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>Date: Tue, 28 Apr 1998 08:40:59 -0500
>To: tgparker@xxxxxxxxxxxxxxxx
>From: Scot Billington <scot.billington@xxxxxxxxxxxxx>
>Subject: Re: True Range Volatility Breakout
>In-Reply-To: <3545C756.C1C9F1F4@xxxxxxxxxxxxxxxx>
>References: <3545A112.3BCD4632@xxxxxxxx>
>
I would like to make some comments here that are critical, but not meant to
be offensive.
>>The trick seems to be picking the markets that seem to model the system
>>best, and stay away from those that don't. Some markets have been a dream
>>to trade, and then a couple of the grain markets almost destroyed me.
>
This is a prime example of curve fitting. If the technical system has a
market edge it will work across all markets, and it is advisable to trade
as many markets as possible. Certain market modes, i.e. trending or
non-trending, will result in better returns for a given system. However,
just because a particular market has trended well in the past few years
does not make it more likely to trend in the future. If the system only
'works' on a few markets, the system doesn't work.
>
>>Identifying and getting out of the "false breakouts" fast also seems to be
>>a necessary acquired skill that's cost me a lot of money to learn.
>>
>>I'm learning that the problem with "system" trading you have to somehow
>>learn when to pay attention to the system and when to ignore it and listen
>>to common sense. The trouble with being a "newbie" is you don't know when
>>the system is running you over a cliff.
I think this comment is a good example of where most 'system' traders go
wrong. Firstly, sometimes taking the signals and sometime listening to
"common sense", is discretionary not systematic trading. Secondly, notice
the undefined term "common sense". I find it impossible to create a
working trading plan around "common sense".
>>I got the feeling TRABOS is a rather "oldie but goodie" type of system..
>>i.e.
>>"cave-man" type of trading. Lot's of grunt work, and no heroics.
Assuming heroics means enormous returns, this is another common mistake
made by new traders. They forget the power of compounding and are
facinated by grandiose claims. At 25% a year $25,000 turns into $888,178
by the time your newborn can drive (You will need it for the insurance.).
That year it will earn you $222,000 almost 10 times your initial investment.
My suggestion is to take the TRABOS system and CORRECTLY backtest it
yourself on a portfolio of markets two from each sector, grains, meats,
energy, currency, interest rates, stock index (one only). Follow the rules
to the letter and use $150/round turn in commission and slippage over a 250
trade sample. Run statistical tests every 50 trades to check the
robustness of the system. If it is profitable, you should now have
confidence to take every trade signal generated. If you are not, backtest
another 250 trades or follow it realtime for several months. You now need
to develop a money management strategy that will give you the return
drawdown ratio that you find comfortable. I would figure out the
probabilities of various drawdown levels etc. Lastly, you must develop the
discipline to trade your new winning plan. Trade it for a month. Keep a
diary and a log of each trade. If you skipped any signal or fudged any
rule even if it resulted in more profit or less loss, your discipline needs
work.
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