pretty sure his trading operation consists of a little more than the 2 strategies he has published here for our education purposes......
How to research and verify trading ideas
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pretty sure his trading operation consists of a little more than the 2 strategies he has published here for our education purposes......
Talon Trading introduced the concept of measuring volatility ostensibly on BoWo's thread, of all places ... talk about throwing pearls before swine (pun intended) as another parameter for signal entry.
Basic logic (which is why BoWo doesn't "get it") tells us that if this factor could be incorporated as part of money managment into your trading system the odds of being a successful trader increase dramatically.
Point-in-fact, if you are using an automated, or semi-automated system, the probability of your success is extremely high.
As you can see, I'm still avoiding the intellectual heavy lifting in this thread... but this is a good question. Let me answer in random stream of consciousness fashion:
Trading is hard. For those of you who have done it well, you know what I'm talking about. For those of you aspiring to be traders, don't let this discourage you, but trading is a lot harder than you think. There are many reasons trading is hard, but it's not what most people think. (At least I'm assuming because here's what I thought when I was trying to learn to trade
Trading is not all that intellectually challenging, and I don't actually find it very stressful (well... most days... until I do something stupid that makes it very stressful lol.)
However, to trade well requires that you are 110% focused. If you are not in excellent shape mentally, emotionally and physically, your trading will suffer. (this is probably slightly less true for more systems-focused traders. Remember I am mostly a discretionary trader.) I have found over the years that **I** an the most important factor in my success. (Footnote: this is not true for beginning traders. Dont get sidetracked in psychological BS -- you must have an edge and you must develop the behaviors and mental tricks of a successful trader before you get too focused on your psychology imo.)
In addition, markets change and we must change too. However, we must change in the correct ways. It is important to be aware of what is working and what is no longer working.
So at the end of the year I spend a lot of time going over all of my mistakes... all the things I could do better... really thinking about what I'm teaching and how I can do that better... just a time to take stock of everything that's happened and make sure I'm pointed in the right direction for the coming year.
Does that answer your question?
Now I must spend 10 minutes and go play more children's games with BoWo.... (ex post edit: ahh... but the BoWo Trading thread appears to be closed. What a loss to society... the horror!)
Trading is hard. For those of you who have done it well, you know what I'm talking about. For those of you aspiring to be traders, don't let this discourage you, but trading is a lot harder than you think. There are many reasons trading is hard, but it's not what most people think. (At least I'm assuming because here's what I thought when I was trying to learn to trade
Trading is not all that intellectually challenging, and I don't actually find it very stressful (well... most days... until I do something stupid that makes it very stressful lol.) However, to trade well requires that you are 110% focused. If you are not in excellent shape mentally, emotionally and physically, your trading will suffer. (this is probably slightly less true for more systems-focused traders. Remember I am mostly a discretionary trader.) I have found over the years that **I** an the most important factor in my success. (Footnote: this is not true for beginning traders. Dont get sidetracked in psychological BS -- you must have an edge and you must develop the behaviors and mental tricks of a successful trader before you get too focused on your psychology imo.)
In addition, markets change and we must change too. However, we must change in the correct ways. It is important to be aware of what is working and what is no longer working.
So at the end of the year I spend a lot of time going over all of my mistakes... all the things I could do better... really thinking about what I'm teaching and how I can do that better... just a time to take stock of everything that's happened and make sure I'm pointed in the right direction for the coming year.
Does that answer your question?
Now I must spend 10 minutes and go play more children's games with BoWo....
(ex post edit: ahh... but the BoWo Trading thread appears to be closed. What a loss to society... the horror!)Weak. There was a nice combination of learning and entertainment there.
I had what I thought was a legitimate question on data in there...I hope you don't mind if I repost it in here in case someone wants to comment:
Wow - really surprised at the magnitude of the differences.
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Quote from talontrading:
Attached find a spreadsheet that covers the full history of the QID. It includes settlement prices and 1600 prices. BoWo's backtest was done to settlement prices, but you can see that at times this price is VERY different from the price you could have executed.
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For the unitiated like myself, here is some info on how the 16:00 vs. settlement discrepancy occurs:
http://www.sec.gov/answers/closepr.htm
In an earlier instance, Mike was nice enough to alert me to the dangers of using a daily data source. And to his point, I've yet to find an instance where a daily data provider does not use the settlement price as the daily close. Obviously this has major implications for constructing a realistic database.
However, there is still one thing I am unclear on regarding the ability to reliably transact at the settlement price. According to the paper below, it appears that market-on-close or transactable limit-on-close orders have/will always trade at the CTA's reported settlement price. Of course this ignores the possibility that your order would have moved the market. Is the potential for moving the market the only factor that makes using the settlement price unreliable - or is there something else I am missing?
http://www.sec.gov/rules/sro/nyse/2009/34-59345.pdf
I had what I thought was a legitimate question on data in there...I hope you don't mind if I repost it in here in case someone wants to comment:
Wow - really surprised at the magnitude of the differences.
--------------------------------------------------------------------------------
Quote from talontrading:
Attached find a spreadsheet that covers the full history of the QID. It includes settlement prices and 1600 prices. BoWo's backtest was done to settlement prices, but you can see that at times this price is VERY different from the price you could have executed.
--------------------------------------------------------------------------------
For the unitiated like myself, here is some info on how the 16:00 vs. settlement discrepancy occurs:
http://www.sec.gov/answers/closepr.htm
In an earlier instance, Mike was nice enough to alert me to the dangers of using a daily data source. And to his point, I've yet to find an instance where a daily data provider does not use the settlement price as the daily close. Obviously this has major implications for constructing a realistic database.
