Day Trading Systems

>Love is one of them, no one can tell you that you
>are in love, you just know it, a lot of the times
>you can't even put it to words..[snip]

Hitman, some people are much better that others at describing their feeling. Some people will describe a stunning sunset as "the most beautiful thing I've ever seen." Others will wax poetic and stun us with their prose.

I happen to be able to quantify and describe quite easily (in words and computer code) what I see in short term market actions. I can also describe in great detail the love I share with my partner and take great pleasure in doing just that in creative ways. That love is no mystery to me and neither is my small but ever growing knowledge of the markets.

>What they don't understand is that it takes a
>great trader to build a great system, if you
>don't have the deepest understanding of the
>market, then it can't be done.

I hold the above to be an absolute truth.

>By the time you acquire that understanding, you
>probably will not even bother with mechanical
>trading because you will find that trading is more
>than the sum of its parts.

This I hold to the be opinion of someone who hasn't had the pleasure of watching their code execute their trading plans *better* than they can themselves.

JB
 
What determines the prices of stocks ?


answer : the human brain



What's the best tool to analyze those prices ?


answer : the human brain



Conclusion : Until computers become so strong AND flexible
as the human brain, not one mechanical system
will ever beat the best intuitive trader....




P.S. Do you known that it takes the total volume of the earth
filled with the strongest computer in existence to match
that brain's power.....

Do you known how many neurons the brain has ....?

Do you known how many possible combinations there can
be created with all those neurons ?

Have a talk with a brain surgeon about the almost unlimited
capacity of the human brain !

You guys have no idea....





So that's a very simple answer to this discussion

There are and will be mechanical systems developed that can
produce positive results but the day that such a system
can beat the best traders will probably not come during my l
lifetime....
 
Originally posted by Hitman
"Seen" a few systems in action is non-sense, you either put yourself at the front line every day or you don't.
More...
Hitman, I am on the line every day & I have the account statements to prove it. Up 60% this year following mechanical signals. I know a lot of intraday traders that have mechanical systems and use them intraday. They scan a basket from a dozen to a few hundred stocks looking for the right setup. When the setup occurs, they initiate the entry or exit. The only discretionary part of this is that they put in the order themselves vs. the system executing the buy or sell. But the entry & exit signal itself is fully mechanical.

Why do discretionary traders carry so much hubris that mechanical system don't work or that no one could be successful using them?

Regarding hedge funds, sure many manually "pull the trigger" but the mechanical system gives them the signal. The only discretionary element would be if they decided to not take a certain trade based on external factors (to lock in end-of-quarter results, major event, etc.). It is still a mechanical system. You don't have to take every single trade to use a mechanical, systems-based approach, but most people try to follow every signal unless they have a MM or other rule to manage risk, but then that rule becomes a part of the system, just implemented by the human not the machine.

Do you really think that George Soros, Stanley Druckenmiller and Richard Dennis don't use a systems-based approach? The only discretionary element of their trading are risk and MM-related (which sectors/markets to invest in, what % of capital, other risk/MM rules) but these are all part of the system. Or have you heard of Ed Seykota? His clients had a 250,000% gain (yes, 2500 times) over 10 a year period from a purely mechanical system. Bill Dunn & Dunn Capital Management ranks at the top of managed funds every year with a purely mechanical system.

Yes most systems traders manually "pull the trigger" but I'm not arguing absolute 100% mechanical, but about using a system to generate signals and acting on those signals. Do you know how many CTA's use mechanical systems? Do you think that the massive arbitrage been S&P cash vs. futures vs. eminis aren't systems-based?

Regarding intraday systems-approach to playing stocks, many people use intraday long only systems precisely because of the short uptick rule. Slippage is more of a concern for shorter time frames. I would not trade stocks intraday using 1m bars. If you're using 15m or 30m bars slippage is not a big problem. If you use limit orders to enter rather than stops slippage is not an issue- you may have some trades that would not have been filled but there are ways to determine probability of a limit order getting filled (by looking at tick data above/below the limit price).
 
>What determines the prices of stocks ?
>answer : the human brain

>What's the best tool to analyze those prices ?
>answer : the human brain

The second item is a hollow assertion IMHO. There are many thing that are determined by the human brain that are better analyzed by computers -- rush hour traffic patterns analyzed in real time to operate smart traffic controls is just the first one that pops into my head (and of course I'm purposely ignoring the obvious ones such as game computers)

>Conclusion : Until computers become so strong
>AND flexible as the human brain, not one
>mechanical system will ever beat the best
>intuitive trader....

OK, for the sake of this discussion, I'll give you that one and respond with this...

Conclusion : A computer executed mechanical system need not beat the "best intuitive trader" -- it only needs to beat something more than 50% of the profitable traders to do quite nicely thank you.

>P.S. Do you known that it takes the total volume
>of the earth filled with the strongest computer
>in existence to match that brain's power.....

Yeah, so! The assertion here seems to be that the brain is always better than a computer and of course we all know that this is pure hogwash. In many areas, the brain still has HUGE limitations that computers surpassed 20+ years ago.

>You guys have no idea....

Like you are familiar enough with our knowledge to tell us what ideas we have and don't have. Why don't we stick with what we actually know.

