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Changes to Live Trading system

Posted: Mon Mar 03, 2008 6:30 pm
by Stephen Newton
I have a question that I have spent some time searching for an answer on this forum, but cant seem to lay my hands on it. I am sure I have seen a discussion on this topic before but for the life of me I cannot find it now....

I am looking for some advice on how to deal with changes to your live system. I have made some enhancements to my system and would like to start trading those enhancements. In this context I have a number of questions that I am wrestling with.

I think this appears to be a trade off between three philosophies:
1) merge one system into the other as best as possible on a trade by trade basis - use same start dates, on open trades use exits of 'new' system, use equity at original start date of 'old' system etc... this appears fraught with compromise
2) merge old and new by leaving the old system to trade itself out, while applying all closed capital as it becomes available to the new system
3) treat the 'old' system and 'new' systems as completely separate systems. Close the old system out and enter the new.

Questions I would have for each in turn is then:

1a) Current live trades : Do I keep my current ('old') system running until all trades on this system are closed out? This is slightly complicated when you can see that the 'old' system and the 'new' system would be holding positions in the same markets (albeit at different entry dates and/or position sizes). However if you know your 'new' system is a better performer, it is tempting to use the exits of the 'new' system? Does anyone have thoughts on this?

1b) When I start to trade the 'new' system, do I begin generating orders from the start date of the 'old' system or the date I commence with the 'new' system? This is related to the second point I make in 1a) above. Clearly if you think the exits of the 'new' system are better you are going to have to run it from the start date of the 'old' system to get the exit orders generated...

1c) Do you then take the orders on the 'new' system from the start date of the 'old' system going forward in 1b) above?

1d) From an equity pov would you use the starting equity of the 'old' system or the closed equity?

2) In this option you trade all current open trades until they were closed on the 'old' system and start your 'new' system from today. In this case do you then take all trades that are signaled, even if your 'old' system is still in those markets? This would appear to be doubling up on risk if you believe that part of the systems' strengths are market diversification. I presume the best equity model in this approach is to use only the closed equity of the 'old' system as equity for the 'new' system so as not to over-leverage?

3) This option is a clean break. Would you close out all positions on the 'old' system and then start trading with your equity afresh on the 'new' system taking signals as they come up? This appears to be the cleanest approach but seems to fly in the face of a LTTF system... especially if you know your 'new' system will just pick up many of the markets you are in but just with you having paid costs of entry and exit..

Mind blowing if you have multiple systems all changing and being improved over time... I would really appreciate some advice on this one and apologies is this appears a little unclear, it is late!

Many thanks

Posted: Tue Mar 04, 2008 1:42 am
by LeapFrog
I've had this situation many times. Of course, there is no right answer to the problem - just what answer YOU like. Maybe some fund operators have a formal way of dealing with it but I doubt it.

For my part I make a clean break and start afresh - but I don't actually close and reopen positions I'm already in if they are open on the start of the new system. So I will close out old positions which are not valid in the new/modified system, adjust position sizes on the open and get into all positions at open that the system generates on day one. By definition, my system will only initiate positions starting on day one.

I know some others like to ignore existing positions on a new system and only start taking new positions but if you start your system tomorrow then I believe it is best to match your system as of tomorrow and so on and so forth.

My 2 cents.

Posted: Tue Mar 04, 2008 3:37 am
by Stephen Newton
Leapfrog thanks for your thoughts. To make sure I understand you correctly let me use a simple example. I have set out some hypothetical trades for the ‘old’ system below with Open Equity and Closed Equity. I would like to start trading a ‘new’ system.


Assume ‘old’ was traded from June 07 and the positions laid out are as at 3 March 08. I would like to start with ‘new’, trading from 4 March 08. As I understand your suggestions I would take the following steps – I have interpreted your suggestions and then in some Steps suggested an alternative to spark some dialogue.:

Step 1: Generate trades for ‘new’ system on 4 March. What equity do you use for ‘new’ to generate the orders where ‘new’ will use closed equity as a trading parameter when:
- ‘old’ uses closed equity to trade;
- ‘old’ uses total equity to trade?
Interpreting your thoughts, I think you should use Total Equity (166,600) in both cases as you are in effect starting ‘new’ with that equity (albeit that you may make changes to existing trades)

Now assuming I do this and ‘new’ generates the following orders for 4 March 08:


Step 2: Trades 1 and 6: You merely move the stop from 1300 to 2000?

