MichaelD
Not fooled by randomness
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- 7 December 2005
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I'll be sure and let my backtested, paper traded and traded with real money positive expectancy system know that it actually doesn't work.tech/a said:
I'll be sure and let my backtested, paper traded and traded with real money positive expectancy system know that it actually doesn't work.tech/a said:I would argue that systematic trading of a spectulative miner is one way NOT TO.
MichaelD said:I'll be sure and let my backtested, paper traded and traded with real money positive expectancy system know that it actually doesn't work.:
ducati916 said:tech/a
An interesting dichotomy.
You advocate a systematic methodology for risk management in one timeframe, and a discretionary methodology to manage risk in a different timeframe.
To what variables do you ascribe the lack of correlation?
jog on
d998
tech/a said:Ducster.
Cant see where Ive mentioned risk?
Let me put it this way.
System trading simply has a set of entry exit and stop rules when applied return X positive expectancy if traded. The X will vary from portfolio to portfolio but will not (In my experience) deviste too much from the mean average of expectancy.--It wont swing widley from 5% to 50% as an example.
Again in my experience finding a system which does as Michaels does ------
100% profitable over 1000s of portfolio tests is in itself extremely difficult.
I havent found one with a meaningful return myself yet. It is of course possible as Michael seems to have one.
By nature systems tend to give back a lot at the point of exit due to the speed in which exits trigger.The balance of time Holding winning trades (To gain a higher R/R ) and price exiting losing trades quickly (Keeping it tight to decrease loss) is very difficult.
Again in my experience---it is pretty easy in a discretionary sence to identify a small cap whos crowd is swelling with anticipation-- reasonably early at least early enough to join in. Knowing crowd behaviour its also pretty easy to see when the new members no longer wish to participate and leave as fast as they come. Something Ive not been able to replicate in a trading system.
So MY VEIW is that its more profitable to trade these in a discretionary way.
Michael may well have a method which returns excellent profit. If I had one which returned 80% a year or 10-15 x R Id use it.---I dont---and I dont know what Michaels returns.
tech/a said:Ducster.
Cant see where Ive mentioned risk?
Let me put it this way.
System trading simply has a set of entry exit and stop rules when applied return X positive expectancy if traded. The X will vary from portfolio to portfolio but will not (In my experience) deviste too much from the mean average of expectancy.--It wont swing widley from 5% to 50% as an example.
Again in my experience finding a system which does as Michaels does ------
100% profitable over 1000s of portfolio tests is in itself extremely difficult.
I havent found one with a meaningful return myself yet. It is of course possible as Michael seems to have one.
By nature systems tend to give back a lot at the point of exit due to the speed in which exits trigger.The balance of time Holding winning trades (To gain a higher R/R ) and price exiting losing trades quickly (Keeping it tight to decrease loss) is very difficult.
Again in my experience---it is pretty easy in a discretionary sence to identify a small cap whos crowd is swelling with anticipation-- reasonably early at least early enough to join in. Knowing crowd behaviour its also pretty easy to see when the new members no longer wish to participate and leave as fast as they come. Something Ive not been able to replicate in a trading system.
So MY VEIW is that its more profitable to trade these in a discretionary way.
Michael may well have a method which returns excellent profit. If I had one which returned 80% a year or 10-15 x R Id use it.---I dont---and I dont know what Michaels returns.
So then to quantify RISK is in every single case subjective so to over come the problem allocate RISK.
This then places a bottom on the RISK that we take on any one trade.
We have control of that risk.
Its called an INITIAL STOP
In itself this is not sufficient enough to Manage Risk
What we dont have control of is the number of times our stop will be taken out in any period.---So to equate the effectiveness of our setting of a stop and its effectiveness as a money management tool we need 3 more pieces of information.
(1) Over X period (The longer the better) what was the greatest string of consecutive losses?
(2) Average consecutive losing trade.
(3) Whats is our average win to our average loss.
Without these three important pieces of information setting of a stop could be simply like filling a bucket with a hole in it.
So MY VEIW is that its more profitable to trade these in a discretionary way.
Michael may well have a method which returns excellent profit. If I had one which returned 80% a year or 10-15 x R Id use it.---I dont---and I dont know what Michaels returns
Again in my experience---it is pretty easy in a discretionary sence to identify a small cap whos crowd is swelling with anticipation-- reasonably early at least early enough to join in. Knowing crowd behaviour its also pretty easy to see when the new members no longer wish to participate and leave as fast as they come. Something Ive not been able to replicate in a trading system.
ducati916 said:Your referral to risk was on the risk thread, where you eulogised on the merits of a mechanical measure of risk.
