Discussions about the testing and simulation of mechanical trading systems using historical data and other methods. Trading Blox Customers should post Trading Blox specific questions in the Customer Support forum.
I'm taking my first steps in to system design. I've read so much now that I fall asleep to dreams of marching charts and floating phosphor green code!
I'm full of ideas now but the one nagging thought is how do I know if I've considered everything important?
I've come up with the check list below and I would like your thoughts.
What are my objectives?
Capital growth/income?
Time frame?
Min % growth?
What are my tolerances?
Max % drawdown?
Max % loss of initial capital?
If I lose everything can I cope?
What are my resources?
How much trading capital?
How much time can I spare?
What resources do I have available to me?
What are the costs?
Market Analysis
Which markets?
Reasons for inclusion/exclusion?
What is my trading principle? (Trending, swing, etc...)
What time scale?
Entry conditions?
Exit conditions?
What do I do about multiple entry/exit signals?
Time limit to a trade?
Risk Profile
What is the expectancy of my system?
What is my R multiple?
What is the minimum capital requirement?
What is the median/max losing streak?
What is the median/max winning streak?
What is the probability of total failure?
What is the MAE/MFE?
What is the max historical drawdown?
What is the [insert your favourite performance stat]?
What is the standard deviations of all of the above?
Position Management
Max % capital per market?
Max % capital for correlated markets?
Max % total capital?
Under what condition do I increase/decrease %'s?
How much per trade?
Do I pyramid? How? When?
Initial risk?
Stop strategy?
Re-enter trade on stop?
Loss Management
What happens when I reach max % drawdown?
What happens when I reach max % initial capital loss?
What provisions for catastrophic event?
What happens if I get stopped out of all my positions?
What do I do on a losing streak?
What is a losing streak?
When is a losing streak no longer a losing streak?
What do I do then?
Profit Management
How much of profit do I reinvest?
What do I do on a winning streak?
What is a winning streak?
What do I do about windfall profits?
What is a windfall?
Order Management
Market order?
Limit order?
What do I do if I miss a trade?
Gap up/down strategy?
For futures contracts, what is my rollover strategy?
Costs?
Do these statistics align with my objectives, tolerances and resources?
How often do I review all of these points?
Analysis Paralysis is a common ailment. Rather than hop on the surfboard and paddle out into the waves, A.P. sufferers spend their time busily "preparing". They pepper other surfers with endless questions, they read dozens upon dozens of books, they watch videos, they consult psychologists, they make lists. They're so afraid of the unexpected that they invent reasons not to venture out. The good news is, they'll never have their leg amputated by a runaway board. The bad news is, they'll never surf at all, and never know the joy of success (nor the disappointment of failure).
A very thorough analysis is not necessarily analysis paralysis, though the danger definitely, seductively lurks. In fact, thorough analysis is the foundation of a trading method that will, by virtue of its scope, make you comfortable with the resultant method, perhaps removing (but certainly mitigating) one of the more difficult problems to overcome in trading: the psychological issues surrounding one's confidence in his or her method.
But, you WILL have to pull the trigger. In fact, even if you believe that you are only 90% finished with your analysis, pulling the trigger (trading, for the unwashed and uninitiated) will be both fun and informative. In other words, part of the develpoment process is actual trading. This is a critical part of the verification process.
Have fun. I think your business plan is as comprehensive as it needs to be. Attack it and don't forget to trade.
The issue isn't a matter of paralysis. In fact it isn't really an issue at all. I've just started developing systems and through all my reading I have as yet to find a truly comprehensive view of the considerations that need to be made when developing a professional and robust trading plan. Most books tend to emphasise the areas that the author feels neglected and assumes some level of prior knowledge. Over time each person develops their own mental check list but for a novice the numerous aspects that need to be considered can be daunting and not obvious.
The fact that a lot of people spend so much time playing with indicators when there are so many other aspects that need to be considered is testament to the lack of an overall perspective.
The list above is what I have pulled together as a result of my research. And I was hoping that this thread would result in a discussion to distill the main pillars of trading plan design and development.
Over time each person develops their own mental check list but for a novice the numerous aspects that need to be considered can be daunting and not obvious.
You can say that again!
And I was hoping that this thread would result in a discussion to distill the main pillars of trading plan design and development.
Once you have put finger to keyboard and you have a basic system that can open and close trades, you will be well on your way. Once your brain starts to tune itself towards the issues, you will resolve a lot of the problems, and will start to become a trader.
I found the TT course very useful, for powering the light bulbs. And Seykota has some extremely important things to say, if you look properly.
