Originally posted by OldTrader
It sounds like you've formulated a well thought out plan and tested it. Your efforts in this regard are impressive, and I hope you will meet with success.
Let me just say that I'm not a "system" trader, and therefore, I view all systems with somewhat of a suspicious eye. The problem is that in order to develop the system, you had to base it on past market conditions. You then did part of your testing on past markets....although you did do some "forward testing". Whether it was back testing or forward testing, I think one statement is true....and that is that the market will change. This is a certainty.
I don't mean to hold out the fact that the market changes as a negative for you. I just hold it out as a cautionary note. In other words, I hope your method works for you, especially after all the careful work you have done. But whether it will work forever is another question. But first things first....let's see if it works now.
I bring up market change because evidently this method you have designed WILL work as long as the market does NOT change signficantly. On the other hand, if there were some type of change during these initial months evidently your plan is to quit. It may be though that as you go along, you may need to tweak a few things, improve a few things. And these changes to your method may well keep your method in tune with a changing market.
I've been in the market since the '60's. I've certainly seen some tremendous changes. I remember the market streaking up for example in 1975 on what we were calling "panic volume" at the time.....30 million shares. The tape would run late on this heavy volume. Puts, calls, index futures, discount commissions, day trading, on line trading....just to mention a few....are all changes I've seen in my career. And each of these has had an impact on the way the market trades. In the next few weeks single stock futures will begin to trade, futures on narrow indexes...and chances are these will also change the way the markets trade.
Just remember, if one of these systems actually worked forever, then that system trader would soon have all the money.
Rather, there is no substitute for using your brain to trade...as long as you can train it to think in the right way. That way when you're confronted with changing circumstances you can change with it. Or, in your case, just understand that you will need to continue to use brain to make adjustments to your method over time.
Again, I hope this all goes well for you. There is no reason to expect that it won't given what you have said. But if it does, just remember Rome was not built in a day.
One question I have is regarding this "dynamic sizing" that you refer to. Would you be able to amplify how this works?
OldTrader
Old,
I agree 100% - my biggest problem with automatic systems trading isn't so much that they are mechanical, but that if they fail, you are not likely to understand why they went bad.
However, if you learn to trade, are profitable, and then back into system trading, you are far more likely to succeed. However, I have never met someone that went from discretionary trading to system trading. LOL...They realize all that they take into consideration into making a trade, think about how they would translate into a computer program, and laugh out loud...
Dynamic sizing can be done in many different ways. One way is based on volatility, where you may have larger size on, but your stop loss is tighter, or vice versa.
There are other ways as well, e.g., martingale strategies that, given a positive expentancy, can be shown to increase your equity curve in the most efficient way.
40,
Best of luck to you - If my wife and I had not taken risks that we have, whether it be in Real Estate, or emigrating, or crossing the street, we would not be where we are.
If I had any suggestions they would be:
1) Don't let the system trade during FED days right before or after the announcement, unless that is how you make your money - LOL.
2) Otherwise, follow the system 100% without question. HOWEVER, I would, especially at the beginning, give yourself 4-6 months of just trading it, but then reevaluate it's "weaknesses" every 4-6 months. Some people do this by re-optimizing the parameters, by using the new "old data," using walk-forward methods.
3) Inspite of the fact that it is extremely boring, make sure that you or someone trained to execute orders is ALWAYS in front of the system AT ALL TIMES in case of a problem. Make sure you have a phone number to call in case lines go down, computers crash, etc, etc. Finally, make sure you understand how options can be used to get yourself out of a locked limit futures position.
nitro
