Intraday mechanical trading

[nizar]

Thanks for posting that article Temjin.

Its pretty clear that this author is making the assumption that systematic traders have to take every signal. Certainly isnt the case with mine and a few other systems I know.

 

[weird]

applying discretionary over systematic trading has an advantage due to the practical experiences

Discretionary sounds sexy doesn't it, sounds like I did my own thing, because I have been so sucessful in my own life, in my own personal decisions that have lead to where I am now, I can just choose and it will work out right ... I'm smarter that the average guy (or perhaps I can prove this in this trade) ... "I did it my way" ... but I don't think that discretionary is what was intended in that context within the trading from the above posts, but more systematic, that is, I am following some rules (which I may not be able to completely program in tradestation/metastock/amibroker/etc as a buy or a sell) that have been taught or discovered, within a system that has a positive expectancy. That is, systematic trading.

 

[nizar]

Discretionary sounds sexy doesn't it, sounds like I did my own thing, because I have been so sucessful in my own life, in my own personal decisions that have lead to where I am now, I can just choose and it will work out right ... I'm smarter that the average guy (or perhaps I can prove this in this trade) ... "I did it my way" ... but I don't think that discretionary is what was intended in that context within the trading from the above posts, but more systematic, that is, I am following some rules (which I may not be able to completely program in tradestation/metastock/amibroker/etc as a buy or a sell) that have been taught or discovered, within a system that has a positive expectancy. That is, systematic trading.

Bro i love your work!
(The part in red).

And I do agree with what you are saying. If you have a discretionary system that you've been trading for years (or over any period of time to give you a statistically significant number of trades) and you know it trades with a positive expectancy, then this is no different to backtesting.

Those that have been trading with their own method (even if it hasnt been backtested) for years and years have confidence because they know it had been proven to have returned a profit in the past. They would know from actual trading about max.DD, string of losses, what sort of returns to expect, etc, etc.

As long as you have a set of rules that you stick to and follow in a systematic way, and these rules are the ones that have been successful for you in the past, then you're set.

Does the above even make sense? lol probably not.

 

[nizar]

As for the leverage using CFDs, think of it that the use of leverage allows you to start trading and fully utilise your money management strategies with LESS CAPITAL.

Example: You may need $1 million dollar to trade a particular system on stocks alone. That includes all the associated money management strategies that you have backtested and give you the confidence to trade this system. But with leverage, after cost, you found out you could do the same thing for just $100,000 dollars instead.

That's how I treat leverage.

Yeh same with me.

Say, I figured I would need about $200k to get this going with $20k a trade. So 10 positions.
At 10%, Maybe now I could use only $20k since i could control $20k worth of stock with $2k.

Obviously the above is just an example. I haven't even started thinking about the basic mechanics of the system let alone exploring money management strategies.

Thanks for your thoughts.

 

[wayneL]

Just googled Acts 9 cant see relevence.
Care to enlighten me?

Acts 9 details the story of the Damascus Road conversion of Saul. I just thought it quite allegorical.

 

[Temjin]

Bro i love your work!
(The part in red).

And I do agree with what you are saying. If you have a discretionary system that you've been trading for years (or over any period of time to give you a statistically significant number of trades) and you know it trades with a positive expectancy, then this is no different to backtesting.

Those that have been trading with their own method (even if it hasnt been backtested) for years and years have confidence because they know it had been proven to have returned a profit in the past. They would know from actual trading about max.DD, string of losses, what sort of returns to expect, etc, etc.

As long as you have a set of rules that you stick to and follow in a systematic way, and these rules are the ones that have been successful for you in the past, then you're set.

Does the above even make sense? lol probably not.

That is why I still agree that discretionary trading are more adaptive to the markets, and will always remain superior over non-adaptive, pure mechanical trading on a one-to-one comparsion.

But then I asked myself the question, what are the cost of discretionary trading? What kind of effort i need to reach that kind of level of experiences and skills? What is my limitation, how many markets I can trade at once? How will it affect my family/social life, whatever?

Discretionary, day-trading through multiple-markets with ultra disciplines may win the day in terms of reward/risk and opportunity. But the psychological and social cost in reaching such a godly status may not be worth it.

That's me anyway, I still want to enjoy life. That's why I opt for full mechanical trading at the expense of reaching the full potential. Achieve the most with the least effort.

 

[motorway]

Trading is an alchemical process

that turns Lead ( chaos ) into Gold ( Order )

All methods that work will have recognized or not
true principles that they will adhere too..

