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Peter:
I'm on a slippery slope here so I'll just ask the more experienced guys
to jump in and correct anything I say that is wrong.
> Okay.. when you develop this system, it can be on paper, not programmed,
> right?
It should be in writing but does not have to necessarily programmed. Just
write out the 'rules' that you intend to follow to trigger a trade entry.
And your profit-taking could be based on support/resistance, rather
> than just an arbitrary percentage?
Yes, Douglas says this should all be 100% mechanical. No judgment
involved.......
So it has some level of discretion in
> it... If you use H&S or other classical formations, is that mechanical?
Only if you quantify what constitutes a H&S so you do not have to 'guess'.
It either meets your criteria or it doesn't.....
And
> backtesting, for the edge, how do you do this... by buying historical
data
> and running a backtest?
Yes.
Wouldn't you have to real-time test to actually
> know if it's possible ie. call your broker when you get the signal, get a
> quote, record it, subtract reasonable slippage & comm. and log it as a
> paper-trade?
I would say yes; all the above appears acceptable, BUT be intellectualy
honest with yourself and the log entries. You could real-time test on
paper
first if you were uncertain about 'taking all the trades'. And that's the
rub.
I have certain concerns about the "strictly mechanical"
> approach, but you both sound as if you're talking about a disciplined
> rule-based approach, rather than a "black box" Club 3000 type of
> methodology eg. Catscan, Aberration.
System should NOT be black box. You cannot build trust in a black box
that you did not build yourself. Your system, and it's accompanying rules
should be customized to you--by you and for you. Everyone has concerns
about
'strictly mechanical' because we try to outguess the market and our system.
The
idea is to develop discipline and trust in oneself by 'taking all the
trades'.
Charles
____________________________________________________________________
Below is my response to Peter Timaratz
> regarding my differentiation between the two.
>
> At 05:19 PM 8/4/98 -0500, you wrote:
> >Peter G,
> >
> >I'm curious as to how you interpret the word discretionary. It seems to
me
> >that if you are successful trading then you aren't just winging it and
you
> >are following a set of rules. I'd like to hear what for you is the
> >difference between the two.
> >
>
> For example, Larry Connors and Linda Raschke's stuff has set rules, but
is
> not mechanical. Some people program every aspect of their trading into a
> computer system. If you trade off charts or trail your stop by visual
cues,
> this is discretionary. If you use a black box (some do!) and take every
> signal, that is completely mechanical. You cannot use Elliot Wave unless
> you are discretionary; it just doesn't program. If you use a 7 and 21
> period EMA crossover, with a 10% trailing stop after a floor of $400 has
> been reached and a money management of $500, that is mechanical. I have
> always been wary of putting a linear computer program into a non-linear
> environment, but some people say that the rules keep you on track.. you
> should never deviate.
>
> P
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