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Hate to open this can of worms, but this has been an educational thread.
On the PT board a couple of months ago, I asked about blending of discretionary analysis withsystems trading, and if it should be done at all.
The conclusion, which I now espouse, is discretionary analysis has a place, but there needs to be some reliable, global risk measurements that can objectively tell you if it's a better idea to exit earlier than a system normally would or perhaps opt out of a system entry altogether. Anther idea is take all the entries, but use discretion on exits.
Will you miss moves? Absolutely. Rather than cry over the spilled-milk, I re-evaluate my risk measures until I find things that prevent fewer missed moves. I may even decide that the missed move is a non-issue as the market soon-after rolls over. What I've been working on is something like green risk = system exits, yellow risk = apply some type of trail stop, red risk level = slap a trendline on the last move as a trailer. Just food for thought.
Unfortunately, I know a lot of people that would have a coronary if their system test didn't squeeze out that last bit of profit. As such, I imagine many could not apply discretion consistently. Fortunately, I can.
I know this post will infuriate the hard-core system traders, and stands in stark contrast to all the high-brow optimization discussion. However, I found this realization helpful, and wanted to share it with ya'll.
Regards,
Gary
Graham <gkavanagh@xxxxxxxxxxxxx> wrote:
I have been researching mechanical systems and as yet I have not found onethat consistently provides good returns without creating damaging drawdowns.But one thing I have learnt is that even with a good mechanical system youstill require discipline, commitment and trading skills. That is of courseif you have any input into the actual trading. I guess if you were totallymechanical somebody else would be doing the trading for you. But then youwould be reliant on their discipline and commitment to you.Cheers,Grahamhttp://groups.msn.com/ASXShareTradinghttp://groups.msn.com/FMSAustralia -----Original Message-----From: palsanand [mailto:palsanand@xxxxxxxxx] Sent: Monday, 20 October 2003 8:25 AMTo:
amibroker@xxxxxxxxxxxxxxxSubject: Objective functions (was RE: [amibroker] Re: Optimization -- again)Hi,Many recent contributions suggest using discipline, commitment, trading skills, etc., rather than 100% mechanical systems. I think this will cause more losers than winners. The reason computer trading systems exist is to capture good ideas and determine the best way to apply them. Basically, any idea one uses can be automated and tested. Various filters and stops can often improve a system's 10-yr performance even after it's released. Otherwise, one may lose their skill or luck in selecting trades.In Jack Schwager books (The Market Wizards and the The New Market Wizards), the author writes about Ed Seykota, who multiplied his clients accounts by 2500 times (250,000%) in about 10 years. Then there's Michael Marcus, who parlayed a $30,000 initial stake into $80 Million. Another famous trader
not included in Jack Schwager's books is Larry Williams, who won a national trading competition in 1987 by multiplying $10,000 into over $1,000,000 in 1 year. Each of these traders says they use mechanical systems, some almost exclusively.Most traders are very reluctant to reveal real-time trading income particulars including myself for obvious reasons...Regards,Pal--- In amibroker@xxxxxxxxxxxxxxx, "Fred" <fctonetti@xxxx> wrote:> LOL ... Okay, if you say so ... Let me know when any of you guyswho > believe this START trading mechanical systems with REAL money, I'll> be very interested in your real time results.> > --- In amibroker@xxxxxxxxxxxxxxx, "Jayson" <jcasavant@xxxx> wrote:> > Fred,> > I think market behavior does change because the market itself has> changed.> > 10 years ago your broker told you "Buy GE, put it under the> mattress,
you> > will make money". If you took his advice and bought it on Monday> only to> > watch it fall all week then called him up he would tell you "Weare > in this> > for the long haul, relax" ...... and you probably did, especially> since your> > trade probably cost you over $100 round trip. 10 years ago a one> year or 6> > month hold was considered "Short Term" today that is no longerthe > case.> > With online brokerage accounts you can now buy and sell that same> chunk of> > stock for $10 per side. Your broker isn't selling the stock de> jour, instead> > you are picking it your self. You have access to hundreds of> websites,> > dozens of data providers and have computer power on your deskthat > could> > have launched a rocket a half a generation ago. And more> importantly so do> > millions of
