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Yuki Indeed fading my own trades would be the quickest solution!. Time to put more work into system developement and exploring my limitations with AB and AFL. This will be my focus for the year ahead. Your unofficial mentoring is greatly appreciated. Regards. ChrisB
Yuki Taga <yukitaga@xxxxxxxxxxxxx> wrote: Hi kris45mar, Wednesday, March 15, 2006, 12:39:07 AM, you wrote: k> I have 25% DD with 4 wins out of the last 30 discretionary trades. I was a discretionary trader for many, many years, but no longer. I don't sit in front of the screen all day now, and my physical
condition has improved remarkably (less stress - more exercise). It's nice having time for other things. That said ... one can be a good discretionary trader. I survived and made a living doing it for longer than I care to admit. But with the record you have over the past 30 trades, you have to stop immediately, or scale back position size harshly, or you may be headed for trouble. You need a complete re-evaluation of your methods, IMNSHO. Otherwise, you risk the emotional precipice -- at least, what I assume would be the emotional precipice, but maybe you have another pile in the bank somewhere, and it's 25% of a meaningless number. I don't know. But I do know that 4 and 26 would make me want to fade my own trades. ^_^ k> 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. So often, what worked in one specific year, or a couple of years, suddenly causes a lot of grief. I don't know how long you have been at this, or if you backtested (doesn't jive with the word 'discretionary' that you wrote), or for how long. What I do know is that one year of results (good or bad) doesn't serve as very much of an indication as to what the future might hold. Again and again, most everyone on this list and elsewhere who is in this business for a living will tell you that you need to find
something that has worked for a substantial period of time, in up, down, and flat markets, then do a walk forward on out of sample data, finding reasonably comparable expectations in the OOS period. k> All I am asking is this: k> 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? Personally, I want a system with an inconsequential drawdown even when multiplied. I also want a reasonably smooth equity curve, and I don't want to see a small number of huge winners against a much larger number of breakevens or losses. I also want to see a very large sample period, and no inconsequential OOS
period either, containing a *lot* of trades. But again, you said 'discretionary', so I am getting mixed signals here. k> 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. k> 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. I have more than one
live system right now. But less than five. ^_^ I think what anyone will tell you about your question above is something like this: Take a truly thorough look at your system. Break apart overall performance into smaller bites. Know what amount of 'badness' is possible, imagine you are in the midst of it right now, and see how you feel about that. Then double the 'badness'. Now how do you feel? Can you keep trading it? Do you feel confident about the logicalness of the underlying premise? Is the market telling you that you are crazy? Number one, you simply have to find a system with real promise. A marginal system is not good enough, because by the time you realize it is actually broken, so are you -- emotionally if not financially. You need to find a system so good that, when it's bad, it's not *terribly* bad, and one that doesn't go soft for very long
periods of time. Then, if it gets pretty bad for any substantially lengthy period, two things will be likely: 1) You will come to realize what is happening, and 2) Because the system had good enough expectation to begin with, you won't blow your capital or your emotional well being before that realization sets in. At that time, you have to scale back or sit aside. Meanwhile, you keep looking for other edges. The most important metric for me is drawdown. You have to be able to stand a multiple of the maximum over the testing periods. I mean *comfortably* stand it. Otherwise, you might as well stay discretionary, because you don't really have a system you can emotionally trade, in all likelihood. It also really helps to be a winner out of the gate. With discretionary trading, one will often hear that this is a curse, dooming the trader to becoming
overconfident. That indeed may be true. But for a systematic trader, it's a blessing, because you pile up enough capital to allow you to more comfortably tolerate that multiple of the max drawdown that is probably lurking out there. But when you get into a patch that is beginning to look unlike any other patch in your sample or OOS periods, you have to be on guard. A simple dip below the equity curve is not cause for alarm, and as I mentioned may be cause to become *slightly* more aggressive. By definition a dip below an equity MA *must* happen. What would be alarming would be a relatively long period of substantial underperformance versus both backtesting expectations and previous live performance. I'm not sure I can put precise numbers on it, but I'm sure I would know it if it happened. Yuki YAHOO! GROUPS LINKS
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