"good performance" also depends on what YOU want from your system.
Couldn't agree with you more ...
To me, ultimately, trading means honestly expressing oneself. It is very difficult to do. One can create some really fancy back-tests and optimizations and be blinded by it. But, to experience & express oneself honestly, not lying to oneself, now that is very hard to do.
Mechanical systems, though they play an important role, should not be too restrictive, complex or overly mechanical. If we cling to them, we will become bound by their limitation. It’s important to remember we are expressing the strategy, and not doing or performing the strategy.
The action of a master trader is like the immediacy of a shadow adapting to its moving object. His task is simply to complete the other half of the oneness, spontaneously. Spontaneity and calm nerves rule; rote performance of technique regardless of changing market conditions and jittery nerves perish. In short, enter a mold without being caged in it, obey the principle without being bound by it; formless, unlimited, alive and free self expression. The highest method is to have no method.
This self expression is highly dependent on process. Now it doesn’t mean that I’m ignorant of my systems optimal parameter values; far from it. The range of risk management parameters ought to be calculated with reference to the characteristics of the underlying process rather than purely from historical testing or data. I find, for practical optimization of risk management methods, real time records are of paramount importance. It captures ones abilities in timing the markets. Timing does not mean predicting the future. It simply means finding the spot, with the best risk/reward ratio, in the flow. I want to optimize over my ability to find this spot, not historical drawdown. Historical drawdown and all the statistics derived from it are unreliable. If one has better timing, ones system is naturally drawdown resistant and all other stats will be just lovely. Why do most good discretionary technical traders invariably have tighter risk/reward ratios than mechanical trendfollowers? Why do trendfollowers have a tougher time with stocks? The answer lies in ignoring timing as just described. Its analogous to playing every hand, which isn't wise at all. A good trader, in my opinion, is concerend with the mathematical expectation of every trade thats put on. Without timing one is no longer the shadow. A simple 20 or 55 day breakout does not in any way capture long term structural relationships. Benoit Mandelbrot has done some great work in the areas of long term dependence
(markets have long memory) & market timing
(not prediction). He puts MPT, EMH, etc. in their right place. In short, trendfollowing systems retain sensitive dependency on initiation of intial risk and eventual exists; and in most systems this fact is grossly under weighed. This is not to say results matter more than prcoess or decisions. Rather, what Im saying is the current principles over emphesis on money management, although better than anything out there currently, isn't quite robust.
Most trendfollowing methods retain a lag factor and are neither spontaneous nor robust enough to trade all markets. These methods are not like a shadow adapting to its moving object. Instead, they’re like echoes – always responding after the fact. As we all know, over time, the rules of trendfollowing tend to drift, or become dated. Now, if principles can become dated, they’re not principles. And no amount data will change that fact.
The above opinions are simply meant for the purpose of contemplation; nothing more.
Independent types, for further inquiry, explore “Against Methodâ€