However, there is still one thing I am unclear on regarding the ability to reliably transact at the settlement price. According to the paper below, it appears that market-on-close or transactable limit-on-close orders have/will always trade at the CTA's reported settlement price. Of course this ignores the possibility that your order would have moved the market. Is the potential for moving the market the only factor that makes using the settlement price unreliable - or is there something else I am missing?
http://www.sec.gov/rules/sro/nyse/2009/34-59345.pdf
Let me reframe your question to be "why can't i reliably execute at the closing print?" Understand that the issue with BoWo goes beyond that, but let's deal with your question in simple form.
Basically, what you see with a lot of stocks is that they trade with normal liquidity up to 16:00, then at the closing bell the liquidity vanishes and the spreads widen. Let me just make up an example with a liquid stock trading 100.00 / 100.01 at 15:59:50. Let's say I know I can hit that bid for 10K shares and maybe drop it .02 at that time. Fine... but at 16:00:01 the spread will now be 99.10 / 101.25 and if I hit that bid for 2K shares it will drop and the next bid will be 97.50. Maybe there are more hidden bids there, but I can't bet on it. (Exact opposite example applies to buying.)
Then, particularly with NYSE listed stocks something curious happens. The specialist will settle his closing orders and do a closing print at, say 100.18 for half the day's volume.
Your data feed will quite correctly report the settlement price as 100.18, but you see there's no way you could have reliably bought there. Some days? of course. But others... no way.
The problem is if you do a backtest on those settlement prices you are using prices that you cannot possibly rely on getting. So why can't you enter market on close orders? Well, short answer is they have to be in well before the close and other restrictions apply. If you are trading a pairs system, you often don't know you need to execute until a few minutes or seconds before the close, so MOC is most definitely not an option.
In addition, a sizable MOC order will move that closing print... sometimes a lot (and that's never something you want (guess how I learned that one...)) Honestly that impact is dwarfed by the fact that you just discovered you needed to enter that MOC 20 minutes ago and now you gotta try to get as close to the 16:00 print as you can and you have no idea where they're gonna settle the damn thing lol.
And... maybe some stocks settle at 16:00:12 and another at 16:01:15. If you are looking at a ratio of settlements you are looking at prices that didn't happen at the same time... may not seem like a big deal but it is a HUGE deal.
Use intraday prices as someone else suggested... that's the best answer. If BoWo B-job were to rerun his QID QLD using 16:00 or 15:59 prints he would see a significant degradation in his backtested performance... but it would be a step closer to reality.
I think that was semi-coherent... ask more if I didn't answer well.
Basically, what you see with a lot of stocks is that they trade with normal liquidity up to 16:00, then at the closing bell the liquidity vanishes and the spreads widen. Let me just make up an example with a liquid stock trading 100.00 / 100.01 at 15:59:50. Let's say I know I can hit that bid for 10K shares and maybe drop it .02 at that time. Fine... but at 16:00:01 the spread will now be 99.10 / 101.25 and if I hit that bid for 2K shares it will drop and the next bid will be 97.50. Maybe there are more hidden bids there, but I can't bet on it. (Exact opposite example applies to buying.)
Then, particularly with NYSE listed stocks something curious happens. The specialist will settle his closing orders and do a closing print at, say 100.18 for half the day's volume.
Your data feed will quite correctly report the settlement price as 100.18, but you see there's no way you could have reliably bought there. Some days? of course. But others... no way.
The problem is if you do a backtest on those settlement prices you are using prices that you cannot possibly rely on getting. So why can't you enter market on close orders? Well, short answer is they have to be in well before the close and other restrictions apply. If you are trading a pairs system, you often don't know you need to execute until a few minutes or seconds before the close, so MOC is most definitely not an option.
In addition, a sizable MOC order will move that closing print... sometimes a lot (and that's never something you want (guess how I learned that one...)) Honestly that impact is dwarfed by the fact that you just discovered you needed to enter that MOC 20 minutes ago and now you gotta try to get as close to the 16:00 print as you can and you have no idea where they're gonna settle the damn thing lol.
And... maybe some stocks settle at 16:00:12 and another at 16:01:15. If you are looking at a ratio of settlements you are looking at prices that didn't happen at the same time... may not seem like a big deal but it is a HUGE deal.
Use intraday prices as someone else suggested... that's the best answer. If BoWo B-job were to rerun his QID QLD using 16:00 or 15:59 prints he would see a significant degradation in his backtested performance... but it would be a step closer to reality.
I think that was semi-coherent... ask more if I didn't answer well.
Thanks for the explanation.
My quick question is over time wouldn't the price difference work for you as much as against you eventually evening out? Sorry, this is my noob minded first instinct here..
I am sad to see BoWos thread closed. It was finally getting interesting! It is pretty obvious he could not handle the heat. His loss.
Thanks for continuing this thread. Every new post is read quickly. Lots to absorb and think about. I wish I was at a level I could contribute. Right now I realize I need to re-learn programming to get where I want so I am starting there.
Yes you would think it would even out, but my experience has been that it doesn't. The way I learned about this was by developing systems on settlement data and discovering they didn't work then figuring out why. Would have saved some money and time to have someone point out something that is now so obvious.
Once I figured it out I just accepted it worked against me and didn't give it more thought. May be something I'm missing there.
I'm reasonably comfortable developing swing trading systems on settlement data... i find it doesn't matter so much there because yes the differences do seem to even out... but for pairs it's the kiss of death. (in my experience at least.)
Once I figured it out I just accepted it worked against me and didn't give it more thought. May be something I'm missing there.
I'm reasonably comfortable developing swing trading systems on settlement data... i find it doesn't matter so much there because yes the differences do seem to even out... but for pairs it's the kiss of death. (in my experience at least.)
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