Mechanical Vs Gut - my experience

A

axeman

Just some info I'd like to share.

I started as a purely "gut" trader. Failed.
Then switched to "gut" scalping. Did ok.

Then switched to mechanical/auto systems.

First system worked... for a little while and stopped.
Inexperience on my part.

Second system worked, but had to stop using it
because I realized the risk was too high.

Then read an article that said the most consistent
long term traders have objective/backtested systems.

Right or wrong..... I bought into this and started
really focusing on learning proper system development
and building nothing but 100% mechanical systems
I could auto execute.

After MUCH keyboard pounding, and pounding of head
into large trinitron, I have another system.

I have a solid understanding of this system, it's behavior
and why it works.

Here is the interesting part.

My system screwed up several times in the last 2 weeks
due to improper setup on my part and other glitches.

It got me into several bad trades that were losing my money.
I cut them short ASAP but found myself down each day.

Then the REVENGE trading kicked in... I got MAD.
Then I got calm, focused, and decided I would get it back.

I traded MANUALLY using a fuzzier set of the system
rules and made all the money back and then some.
It was almost easy.

All the setups were setups the computer would have missed
but I "understood" to be "close enough".

Hmmmmmmmmm....... funny. All this time I spent developing
purely mechanical automated systems, and I find that
I can calmly beat them by trading manually.

After spending all this time trying to avoid emotions in
trading, it seems they are no longer a problem.
Oh the irony.... :D

Man... its been a LONG road... too damn long.
I hope trading gets easier as I master it.

I think the best combo may be to develop systems
mechanically, then trade manually FIRST, and only
then consider going full auto.


peace

axeman
 
Bravo axe'.

The bit about fuzzier rules because you understood the trade is awesome. That is the reason I suggest to newer traders that they look at as many charts as they can for the same setup. This gives them a chance to see the many different ways a successful setup can appear.

Wtg man.
 
The other important point is...

It's sooooooooooooo much easier to control emotions
when you absolutely, objectively KNOW you
have a solid edge.

The difference is night and day.

I look forward to trading more when in a drawdown
because I KNOW I am effectively the house and will
get it back soon as long as I keep going.


peace

axeman
 
Quote from axeman:

The other important point is...

It's sooooooooooooo much easier to control emotions
when you absolutely, objectively KNOW you
have a solid edge.

The difference is night and day.

I look forward to trading more when in a drawdown
because I KNOW I am effectively the house and will
get it back soon as long as I keep going.


peace

axeman
More...

Good going Axeman. That is exactly the attitude you MUST have to be an effective trader, whether mechanical or discretionary. The one caveat, of course, is that you have to be constantly monitoring changing market conditions...no sense having blind faith in a system that did great in mkt condition A, but is sucking hardcore in mkt condition B.

PEG LEG
 
Yep...

You must have a deep understanding of the "behavior"
of your system so you can determine any changes
in future markets in time to save yourself a bunch of $$$ :D

I believe a good system will have a fairly smooth
equity curve which will flatten out SLOWLY over time.

If the "edge" just disappears suddenly, then I would
suspect some curve fitting. But who knows...

All the systems I have seen have petered out over a long
enough period of time that you have no excuse for
getting burned.

Anyone seen a great system that simply dropped dead
one day?? Would you say that is a common attribute
of a good system?

peace

axeman


Quote from peg_leg_joe:



Good going Axeman. That is exactly the attitude you MUST have to be an effective trader, whether mechanical or discretionary. The one caveat, of course, is that you have to be constantly monitoring changing market conditions...no sense having blind faith in a system that did great in mkt condition A, but is sucking hardcore in mkt condition B.

PEG LEG
More...
 
Eventually I got paranoid enough to code the same system on another platform in case a signal was triggered by a bad tick on one of the feeds, or if one of the platforms failed for some reason, e.g., an ISP or vendor failure (case in point today). For the most part, the signals are redundant but once in a while one platform will trigger and the other will not. The real difficulty with backtesting is that the data are cleansed after the fact, i.e., it can get trickier in real-time when bad ticks get through, and one has to make an on-the-spot analysis. Just in the past couple of weeks, what appeared to be bad ticks in fact were order entry errors. If your system triggered short during these times, then could you have realistically pulled off the short at the point of breakdown? Probably not. Strategy automation is full of potholes, and you're not going to see any of this written up in the software documentation. I am constantly checking to make sure the system / feed / order entry systems are alive, especially if one has a system that is always in the market where missing a signal sets off a chain reaction of countermeasures that need to be taken. Do you just wait for the next signal? Maybe, but then you're changing the outcome of the system that you designed. In some cases, maybe price comes back to your entry, and you get a second chance. System trading can be difficult, and sometimes being able to pull off a discretionary trade once in a while is almost a relief. I'm finding that a balance of the two has been most effective - let your systems run in the background and indulge your creativity / control with a few discretionary trades. By being more selective with discretionary trades, you'll look for the juicier opportunities.

MC
 
Quote from axeman:

Yep...

You must have a deep understanding of the "behavior"
of your system so you can determine any changes
in future markets in time to save yourself a bunch of $$$ :D

peace

axeman
More...

Right on. Developing a great system is feeding back one's observations of the market back into the system to make it better, testing each version iteratively.

MC
 
Today my pure mechanical system lost 92 cents.

However, I made $1.50

Hmmmmmmm...... will continue to watch this gut thing :D

peace

axeman
 
A system that tells you: 'Please, stop now, switch over to gut feeling', that'll be. And then by gut feeling: 'And now, ladies and gentleen, please get back to a mechanical system.':D

Anybody an idea ?


ttrader
 
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