term financial security.

Good debt is debt used to invest in assets that will increase in value over time, such as a mortgage or a business loan. You can boost your long-term returns and financial outcomes by taking on debt to invest in a productive enterprise. A mortgage on a home, for example, may appreciate in value over time, increasing your nett worth and providing a return on investment when you eventually sell the property.

Bad debt, on the other hand, refers to loans taken out to buy assets or things that depreciate over time, such as a car or credit card debt. Borrowing money to purchase items that lose value over time can leave you with a large debt load and little to show for it. Bad debt often has higher interest rates than good debt, which can add to the financial strain over time.

When considering debt, it's critical to analyse the potential benefits and drawbacks and make decisions that line with your long-term financial goals and basic values. Prioritising good debt over bad debt is critical because good debt can improve your financial performance and progressively raise your financial security and wealth development.

It's true that a lot of people spend more time investigating a car purchase than they do preparing for a prosperous and financially free future. Unfortunately, not making plans for the future can leave us open to unforeseen circumstances and monetary difficulties.

Therefore, it’s critical to invest time and resources in financial planning and financial education in order to have the future you deserve. This includes making a budget, determining your long-term financial goals, and devising a strategy to attain them. By doing so you may develop a solid financial foundation and achieve long-term financial success by making informed financial decisions and managing your debt properly.

Skate.

 

[ducati916]

Only 5 trading days until the end of the financial year
Trading in the Australian market has undoubtedly been difficult this year but not impossible to crack a return. Our market over the last 12 months has been notorious for its volatility, catching some traders off guard, even seasoned traders have been put to the test. I'm sure those traders that remain focused handled these challenges without too much difficulty.

# Trading systematically with a solid trading plan, and a risk management system in place has its advantages.

My Weekly and Monthly results for 2022-2023
Up until last week, the end of the year was building nicely for an end-of-year sprint to the finish only to be confronted with more uncertainty. Let's just hope the last 5 days turn out to be kinder than the last week. (5 Losing months and 7 winning months)

The odds haven't been any kinder with 26 losing weeks so far with a string of consecutive losses between the 10th of February 2023 to the 24th of March 2023

View attachment 158627
Trading is a non-linear activity as a result of uncertainties
Greed, fear, and emotions have an impact on trading that induce traders to make irrational decisions. The influence of psychological variables, trading is not a linear activity. To consistently generate profits, traders must be able to adjust to shifting market conditions, manage uncertainty, and restrain their emotions.

Skate.

So these charts are useful...more useful if you had the raw data.

However, a number of questions:

(i) Do the moves higher equate to an average percentage increase in capital or average # winning trades?
(ii) If so, what would have happened had you removed capital at the highs and added capital at the lows?
(iii) Would the equity curve have finished higher over the year?

I'd be very interested in the results.

jog on
duc

 

[Skate]

So these charts are useful...more useful if you had the raw data.

However, a number of questions:

(i) Do the moves higher equate to an average percentage increase in capital or average # winning trades?
(ii) If so, what would have happened had you removed capital at the highs and added capital at the lows?
(iii) Would the equity curve have finished higher over the year?

I'd be very interested in the results.

jog on
duc

@ducati916, by disclosing my trading results over the last fiscal year, you can see that I've experienced some hurdles along the way but staying focused and disciplined I'm happy to say that my trading performance resulted in a good return.

In response to your inquiries, I would state:

(i) The two equity curves I've presented depict capital appreciation or the increase in the value of my portfolios over the preceding fiscal year. While the end result is satisfying, it is crucial to remember that trading is not always a straight line with numerous ups and downs.

(ii) You described a technique of selling at the high and buying at the low, which is an effective trading strategy yet difficult to predict and implement in real-time. This emphasises the difficulties that traders encounter while making decisions in the heat of the moment. While system trading can assist to mitigate some of these challenges, it is still critical to be able to adapt to changing market conditions and change your strategy as needed.

(iii) You asked whether the equity curve would be higher or lower would be pure speculation as it’s not possible to reliably identify market turning points and execute trades accordingly. While answering this issue is challenging, I believe traders can improve their chances of success by employing a rules-based approach to their trading using all the tools available that technical analysis and risk management afford us.

Overall, trading is a difficult and non-linear activity that requires a combination of knowledge, and discipline. You may boost your chances of achieving consistent long-term returns by focusing on developing a sound trading strategy, sticking to your trading plan, and managing risk efficiently. Remaining adaptable in the face of changing market conditions at least gives you a fighting chance of survival.

The weekly equity curve has a "grey" benchmark line denoting that I was having the best trading year "ever". Reaching the benchmark line again in July, I assumed I was in for a spectacular finish for the end of the year. Then the savage drop last week "hurt like a bitch", as that drop involved some serious dollars.



Skate.

 

[Skate]

"Trading for Beginners - Skate's Practical Guide to Profitable Trading"
A daily series of posts aimed at those just starting out on their trading journey.

51. Complacency kills opportunities
Many people nowadays lead robotic lives, drifting aimlessly from one thing to the next with no real sense of direction or purpose. Complacency can be a deadly trap that prevents us from taking advantage of opportunities without a clear plan for the future.

A sound financial plan, on the other hand, can help us weather unforeseen challenges and grow more robust over time. We may construct a fulfilling and meaningful life that is compatible with our values and objectives by defining long-term goals and staying focused on the next step.

Everyone has a different and distinctive viewpoint on what life is all about because it is a complex and diverse experience. One perspective on life, however, is as a succession of interconnected decisions and experiences, each one building on the previous and pointing to the next.

It's all about setting ourselves up for long-term success and fulfilment, rather than merely reaching a single goal or result. Life is just like a game of pool, it’s not about sinking the next ball but lining up the next shot.

Of course, life will always take unexpected turns, and we frequently have little influence over how our actions and decisions will be interpreted. However, by sticking to our long-term goals while being adaptable in the face of change and adversity, we may overcome these challenges and grow as a trader.

We may design a joyful and meaningful life that is consistent with our beliefs and aspirations by being proactive in our lives and pursuing our passions and goals with intention and purpose.

Of all, there are always unexpected turns in life, and we often have little control over how our actions and decisions will play out. But we may overcome life's obstacles and grow stronger and more resilient over time if we maintain our long-term goals while being flexible in the face of change and hardship.

In the end, life is what we make of it, and our experiences and outcomes are determined by our choices, decisions, actions, and viewpoints held. We may construct a life that is full of meaning, purpose, and fulfilment by adopting a growth mindset and staying focused on our long-term goals. Don't let complacency suffocate your prospects, instead, take control of your life and pursue your passions and ambitions with focus and purpose.

Skate.

 

[Skate]

Skate.