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This is going to be a long winded dissertation on developing trading systems
using statistical tools made specifically for TS. If it's of no interest,
please delete this email now.
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I used to trade on a discretionary basis by implementing my own
interpretations of the standard indicators on the financial markets. I
wasn't very good at it because I couldn't handle the emotions involved. I
went from exuburient highs after a winning trade to depressing lows after a
series of losing ones. Over a period of time, I've evolved into a systems
trader. Right now, I wouldn't trade any other way except with a system. I'm
not saying that everyone should become a systems trader because I know some
people who are great discretionary traders. It's just that I'm not. I know
my limitations.
In my search for the holy grail of systems, I've found that having the right
tools to evaluate trading systems is just as important as having the
"perfect" systems (perfect in the sense that the system fits your tolerance
for risk and your concept of trading). The standard systems report in TS is
good but does not subject the system to a lot of extensive analysis. I've
recently found 2 tools that does this.
The first one is the Portfolio Maximizer add-on to TS 4.0 build 21 by Rina
System. The tools inside it are amazing. I've use the MAE and MFE in it to
set my stops (money management and profit target, respectively). The
efficiency analysis showed me the weakness in my systems and where it needs
to be improved. The built in equity curve graphs shows me at a glance how
good or bad a system can be over a period of time.
The adjusted and select net/gross profits/losses features of the report
gives me a good idea of the limitations of my systems and gave me an idea on
how to improved them.
All in all, I'd recommend that you get it if you can. But since it cost
approzimately $500 and it may/will be a standard feature in TS 5.0, I'd
suggest you should delay buying it if you plan to get TS 5.0 (if it ever
comes out). ;-)
The second tool that I have found very useful is the Monte Carlo Simulator
from Bill Brower's TS Express. It tells me exactly the risk inherent in my
trading systems. TS's systems report only gives you the maximum intraday
drawdown. Depending on how you optimized a system, this may be the BEST
case, worst case scenario ( as a friend recently put it). It tells you what
you may see in the future but does not tell you if this may be the case.
Bill Brower's Monte Carlo Simulator tells you exactly the probality of you
seeing an X dollar amount drawdown. TS may show you that you may see a $5K
maximum intraday drawdown but MCS will tell you that the probability of you
seeing that is 50% (which means that you may have to have a bigger account
size). It will also tell you that the probaility of a $8K drawdown may be
less than 5%. So you're better off being forewarn that a $8K drawdown is a
more realistic worst case scenario (i.e., 95% of the time, you're not likely
to see a $8K drawdown but it helps to plan for it.).
I highly recommend that you get this as it is reasonably well priced at $17
for the back issue (MJ 98) that contains the code. And if you're really into
such esoteric things, there's an Advance MCs for $75.
If there is any interest in this, if I find anymore useful tools, I'll
definitely alert you to them.
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