>There are and will be mechanical systems developed
>that can produce positive results but the day that
>such a system can beat the best traders will probably
>not come during my l lifetime....

Once again, let's suppose your statement is correct. Common sense (and knowledge of computers) requires one to agree that if a system can be created and computer executed that is nicely positive, then this system can be duplicated and run over a much larger range of securities then can be managed by a single "best trader".

Sure, perhaps a computer can't beat the best single chess player in the world for the big One Million dollar payoff, but it can assuredly and viciously stomp a hundred players in the 90th percentile simultaneously without breaking a sweat and take the one hundred thousand dollar payoff for each of those contests. A quick look a the math of this situation will tell you which entity is now the more profitable. This is the beauty and allure of computerized system trading (and how some of the Big Boys in trading got that way)

JB
 
Dottom,




Talking about Richard Dennis from the Turtles...


Well he is OUT of business, his trend following system
went trough a drawdown of 80 % and was closed....


A system can work for a period of time but when the character
of the market changes then comes the real test for that system..


Have you read my post ?

Nothing (at this moment) is more powerfull then the human brain...
 
Dottom:

I define mechanical trading as if two people trading the same system they get same result (assuming discipline is not an issue), it is one thing to have a filter that generates some signals and you cherry pick the trades, a totally different story when you trade exclusively mechanical signals.

It is not mechanical unless you take every signal. Otherwise whatever filter/alert you are using is like my trader friend at work telling me they are reading an oil rip . . .

***The only discretionary element of their trading are risk and MM-related (which sectors/markets to invest in, what % of capital, other risk/MM rules) but these are all part of the system***

And that discretionary element is far more important than entry/exit itself when you are talking about millions and billions of dollars. Those folks do not follow blind signals, and the other names you have mentioned, let's just say you never know what they really do to make money unless you trade with them on a day in and day out basis.

There are trading rules for every style, but discretionary traders know when to bend the rules (take a position before all the signals are confirmed for example), and last but not least we are talking about day trading here, and I just don't think it can be done for individual stocks.

And unless you actually work for a hedge fund it is meaningless to talk "oh so and so does this to make <number of> millions a year", you don't know what those people do to make their millions and anything they say in public interviews/books must be taken with a grain of salt. It is a completely different game when you play at that level, and we are talking about trying to make $1000 a day day trading here.
 
Turok,




I agree with you, for raw calculations a computer beats the human brain.

But for pattern recognition the human brain is still number one.
 
Originally posted by sabena
Nothing (at this moment) is more powerful then the human brain...
More...

This profound debate is taking us into the realms of religion. We are now entering an area of debate which is incontravertibly indeterminate. Why so? It is an equivocal area of debate because there are those amongst us who take things on faith.

For those of us who do not subscribe to the notion of agnosticism (or indeed one step further, atheism), there is indeed something more powerful than the human brain. It is the Omniscient, the Omnipotent, the Merciful... it is God, Jehovah, Vishnu, Allah... it is our Creator.
 
Yes, it like Hitman says , how do you known how mechanical
their approach really is when you are not inside their business.
 
Originally posted by sabena
Talking about Richard Dennis from the Turtles...
Well he is OUT of business, his trend following system
went trough a drawdown of 80 % and was closed....
More...

And a senior trading desk manager at Hitman's firm lost $145k in one day and was escorted out of the building. Trading systems win & lose; just as discretionary traders win & lose.

My point in mentioning Richard Dennis is not to say the turtle trading system he uses is the end-all-be-all. If you've read my posts I have pointed out several times the follies of a pure trend-following approach.

By the fact that Richard Dennis was so successful for all those years using a purely mechanical systems-based approach supports the fact that systems trading does work.

Now regarding your claim that Dennis had a 80% drawdown. He did not, he had a 45% drawdown and his clients panicked and withdrew their funds. A trend-following system with 50% drawdowns is very possible, and his clients were all advised of this beforehand, but they still panicked. However, the years prior to the 45% drawdown Dennis had amazing returns.

Perhaps you remember Dennis' partner William Eckhardt? His systems-based trading approach has been among the top ranking returns of all CTA's for the past 10 years. Look at #6 and #7 <A HREF="http://www.managedfutures.com/ranking_10Year.html" target="_blank">here</A>. Notice the #6 had over 1901% compounded ROR, outperforming everyone else by leaps and bounds, but did have 40% drawdowns. That's the nature of trend following systems. It's not for me, it might be for others.

I don't have the exact performance #'s for Richard Dennis before his 45% drawdown and his clients bailed out, but here is 3yr rankings ending 1997.

Compounded ROR (Jan-95 to Dec-97)
RankManager *ROR WDD Sharpe
1 HWB Capital Management (Worldwide Financials) 451.89% -15.81% 1.25
2 Dennis Trading Group (Current Program) 413.82% -27.56% 1.64
3 Dunn Capital Management (WMA) 349.08% -17.46% 1.82
4 Eckhardt Trading Co. (Higher Leverage) 345.07% -33.90% 1.52

Hmm, the top 4 performers are all systems traders. Look at those Sharpe ratios, despite as much as 33.9% drawdown. I know in 1999 Dennis still had over 200M in management. I think he closed out his fund sometime in 2000.
 
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