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Safe way to use leverage

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Yeah it seems its a personal thing and what any individual is comfortable dealing with.

I think i will always be discretionary just by my nature, does that mean i cannot profit from the market consistently? Well time will tell but i think i can, really the way i see it, its about making decisions based on evidence. You either have that evidence or you dont.

Isnt a "system" acting on the same evidence but just doing it automatically?

:2twocents

Stink
 
With a purely mechanical method in the strictest of terms it would be purely mechanical and some brokers can/or do run your systems but then you'll need to find them.

I personally run and monitor my mechanical systems so I buy and sell on triggers--Entry/Exit/stops.I use a Full service broker as trade numbers /year are only up to 30 each system.

So I guess you could say that they are mechanical in design and manual in execution.This in itself has the advantage of being able to impart a small discretionary element (which sounds like a contradiction but actually isnt--I'll explain).

Montecarlo analysis tells me that over 20000 portfolios the best performed at a 40% flat return (Un leveraged) and the worst 23%. Of course you cant pre select the 40% return portfolio.
So I have confidence that the worst performing portfolio will return a minimum of 23%.Each portfolio is different as many stocks are triggered but ofcourse funds dont allow ALL triggers to be taken.
In my wisdom I have added 2 eyeball filters (Looking at the charts),these do not alter the criteria at all,what they do do is give me a confidence that the stock according to the chart
(1) Isnt Ranging.
(2)Is in a Trend/or emerging trend/or has clearly broken a downtrend.

As it turns out maybe by goodluck rather than good management,all 3 are performing at the higher end of the Portfolio test returns.
 
tech/a said:
As it turns out maybe by goodluck rather than good management,all 3 are performing at the higher end of the Portfolio test returns.
Click to expand...

so more than 40%?
 
Isnt a "system" acting on the same evidence but just doing it automatically?
Click to expand...

The difference is subtle yet dramatic.

What your doing with a Mechanical method is applying a set of criteria down to position size over a long time period and over a great number of trades.

The END RESULT is a positive expectancy of X if you do exactly as you have programmed in your system.

The difference being is that you KNOW THIS.
You have a Blueprint of information returned from rigorous testing that gives you information that you can and should use as a BenchmarkRelative to your trading.You can pick a run of losses as being acceptable OR out of testing and such not the way to trade--IE your method of trading isnt as you expected.
In a discretionary environment you just wont know this and other important aspects of a trading methodology until possibly years later.

Once you get sick of inconsistancy you may well tread the path I have.
 
tech/a said:
Montecarlo analysis tells me that over 20000 portfolios the best performed at a 40% flat return (Un leveraged) and the worst 23%. Of course you cant pre select the 40% return portfolio.
So I have confidence that the worst performing portfolio will return a minimum of 23%.
Click to expand...
Playing the Devil's Advocate here - why? (do you have confidence that the worst performing portfolio will return 23%).

For those that are unaware, Tech and I trade very similar systems, so this is "friendly fire". My bent, however, is much more towards the market being a random walk rather than being predictable in any way. I am also very interested in the gotchas of backtesting.
 
MichaelD said:
My bent, however, is much more towards the market being a random walk rather than being predictable in any way.
Click to expand...

So your assumptions of the market are clear, hence the mechanical approach.

Excepting fallacy and delusion of the discretionary trader believing in prediction, I recognise the basis of your approach to the market. If it works keep doing it.
 
Snake Pliskin said:
Tech have you matched it with some guru methods in books etc?
Click to expand...

How do you mean??

is much more towards the market being a random walk rather than being predictable in any way.
Click to expand...

I agree thats why I develope methodologies which are predictable.
 
Snake Pliskin said:
So your assumptions of the market are clear, hence the mechanical approach.

Excepting fallacy and delusion of the discretionary trader believing in prediction, I recognise the basis of your approach to the market. If it works keep doing it.
Click to expand...

....should have mentioned I don`t believe in throwing darts though.
 
tech/a said:
The difference is subtle yet dramatic.

What your doing with a Mechanical method is applying a set of criteria down to position size over a long time period and over a great number of trades.

The END RESULT is a positive expectancy of X if you do exactly as you have programmed in your system.

The difference being is that you KNOW THIS.
You have a Blueprint of information returned from rigorous testing that gives you information that you can and should use as a BenchmarkRelative to your trading.You can pick a run of losses as being acceptable OR out of testing and such not the way to trade--IE your method of trading isnt as you expected.
In a discretionary environment you just wont know this and other important aspects of a trading methodology until possibly years later.

