Traders' Roundtable

I think you alluded to the answer to your own question when you included "(if system trading were my only source of income)" so a slightly more finessed addition to Chelonia's rather blunt (but accurate) answer would be: Don't trade.... if system trading is your only source of income. Ther...

It's important to think of trading as a complex rather than a trivial exercise. I know at the basic level all you can do is one of 4 things: 1 Put money into an account 2 Take money out of an account 3 Buy something 4 Sell something So it is actually quite simple as far as the rules of the game go. ...

Something to ponder: In roulette, the betting strategy of playing "red" (or "black") every time and doubling bet size after a loss is a positive expectation "system". However, this "system" also requires infinite capital, and a casino with no table limits - th...

As far as I can tell, what that article is saying (in 43 pages no less, but hey, it is rather a large font) is that if your historical testing ignores significant real-world implementation constraints (margin rules in this case) then actual trading results may differ considerably from the simulated ...

Remember it's still possible to let all those cognitive biases totally mess up the way you build and test systematic trading programs too! How often have you heard/experienced:

"How come this super-duper system works beautifully in testing and then totally sucks in real-money trading?"

Yes, higher implementation costs and under-estimation of volatility while you're in the trade are contributing factors to erratic performance, but the real grizzly bear is basing a trading system on a concept that is really an illusion.

There is no simple solution to your problem since it's a fact that futures trading systems do not scale down well because it's impossible to trade fractional contracts. Variability of return due to start date is an effect of the scalability problem i.e. you need a certain size of capital at a certai...

My advice would be to firstly rethink exactly what you mean by "mean reverting system". In my world trading programs fall into 2 categories: 1 Those that make money when price moves 2 Those that make money when price does not move Type 1 is most common and is about capturing trends in pric...

As sluggo implies when he says "and choose the one whose curve is lowest", IMHO it's more useful to approach this problem by using increasing leverage as a measure of how robust your system is, rather than trying to find a measure of goodness that's independent of leverage (or includes som...

"Everything should be as simple as possible but not one bit simpler" as Einstein said. Also, just telling you "this is exactly how I use rate of profit as an exit strategy" will not really help you determine how to effectively do it for your particular system(s) - hopefully it's ...

rate of movement=distance/time

rate of profit=?/?; you work it out

OK, if the 2 systems tend to take similar entries then I suggest delaying the start date by, say, 25 days for one of the systems to avoid simply doubling up on positions. If that doesn't work then you really need to think about a sound "measure of goodness" that incorporates all of the imp...

Mark,

Is there any reason why you can't trade both of the systems simultaneously with some portion of the available capital allocated to each? I'd try a TBB Simulation Suite with a 50% allocation to A and B and see how the results compare to either system traded individually.

Hope this helps

Paul

Whether technique "X" creates better risk-adjusted return than a system without "X" depends on what other techniques are being used in the system. For example, if you don't do anything with portfolio correlation then scaling-in can improve results in some circumstances if it happ...

Ah, yes, maybe a different subject line may have been a good idea - I didn't even notice the "not traders" part half way through the message I received.

"Markets Flashing WARNING SIGNS! Be Careful if you're a buy-and-hope investor!"

I know 2 things about trend capturing: 1 Nobody knows what's going to happen next 2 No exit strategy can get you out at the exact end of a trend If you have positive-expectation trading rules that capture (rather than follow) trends then the situation today is no different than yesterday, 10 years a...

Here's one I use:

If

R = net P&L / Initial Risk

System Value = (Average(R)/STDEV(losing R)) * Trades Per Year

Then the King Score (KS), a.k.a. Kitchen Sink:

KS = System Value * ((MC Confidence Return/MC Confidence DD)*10)/(MC Confidence DD Length /12))

Paul

"straight line equity curve to the moon will have great MC stats," This depends on what your personal definition of "great" looks like. If I see a MC simulation with very narrow range of possible equity curves, virtually no drawdowns, and an actual equity curve that's "a str...

As levi mentioned, it depends on what you define as a "better" position. If you believe that price movement is not predictable then any current position is just as good as any other one (assuming it's taking the same amount of open risk) and kicking one out to replace it simply generates m...

"Trading is quite boring" Actually only, efficient, accurate, well-designed implementation of a sound and complete trading system is quite boring; most trading can be exciting, exhilarating, scary, surprising, etc. if you "design" it to be ;-). My personal answer is to make tradi...