how to handel trending and choppy markets?

[jboydston]

Quote from dottom:



...Is it because they are all too stubborn to follow such advice?...

Or not disciplined enough maybe.

~~~

My answer to the original question: Diversify your system. Trade more than one instrument using a different time-frame. Example trade the ES with a choppy system and the NQ with trending system. Optimize them both at break-even.

 

[Winston]

Dottom, would you elaborate/explain persistence. Thanks

 

[wdbaker]

Quote from jboydston:


Or not disciplined enough maybe.

~~~

My answer to the original question: Diversify your system. Trade more than one instrument using a different time-frame. Example trade the ES with a choppy system and the NQ with trending system. Optimize them both at break-even.

jboydston,
What did you mean by optimize them both at break-even?

Thanks
wdbaker

 

[gladiator]

A trend is based solely on the referenced time frame. If you are trading 1 minute bars, then there is a trend to ride every day, long or short. Also trends start on the smallest time frame first, then expand to cover higher time frames.

So if you have a entry set-up, and a meaningful target on the time frame that you are trading, the higher time frames mean nothing, unless you are looking for a target that requires the higher time frame to collapse into the trend.

 

[jboydston]

It's not hard to come up with a system that is profitable in the long run. But drawdown is usually a problem.

Optimizing to breakeven will likely reduce profitability, but increase consistency if diversified over multiple timeframes.

You're not going to get rich quick trading.

 

[wdbaker]

Quote from jboydston:

It's not hard to come up with a system that is profitable in the long run. But drawdown is usually a problem.

Optimizing to breakeven will likely reduce profitability, but increase consistency if diversified over multiple timeframes.

You're not going to get rich quick trading.

jboydston,
ok, maybe I am just clueless, but if you optimize to breakeven isn't your profitability going to be 0 or breakeven??? I'm sure that this is not what your getting at. I do some backtesting, programming and work with optimizations when doing backtesting so what your saying should make sense but I am just not getting it and feel like I may be missing something important. Could you please spell it out in Crayon for me

Thanks
wdbaker

 

[jboydston]

Most people I talk to (I did it too at first) optimize a system to get the highest gross profit possible, followed by lowest commissions.

Instead consider optimizing to the lowest possible drawdown. Sacrifice potential high profits for low risk.

I trade 4 different instruments, all optimized individually to "stop" at break-even. This means that no one system is spectacularly profitable.

However, this allows me to "time-diversify" my market exposure. For example I might be long the S&P from 2 days ago and short the NASDAQ today.

 

[dottom]

How about optimize for robustness? So you have a higher chance that small changes in underlying market behavior won't derail your system. Looking at the point of maximum robustness vs profitability, you then decide if the system is worth trading or not.

 

[jboydston]

Huh? What is robustness? More specifically how do you quantify it?

 

[nitro]

Quote from jboydston:

Most people I talk to (I did it too at first) optimize a system to get the highest gross profit possible, followed by lowest commissions.

Instead consider optimizing to the lowest possible drawdown. Sacrifice potential high profits for low risk.

I trade 4 different instruments, all optimized individually to "stop" at break-even. This means that no one system is spectacularly profitable.

However, this allows me to "time-diversify" my market exposure. For example I might be long the S&P from 2 days ago and short the NASDAQ today.

The gross profit, the number of trades, the drawdown, the number of consecutive winners/losers, the %winners, etc, all define a surface, an "n-dimensional hypersphere." Knowing how to navigate the surface by visualizing it, testing it for "connectedness" and "stability," is the key...

Trading multiple systems on multiple time frames is an old trick. However, AFAIK, the CFA's that offer these usually offer them to clients each INDIVIDUALLY with the risk levels disclosed. I have seen though hedge funds whose job is to invest in other hedge funds by mixing and matching exactly in this manner. LOL

nitro