Therefore in essence your *discretionary* methodology would seem to be violating your *risk management*.
The reason foe this violation would seemingly be;
viz. You do not have a profitable mechanical methodology; but, you are getting greedy watching these big 100%+ daily moves in the speccies and want some of the action..
Again;
*Experience. A very subjective position.
*Knowing crowd behaviour; again subjective.
*Not able to replicate; does this not suggest that it is not quantitative, but subjective [based on your ability]?
It would seem based on the above evidence that the Bullmarket has worked it's magic on you, distorting, and diminishing your risk management, taking you away from what made you profitable, into the dangerous ground of flying by the seat of your pants mode.
BBand said:Personally, I do not see why a small cap cannot be traded systematically, it may mean that you cannot use your normal trade size due to possible liquidity or volatility concerns, but if it has been properly tested, which Michael's appears to have been - then I do not see a problem
Most of us probably do not have deep enough pockets to consider system trading anyway, (supposing we wanted to).
Discretionary methods work - how else did our system traders build their trading capital?
In any case discretional trading is much more interesting and you do not have to be a zombie to trade successfully
Just my belief
Peter
robandcoll said:Michael,
--- WMT announced the BHP JV when the Indices began to fall after the China fall. -----
The only way to know if your method ie. your plan, is profitable over the long term, if to backtest it and especially to backtest it through previous less than ideal conditions.
So once you have backtested your systematic plan over a certain universe going back through bear markets, and sideways markets as well as bearmarkets
and its profitable with acceptable drawdowns and standard deviations (and montecarlo analysis gives 100%), and has a positive expectancy that you are happy with, you can trade with confidence knowing that if you stick to the blue print, you will succeed.
Profit Stop: Yes for the short term system, No for the long term system.nizar said:Also Michael - getting a bit off topic here but do you use a time stop or profit taking stop, and if not why?
Just a lot of work to construct a prior version of a universe. I've done it and found the effort well worth it.Tech/A said:Almost impossible in stocks due to survivorship.
Buy and hope it's only a correction if the price goes down (the 'it's a good company' strategy) is not a particularly efficient trading strategy. Sooner or later some of the corrections will turn into catastrophic losses.Out Too Soon said:Personally the way I trade I very rarely use stops.
Just a lot of work to construct a prior version of a universe.
The indexes aren't quite 10 years old yet, but buried within the ASX site and very hard to find with a search (or it was when I found it) is this gem;tech/a said:Michael.
Ive never been able to find the constituents for say the ASX 200 say 10 yrs ago---let alone the data.
Where do you get that information?
These are very interesting comments considering that I pick exactly these setups as well when going through my short term trading signals and have found them to have an edge over simply taking all breakout signals.BBand said:I basically trade breakouts from stage 1, breakouts from stage 3, trend continuation following a correction and trend reversals. I do not trade trend reversals in a bull market. Even in a bear market I find plenty of the above trades to keep me satisfied
BBand said:Hi Nizar,
I am a discretional trader by default - and I love it. I could never become a systems trader - they have to take every trade their system throws up, otherwise they may miss the big trade(s) that account for their having a profitable year
Backtesting - Again I am not a great believer in automated backtesting over a period covering all market conditions - and "tweaking" to optimise results.
Sure doing this will tell you if or not your system has a positive expectancy - and provide you with many opportunities to trade - the more the better, and the bigger the profit at the end of the year.
BUT included in the results is probably a lot of debris ie trades associated with exdivi dates, abnormal conditions which may never happen again etc, etc.
Being a discrectional trader, I am just interested in if my setups are working in the present market conditions.
Initially I manually backtested a cross section of my trading candidates over a three month period, I logged all trades and their individual returns. I then checked out the trades that produced the highest returns to find out what they had in common (checking against my standard chart setup).
The outcome is I have a preferred set of conditions that I look for in my setups
I only trade from the long side (approx 10years). I basically trade breakouts from stage 1, breakouts from stage 3, trend continuation following a correction and trend reversals. I do not trade trend reversals in a bull market. Even in a bear market I find plenty of the above trades to keep me satisfied
I have manually checked all setups over all market conditions - they all work, the only difference is that depending on the type of market, one particular setup becomes more dominant.
Trading is all about probabilities, if we can stack as many of what we interpretate as pluses on our side , so much the better - thats our so called edge.
The only problem is, when we trade, the person we trade with has exactly the opposite view to us!! who's right?
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