Once you get sick of inconsistancy you may well tread the path I have.
Click to expand...

I see what your saying Tech, i can make 20 paper trades and all of them are profitable and i think "How good am i" my "system" or trading plan works. But in reality i have no idea, it may work but until i have used that system in exactly the same way for a number of years i cant have any positive expectancy.

And long before i get to this stage three things can happen.
1. My system is actually positive, i just dont know it yet.
2. I meander along win some winsand some losses but never really make anything from my trading business, just keep my head above water.
3. I go broke.

However should i apply my methods to a test over various portfolios, i can then detrmine whether the expectancy of any given system is positive or negative.

Its funny though, should i test my current trading strategy and it proves positive, if i want to actually benefit from the system i need to remove myself from it. The moment i have changed something i have ruined the blueprint no?

I assume then tech your system basically cruises along and gives you alerts that say "buy this now" "sell this now" etc

Regards Stink
 
stink said:
I see what your saying Tech, i can make 20 paper trades and all of them are profitable and i think "How good am i" my "system" or trading plan works. But in reality i have no idea, it may work but until i have used that system in exactly the same way for a number of years i cant have any positive expectancy.

And long before i get to this stage three things can happen.
1. My system is actually positive, i just dont know it yet.
2. I meander along win some winsand some losses but never really make anything from my trading business, just keep my head above water.
3. I go broke.

However should i apply my methods to a test over various portfolios, i can then detrmine whether the expectancy of any given system is positive or negative.

Its funny though, should i test my current trading strategy and it proves positive, if i want to actually benefit from the system i need to remove myself from it. The moment i have changed something i have ruined the blueprint no?

I assume then tech your system basically cruises along and gives you alerts that say "buy this now" "sell this now" etc

Regards Stink
Click to expand...


Exactly Stink now youve got it.

You actually wont have a blueprint unless you record every trade and know what it is that you need to analyse from the data--both wins and losses.
The benifit of systems testing is that I can get years infact centuries of trading results analysed in a few minutes (Bar the time developing a trading methodology).I then have it BEFORE I invest and am not reacting to results---rather implementing results.

In essence you are correct they alert entries and exits/or stops and I dont even look at them unless I have funds to enter a new trade.
This can mean that I dont do anything for months.
 
tech/a said:
Exactly Stink now youve got it.

You actually wont have a blueprint unless you record every trade and know what it is that you need to analyse from the data--both wins and losses.
The benifit of systems testing is that I can get years infact centuries of trading results analysed in a few minutes (Bar the time developing a trading methodology).I then have it BEFORE I invest and am not reacting to results---rather implementing results.

In essence you are correct they alert entries and exits/or stops and I dont even look at them unless I have funds to enter a new trade.
This can mean that I dont do anything for months.
Click to expand...


tech, do you only use your own funds for trading? or do you use other OPM?
 
Both.
Thats what margin Trading/leverage (to a degree,you can leverage without using OPM) is all about.

To define OPM.
Not investing peoples funds,Im not licensed

OPM are funds on loan.
 
Tech,

I have had a quick look and my software does have a backtest functionality, with a whole crap load of standard industry indicators half of which i dont even now what they mean :) as well as some proprietry indicators.

Is there a combination of indicators that can be used in the backtest that would achieve the same or similar results as the Montecarlo you talk off?

Cheers Stink
 
Whats the software?

Montecarlo is a specialist function few have as a built in functuality.
Its the ability to test many portfolios.Its not an indicator or formula.


Infact most software cannot systems test a single portfolio let alone multiple.
Most can only test a single entity.
which is fine if your trading a singularity.IE Futures or a few stocks as a specialist. This in itself is fine and maybe something to consider.IE trading one or a few stocks.

Even so it is unlikely you ill get the information you need from the software.
Amibroker is the cheapest.

Mine in total Metastock and tradesim enterprise edition set me back around $2500 but the return has been way beyond investment.
Mind you took me a few years to become proficient and still learning 12 yrs later!
 
Yeah i see,

The software is called Virtual Trader Pro, through the sharemarket college.

To my knowledge its not available to the general public, but from the couple of other i have looked at it does the same as most as well as some proprietry functions.

I am able to setup a system test and then run the test over a watchlist of stocks over a specific time period.

If you dont mind i will run a couple of tests tonight and then post up the output. I would love to get your opinion and i am sure you would be able to get a better feel for what the system is doing.

Cheers Stink
 

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