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ChrisB,
I just completed another "system" that's comprised of about 15
different proprietary indicators, all of them optimized for both EOD
and Weekly timeframes, as well as for a specific group of 500
stocks, ETFs and CEFs. I used to look at just two or three
indicators (a "system"), but found each indicator has its unique
weakness. So now I just go with looking at all of the signals that
all of my best indicators generate. I weight each signal. I also
look at signals that are up to 3 bars old, and weight those signals
less.
I will eventually try to automate all of this optimization. Not
there yet.
I also separated out trending signals from daily buy/sell signals,
so I really have a separate trend system as well.
I've read more than once, from reading passages written by very
profitable traders, that their systems generally take the same form
as the one I've created. Very few boil everything down to one type
of trade that they do over and over. Problem with those single setup
trades is you still need to look at all important variables outside
of the setup that can affect the setup. A mentor statistican friend
of mine recommended I build in an additional "trade cancellation"
system that lets me know when outside variables are building against
the system signal. This helps me sort the best trades out from the
bunch.
I am using no equity curve. IMO that would just seem to add another
layer of unnecessary complexity. Focus on money management --
scaling and scaling out, user "feeler" trades, etc. That will likely
get you farther down the road. My personal goal is to use my system
to identify good trades for my discretionary style of trading.
Just my toe scents.
~Brian
--- In amibroker@xxxxxxxxxxxxxxx, kris45mar <kris45mar@xxx> wrote:
>
> Phew, Yuki.
>
> Honoured to humbled to receive your lengthy reply. Please be
warned: this inspirational, supportive ( and midly cajoling ) reply
( thank you! ) may be transferred into my "Yuki says" handbook!
Everything you say strikes a resonant note though, and is taken in
good spirit.
>
> I have 25% DD with 4 wins out of the last 30 discretionary
trades.
> Looking through my last two years' trades tells me that what
worked in 2004 is not working in 2005/6. This brings me to the
point in my 2005 trading plan where I defined conditions to stop
trading. I now need a change of direction: the plan is to continue
to explore AB, AFL and the superb posts on this board towards
developing a mechanical system. It can't be that hard for me to
develope one that does better than my 2005 trading year. Whether I
can then actually trade it is a whole different ball game.
>
> You said:
>
> "
> And thank goodness not everyone can do this. We need some
productive
> members of society, too. ^_-
> "
>
> LOL.... and yet the lesson we learn about ourselves by trading
can make us more productive in other areas!
>
> In summary:
>
> You will never avoid drawdowns: agreed.
> Sharper gains (with a reliable system) may come when the equity
curve is below its MA. Sounds logical, and worth exploring.
>
> All I am asking is this:
>
> Markets change over time (that is why there is no Holy Grail)
and so should our systems, or the ones we choose to trade with, not
respond to this? Or we may choose to stand aside for a while. Or
just trade different markets with concurrently different systems to
create a smoother equity curve overall?
>
> Could you comment on whether you trade with one system only or
more than one? And if more than one, what would be a trigger to
change if the Equity curve is not the signal to do so? Drawdowns?
Sleepless nights? Declining expectancy? This has to part of our
business plan after all. In 2004 I achieved my trading goals, 2005
was not a successful one. Message: time to stop doing what I am
doing: it is not working. Do something else. The goal then is to
replace what I am doing with something that does work.
>
> I realise the answers to these questions are personal, but it
is invaluable to get some insight to the philosophies of others, in
an attempt to know where to start.
>
> Regards
>
> ChrisB
>
>
>
> Yuki Taga <yukitaga@xxx> wrote: Hi kris45mar,
>
> Monday, March 13, 2006, 11:35:06 PM, you wrote:
>
> k> b. When the Equity is above the MA, then take the signals.
>
> k> c. when the equity curve falls below its MA, then either.
>
> k> i. stop trading that system until such time as the
curve goes back above the MA.
>
> k> ii. or severely reduce position size.
>
> k> iii. and/or swap over to another system that is now
above its MA.
>
> You will get various opinions on this, however I think it really
> boils down to just how logical you suspect your system
methodology
> is, and whether you suspect it is actually and finally being
> arbitraged out of existence.
>
> If the system has worked for several business cycles in various
> market modes, and has never really gotten into serious trouble --
in
> other words, it's a system you can trade -- then it would seem
to me,
> and indeed is what I do, that the time to be more careful is when
> equity has been running well above the MA for some rather lengthy
> period of time. I'm inclined to bump *up* position size a little
bit
> when I start experiencing a losing streak -- in other words when
I
> get mean reversion or worse of the equity curve. I would
certainly
> not stop trading when that happens. I think your gut feeling is
> exactly opposite of what you should do.
>
> The sharpest gains and nicest times you are likely to ever have
are
> when equity is making the swing from below average to above
average.
> This is much more fun than the opposite, and you are going to
> experience both. So why would you consider stopping trading when
> equity dips below average? Immediately, you would then be
preparing
> to cheat yourself out of your best performing part of the cycle,
and
> you would be ready to embrace the worst cycle segment of your
system:
> when equity moves from above average to below average.
>
> In the end, it all boils down to confidence. You either have a
> viable system, or you don't. If you have one, follow it. If you
> can't stand the drawdowns ... IMHO, you don't have a viable
system,
> and probably should not be trading it. No one should trade any
> system that has drawdowns they cannot stomach, and stomach
> comfortably, probably max system percentage drawdown times two,
maybe
> times 2.5 or three.
>
> But if you really do have a system, take every signal. Period.
If you
> want to "play" your system a little bit, consider something like
> *lightening* position size -- slightly -- when equity has been
> running above average for some period of time, and *increasing*
it
> ... again, slightly ... when equity has been running below the
line
> for some time. You have to judge when these conditions might
apply
> after carefully analyzing your system yourself.
>
> But using the MA of equity to flatly refuse or take signals is
simply
> a different form of "Holy Grailism". It is a fear of taking
losers,
> or an attempt to altogether avoid taking losers, which absolutely
> must be taken in any systematic trading. You simply have to have
a
> system in which you can *stand* to take the losers, and be
> comfortable with them. If you don't, you can't trade it, and
playing
> around using the equity curve as an ultimate filter is not
likely to
> made a dangerous system safe, or an uncomfortable system
comfortable.
>
> You will never, ever, find a system that has an equity curve that
> doesn't dance on both sides of a MA. Life doesn't work that
way. But
> if the curve is obviously solid, in other words, a real curve or
> slope, and not an amusement park thrill ride, and all the metrics
> look nice over thousands of trades and many years, you may want
to
> think about doing exactly the opposite of what your gut tells you
> when you hit a soft patch.
>
> OTOH, if the last sentence above applies ... why stress yourself
at
> all? Take the *&$% signals as they come, and relax. ^_^ If you
> cannot stand a loss the magnitude of which would tell you that,
> indeed, your system is no longer functioning, you are probably
not
> well enough capitalized to be in this business. Not everybody
is.
> And thank goodness not everyone can do this. We need some
productive
> members of society, too. ^_-
>
> Yuki
>
>
>
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