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The Omega Man has raised some valid points. I find it amazing that I agree
with him at all on some points.
:(1) The problem of price shocks. (Do not think that you can avoid them or
:that you know when they are coming. Price shocks are one of the
fundamental
:reasons that systems do not survive long term. One bad shock can take away
:many months (even years) of system profits. Ever get caught in on the
wrong
:side of a locked limit move? How do you think you will feel about your
:system when you see months of work go up in smoke?)
Incorporate these price shocks into your systems. If you don't, them your
system is invalid. These things happens and you must account for them. A lot
of people assume that the markets are distributed normally, a la the
Gaussian distributions, and that chances of these price shocks happenning
are small. But the fact that the markets gaps on the open and have these
price shocks intraday proves that the market are not distributed normally
and have a fatter tail end then a normal bell shape curve. In my experience,
if you can incorporated gap openings into your systems, then you can take
care of price shocks.
But then, I position trade, entering intraday and may hold it from as short
as an hour to as long as 5 days...depending on what the market does and my
system's intepretation of the market's actions. If you're daytrading, I
really can't give you any advice as I gave up on daytrading a long time ago.
But these price shocks happens and you've got to incorporate them into your
systems.
:(2) The problem of automation. ( How will you feel about system
:trading if you have a bit of a losing streak, decide to take some time off,
:then, while you're relaxing on the beach, miss the trade (which your system
:calls perfectly) which would have turned it all around.)
Trade with a partner. I do it and it's very worthwhile. Not only do you get
a different perspective and new ideas, you will be able to schedule time on
and off, go on vacation and have someone ready to takeover in a family
emergency. In my case, I trade with a friend I've known and trust since
1994. The keyword is trust....
:To Robert's list of key system trading issues, I will add a third:
:
:(3) Real-time data problems. (I am convinced that there is a huge
:discrepancy between historical data which you might purchase and the data
:which appeared to traders over their real-time feeds at the time the
:historical data was supposedly captured. Those historical charts you're
:looking at... they didn't look that way to traders at the time.)
True. So, the only solution is to get your hands on real, real-time data.
I've been collecting tick data from BMI/DBC since 1994....have them on
backups CDs, etc. just in case your computers go wacko. In reality, there's
really nothing you can do about the problem outline above except change your
time frames such that tick, time of sales discrepencies are made irrelevant.
If you can't, then start collecting data while you're paper trading (and do
this for a year) or developing your system.
Another point that should be pointed out is having backup data feed. For
instance, if you were using satellite datafeed when the Galaxy satellite
went out, you were screwed. Or if the cable provider in your area suddenly
decide to switch channels on you or if some drunk hits a telephone pole,
etc., you're blind. Personally, we use DBC satellite, with BMI cable as
backup and a DBC FM receiver has a final backup. It's a little expensive and
time consuming to set up but trading is a serious business...not a part time
job or a hobby.
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