Step 3: Trade 2: Close out on 4 March at the Market? Alternative would be to let it run and take the exit as generated by ‘old’. If you did the later, I think you would have to reduce Total Equity (166,600) available to ‘new’ by the Equity in this trade. The problem is that you are in a bit of a chicken and egg situation. What if by doing this you find Trade 7 is no longer generated by ‘new’? I think I would not take the trade in this instance but would appreciate other POV.

Step 4: Trade 3 and 7: I think using Leapfrog’s logic you would buy 1 Contract of Wheat on 4 March at 1013 and move the stops on T3 and T6 to 900? The alternative again would be to leave T3 to exit under the rules of the ‘old’ system and to enter T6 on 4 March. For the T6 entry, would you enter 2 contracts or 1 contract if you were leaving T3 to close under ‘old’? [You would have the Equity issue of Step 3 to deal with as well]. I think in this case I would enter 1 contract on the assumption I reduced Total Equity by leaving T3 open.

Step 5: Trade 4 : As with Step 3

Step 6: Trade 8: Enter the long position on 4 March 08 (EASY!)

Step 7: Trade 9: Sell 1 Contract of Euro on Market open and adjust stops of Trade 5 to 14900? The alternative again is to leave T9 to trade out under ‘old’ reducing Total Equity available to ‘new’ by the equity in this trade. Would you then also take the T9 (effectively going long 5 contracts in total of Euro)? To be consistent with the alternative I suggested in S4 I would not take Trade 9 (assuming you left Trade 5 open.)

These are some simple trades and yet my mind is numb! I believe this must get very complicated across multiple systems, multiple changes and multiple dates. Does anyone know of any literature written on this point or perhaps other posts on this subject on this forum?

Leapfrog thanks for your thoughts, already I feel better... :?

Posted: Tue Mar 04, 2008 6:35 am
by LeapFrog
Dear Stephen, your posting demonstrates for me why I pretty much go with the dumb and simple approach - trading is difficult enough without us adding to our own woes with complications. As a veteran trader friend always tells me, "If you can't figure your trades out on the back of an envelope, you're probably optimizing." (or something along those lines.)

I see your quandry about open and closed - but I would see it simply as your "Total Equity" of the OLD system IS your closed equity at end of business yesterday (as if you had exited all positions at market end of day) and you then plug that into TB as your Starting Equity last night to generate today's orders as the Start Date of your NEW system (with all the appropriate adjustments).

Think of it as if you had to show your investors how closely you traded in actual dollars to your theoretical system. Yesterday you were trading the OLD system and your equity matches it (say) 99%, today (or next week after you returned from vacation like I did last month) you started trading your NEW system, and look, here is my actual equity position relative to THAT system and I'm tracking it 99.3% (or whatever). Make the first cut the deepest and transition everything immediately.

You can take a short cut on existing positions by simply not bothering your broker with some exit/entry trades on day one.

I would not want any confusion about what I'm doing once the market opens. I'd want all my orders stacked and ready to change over the minute the relevant markets open.

(One of the nice things about TB is it enables us to make multiple copies of the system on one computer. I tag one copy the OLD system (usually using the end date in the NAME) and my current order generating copy as the NEW system. Somewhere else is a testing copy (original). At any time through the year then, I can generate and link together all the versions of the systems I actually traded and measure my actual performance to plan. This enables me to "plan" vacations as well - I simply don't have a system I was trading during the vacation periods and therefore don't measure myself against something I wasn't trading - nifty! BTW, another thing a fund cannot do that we independents can.)

Best wishes.

P.S. I'm not saying you SHOULD do any of this - just sharing with you what I actually do. You have to do what feels right for you.

Posted: Tue Jun 17, 2008 12:08 pm
by Stephen Newton
Leapfrog I know I did not reply to your last post at the time but I thought I would give you some feedback having taken your advice to heart. In March I did change my system and having played with various options outlined and discussed with you here, I ended up largely following your suggested approach, as I found it the most practical and logical to my mind.

It seems to me that there is no right answer to this problem but rather an answer that is right for you - like most things in trading (and life actually).

I appreciated the dialogue with you as it really got me thinking under the skin of the problem and I ended up with 'my right' answer, which is quite close to yours as it turns out!

Thanks again.