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Bill,
Not holding back. Was just waiting for the 'chart features' side of
this discussion to come to a conclusion.
Well, as I stated in my original post, my intention was to learn from
others experiences. For the record, these are mine...
I was trading large portfolio's for various investment banks.
Essentially european equity long short portfolios based around various
statistical arbitrage ideas. Ironically the journey into trading my
own money has, of course I suppose, made me a much better trader. I
was doing monthly walk forward optimizations back in the late 90's and
onwards. My experience of purley 'mechanical trading' (to use the
correct term as the other Bill pointed out) was that I could
consistently achieve 30% net returns in rigorous out of sample
backtesting. However, whenever I came to trade these ideas/portfolios
live my return was basically halved, volatility of returns always
slightly higher than in backtest. Now, not wanting to take the
discussion in the direction of 'why' that happened (all this stuff is
well documented by others), I wanted to take the discussion into the
form of 'what did I learn from where I was at as a trader at that
point, with the benefit of hindsight'...
And I think what I learned was this... I often used 'mechanical
trading' and the 'hunt for a system' as a kind of security blanket, or
excuse you might say, for not becoming 'a better trader'. The
psychological appeal of 'mechanical trading' is obvious. Becoming a
'better trader' is clearly a very general term and what I mean by it
are the following... 1. knowing myself better as a trader, my
weaknesses, strengths, emotional biases in decision making, Mark
Douglas et al etc..etc.. 2. Understanding what happens 'under the
hood' of the market place. Understanding the auction process in
intimate detail, and how price is a conduit to seek value, and how
market structure develops out of that process. 3. Through genuine
experience learning to understand the context of the information I
recieved from the marketplace. Any knowledge I had, any 'rules' I had
formulated should always be valued by the conext surrounding them.
Something I think that can only come from experience I believe.
I guess we are talking about a type of 'fuzzy logic' here Bill. That
'fuzzy logic' could be seen as a weakness, but it's my view that for
the best discretionary traders, it is exactly this ability to use
fuzzy logic that is one of their great strengths.
Maybe my experience of 'mechanical trading' was quite specific... when
you trading such large portfolios it really is impossible to use that
process as a means to 'get under the hood' of the market - you get
information overload basically from so many trades. If you are trading
one or two instruments I can see that there is perhaps an associated
learning process from that focus.
There seem to be some really excellent 'mechanical traders' on this
forum, but I also get a sense that there are quite a few smart guys,
perhaps with not much market knowledge, with strong engineering or
software backgrounds, who are spending vast human resources in the
attempt to 'find a system' when they really should be trying to
understand the market at a much deeper level. Of course, all the best
'systems' are born out of market knowledge...
Just my 2c worth...
--- In amibroker@xxxxxxxxxxxxxxx, "brian_z111" <brian_z111@xxx> wrote:
>
> Sidhartha,
>
> Perhaps we can learn a bit more if we do some dissection:
>
> > Over recent years I have migrated away from rule based trading back
> >to
> > discretionary, and find myself developing some quite strong opinions
> > about rule based trading
>
> So far you haven't posted any strong arguments against 'rule based
> trading' .... are you holding back?
>
>
> More importantly.....
>
> my mini dictionary defines discretionary as "freedom to decide
> something" but so far not one discretionary trader has given us a
> PRECISE example of a trading decision that they make freely .....
> free of what? ... if you are using an indicator, as a visual cue, and
> making a decision based on that visual input, is that a 'freedom of
> choice' decision OR did you just use the human computer (brain) to
> run a few lines of 'code'...... perhaps a level of consciousness that
> is present in the subconcsious mind (that is to say that most of us
> are not consciously aware of OR can interact with) can manage fuzzy
> logic, or similar, with ease ... dare I say even super-rationality?
>
> ~(left side - right side)~
>
> Mark Douglas claims to experience a "transcendental state of
> consciousness where he is at one with the market and KNOWS what it is
> going to do" (my paraphrasing) ...... if any one in the forum can do
> that then I might consider that to be the ultimate in discretionary
> trading (no point in explaining it in too much detail if no one is
> actually doing it).
>
> brian_z
>
>
>
> --- In amibroker@xxxxxxxxxxxxxxx, "sidhartha70" <sidhartha70@>
> wrote:
> >
> > Thought I'd try and start a discussion on this very important
> topic...
> >
> > Over the years I seem to have come full circle... back in 1994
> > starting as a largely discretionary trader, I moved into 'rule
> based'
> > systems while working for Merrill Lynch back in 1997. I spent about
> 7
> > years trading various types of rule based system. All variations on
> > statistical arbitrage themes.
> >
> > Over recent years I have migrated away from rule based trading back
> to
> > discretionary, and find myself developing some quite strong opinions
> > about rule based trading (opinions which I happy to have
> changed!!!).
> >
> > One thing that strikes me about this forum is the focus on 'rule
> > based' trading and backtesting/optimization of systems. Perhaps this
> > relates to the grounding of the product. I have been an owner of
> > AmiBroker for about 5 months now I guess... and it seems to me it's
> > strengths lie in backtesting & optimization (if only I had a product
> > like this back in 1997 my life would have been an absolute joy).
> > However, it's weaknesses seem to lie in it's charting (as has been
> > commented on a couple of reviews on Elite Trader) and particualrly
> the
> > openness & adaptability of it's charting framework.
> >
> > Anyway, I'd love to start an open discussion on 'rule based' versus
> > 'discretionary'... Pros, cons, differences, potential returns from
> > each route, does one route lead to the other etc..etc...
> >
> > I'm very much wanting to learn from opening this subject up.
> >
>
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