I agree that this means 100% systematic

Now if The method is the container the "retort"

Where the process that makes the dollars occurs

Then it comes to the issue of

a purely mechanical system
That will produce $$$ to some extent

or a system which is still 100% systematic BUT YOU climb into the retort yourself...With You whole being..

esp Your emotions

And not only transform the base lead into gold
But end up transforming yourself as well

( If You are in amongst it it follows that You are forced to grow )

eg The method becomes one of self cultivation...

Hence I think
make all as mechanical as you can
be 100% systematic

But engage and make ( everything) alive...ie

bring awareness and consciousness to the task


Discretionary is a word that often has no meaning in the context it is often used... It tends to mean bad practice,..

A good system will make money
and allow one to engage with it as much or little as one wants

a good system is one that captivates by the the lessons it teaches
as well as the $$$ it makes

So as long as You need to make $$ and grow and learn
engagement is not a problem

there will never be a day come
where everything that is important can be coded into a automaton .
So always 100% systematic applied with 100% flexibility

So as in an old martial art text

1000 pounds can be controled by 1 ounce

A good system even with You in the middle of it
is efficient and leveraged
eg outputs will always exceed inputs...
$$ in $$ out
Time in Time out


motorway

 

[wayneL]

FWIW from one of my posts on day trading from earlier this year.

An Interesting blog article from a bloke with a bit of credibility:

Ernie is a quantitative trader and consultant who helps his clients implement automated, statistical trading strategies. He can be reached through www.epchan.com. Ernie has worked as a quantitative researcher and trader in various investment banks (Morgan Stanley, Credit Suisse First Boston, Maple Securities) and hedge funds (Mapleridge Capital, Millennium Partners, MANE Fund Management) since 1996. He has a Ph.D. in physics from Cornell University.

http://epchan.blogspot.com/2007/02/in-praise-of-day-trading.html

In praise of day-trading

A recent article by Mark Hulbert in the NYTimes talked about the Value Line's rankings, and how this system is under-performing the market index in recent years. Mr. Hulbert asked Professor David Aronson of Baruch College whether this drop in performance means that the system has stopped working. Prof. Aronson says no: he believes that it takes 10 or more years [my emphasis] of under-performance of this strategy before one can say that it has stopped working! This statement, if taken out-of-context, is so manifestly untrue that it warrants some elaboration.

To evaluate whether a strategy has failed bears a lot of resemblance to evaluating whether a particular trade has failed. In my previous article on stop-loss, I outlined a method to determine how long it takes before we should exit a losing trade. This has to do with the historical average holding period of similar trades. This kind of thinking can also be applied to a strategy as a whole. If your strategy, like the Value Line system, holds a position for months or even years before replacing it with others, then yes, it may take many years to find out if the system has finally stopped working. On the other hand, if your system holds a position for just hours, or maybe just minutes, then no, it takes only a few months to find out! Why? Those who are well-versed in statistics know that the larger the sample size (in this case, the number of trades), the smaller the percent deviation from the mean return.

Which brings me to day-trading. In the popular press, day-trading has been given a bad-name. Everyone seems to think that those people who sit in sordid offices buying and selling stocks every minute and never holding over-night positions are no better than gamblers. And we all know how gamblers end up, right? Let me tell you a little secret: in my years working for hedge funds and prop-trading groups in investment banks, I have seen all kinds of trading strategies. In 100% of the cases, traders who have achieved spectacularly high Sharpe ratio (like 6 or higher), with minimal drawdown, are day-traders.

 

[nizar]

Nice article Wayne.

I agree wholly with what he is saying about knowing when a system has failed.

And good daytraders I believe really do clean up. Maybe 99% of daytraders fail but that means all the more $$$ for the 1% who know what they are doing. Its the trade frequency that really amplifies their edge IMO.

 

[Temjin]

Let me tell you a little secret: in my years working for hedge funds and prop-trading groups in investment banks, I have seen all kinds of trading strategies. In 100% of the cases, traders who have achieved spectacularly high Sharpe ratio (like 6 or higher), with minimal drawdown, are day-traders.

Very, very, very true.

This is simply because there are far more opportunities available in day-trading, or trading in the shortest possible timeframe that gives a statistically proven system.

Anyone who can do pure discretionary, day trading, with multiple markets will take the crown.

But pure mechanical, day trading, with multiple markets, will require less effort to do the "not-as-good" but still extremely lucrative job.