other "Small investors". Day traders didn't evenexist. > This> > isn't your fathers market, IMO to back test data from 10 or 20> years ago> > and think that optimizing on that data to trade today holdslittle > value.> > The markets turn on a dime and there is a whole new breed of more> nimble> > traders taking part in the action. The dynamics and psychology of> the market> > is completely different. It is no longer ruled by the few. Watchthe> > buy/sells go through and you see trade after trade of 100-200 or> 500 shares.> > This is not Dean Whiter placing trades but Joe and Jill six pack.5 > years> > ago I used to always wait until the first have hour of tradinghad > passed> > before placing a trade to avoid the built up demand already inthe > pipe. Now> > if I wait more than 10 minutes the
train is out of the station.> Perhaps it> > is just a forest/trees scenario but I think there are fundamental > > differences in the way the markets react today versus the recent> past......> > > > > > Regards,> > Jayson> > -----Original Message-----> > From: Fred [mailto:fctonetti@xxxx]> > Sent: Sunday, October 19, 2003 5:38 PM> > To: amibroker@xxxxxxxxxxxxxxx> > Subject: Objective functions (was RE: [amibroker] Re:Optimization -> - again)> > > > > > There are a lot of questions and provacative statements in your> post,> > only one of which from my perspective needs an answer/response.> > > > Market behavior will continually change after that ...> > > > Change ? from what ? into what ? I guess this is the part I don't > > follow. To me there is
nothing new in market behavior now that > > didn't exist last month, last year, last decade, last century, but > > clearly those that take a short sighted view of history and the > > market action that made up that history will clearly never see it. > > It's a forest and trees thing ...> > > > --- In amibroker@xxxxxxxxxxxxxxx, "Dave Merrill" <dmerrill@xxxx>> > wrote:> > > I'm not trying to be argumentative, honest (:-)... I'm morethan a> > little> > > sick of saying the same thing over and over, but I j u s t d o> > n ' t g> > > e t i t .> > >> > > ------------------------------> > >> > > I fail to see the huge difference in principle between equity> > feedback and> > > backtesting.> > >> > > let's
start by assuming that backtesting performance of a system> > and its> > > parameters over some period of past data tells you somethingabout> > its> > > future performance. it's not a perfect predictor, but it's the> best> > evidence> > > we have. does this seem like a reasonable starting point? what> > alternative> > > is there?> > >> > > if that's true, why is it better to do it only once? what> > justification is> > > there for picking one examination period over another? clearly> > market> > > behavior will change continually after that. don't we need away > of> > working> > > that looks at what's been happening and evolves our response?> > >> > > sounds like we examine performance up to some point and adjust,> > trade with> >
> the best-choice system and parameters for a while, then examine> and> > adjust> > > again later. make sense? what alternative is there?> > >> > > so then, how often do we re-examine performance history? to putit> > > differently, how long do we ignore any changes in marketdynamics> > that may> > > or may not have occurred? why would intermittently refusing to> look> > and> > > respond improve system performance or reliability?> > >> > > if that needs to be done, why not have the system itself do it,as> > part of> > > its inherent operation? why is it better for us as an outside> agent> > to> > > periodically run some separate tests, reach into the internalsof> > the> > > system, and change stuff?> > >> > > or should
we just continue with the system and parameters we> choose> > at the> > > beginning? are they somehow more valid than what we'd choose> later,> > using> > > the same backtesting methods, but on a different date range of> data?> > >> > > ------------------------------> > >> > > I realize that even if it seems to make sense logically, thisall > a> > complete> > > crock if no systems put together like this even backtest well,> > never mind> > > forward testing.> > >> > > but every time I think about abandoning this line of research,it> > seems like> > > the first thing I'd want to do with a new system would be (letme> > guess),> > > test and possibly adjust it using data up to some date, then run> > with it for> >
> a while after that and see if equity growth is good. if it is,I'd> > want to> > > lather, rinse and repeat with other in and out of sample data,to> > make sure> > > that wasn't coincidence.> > >> > > sounds way too familiar to be a completely different animal.> > >> > > dave> > > From: Fred [mailto:fctonetti@xxxx]> > >> > > That IS what I was trying to say. I suspect because equityfeed> > back> > > is like looking in a rear view mirror, great for letting usknow> > > where we were and how we could have adjusted the past to makeit> > > better, but that's about it.> > > > > > Yahoo! Groups Sponsor>
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