Mental Ceilings and self fulfilling prophesies

[Girlpower]

Before this gets out of hand completely, I'd like to point out that the supposition is based upon the many threads here on ET associated with mainly retail people trading their own account. Yes some even are able to play sizes of 100-200 lots in the market.

If we start talking about taking the entire finanacial capability of an investment bank into a single market or instrumnet, it is pretty obvious that they would far exceed the liquidity limits of the market itself, and actually become a single internal market trading against themselves with a small amount of other paticipants trading around the preriphery of their effectively closed and moribund market. Which would of course be totally self-defeating...

That is obvious and a given, and yet some of the examples and arguments seem to be leading towards trying to cast scorn, based upon saturating a market with too much size in an effort to discount the original hypothesis.

There can also be an argument, that by maintaining a constant size having reached a little less than sensible liquidity limits rather than compounding size upwards, that in the process risk % of capital decreases on a continuing basis, and more capital is freed to trade in other markets, so expanding the operational base of what is possible.

I doubt there is ANY single player anywhere (that includes the largest of the banks/funds) that will have capital beyond global liquidity of ALL markets and instruments collectively, but agree that there would at that extreme level become a time where that 'could' happen, and that in those circumstances the markets would in effect cease to operate in any meaningful or efficient way.

Lets get this discussion back on track to the original purpose and not start looking at the extremes of liquidity that only a very very few have to contend with please.

Many thanks to all particiapting.

Best

Natalie

 

[DT-waw]

Natalie,
I think explanation is through real performance. You can also look at hypothetical backtesting results. My optimized systems produce up to 1.7 point/day on S&P index data (swing and intraday trading systems). For example:

System based on 5 minute bars, optimized parameters.
Slippage & commish: 0.3 pts/round-trip
# trades: 1372
Period: 14-Nov-2000 to 7-Feb-2003
Net profit: 952 pts

Equity curve:
1) Flat since 05-Jul-2002 (7 months)
2) 14-Nov-2000 to 30-Oct-2001: Net profit 777 pts (3.24/day)
3) 30-Oct-2001 to 7-Feb-2003: Net profit 185 pts (0.59/day)

I don't know whether results will be similar on ES futures data. You can throw out these statistics and just start to trade for maximum profit. IMO, trading should be more defensive than offensive. It's easy to overtrade esp. if you're trying to catch all these small intraday swings. Finally, it depends on intraday volatility.

 

[Girlpower]

Quote from DT-waw:

Natalie,
I think explanation is through real performance. You can also look at hypothetical backtesting results. My optimized systems produce up to 1.7 point/day on S&P index data (swing and intraday trading systems). For example:

System based on 5 minute bars, optimized parameters.
Slippage & commish: 0.3 pts/round-trip
# trades: 1372
Period: 14-Nov-2000 to 7-Feb-2003
Net profit: 952 pts

Equity curve:
1) Flat since 05-Jul-2002 (7 months)
2) 14-Nov-2000 to 30-Oct-2001: Net profit 777 pts (3.24/day)
3) 30-Oct-2001 to 7-Feb-2003: Net profit 185 pts (0.59/day)

I don't know whether results will be similar on ES futures data. You can throw out these statistics and just start to trade for maximum profit. IMO, trading should be more defensive than offensive. It's easy to overtrade esp. if you're trying to catch all these small intraday swings. Finally, it depends on intraday volatility.

Thanks for the explanation. However, surely you would agree that additions and modifications/improvements to any system can be achieved, which would mean that the numbers would look healthier wouldn't they?

Or put another way, so far your system has evolved to that level, and could well eveolve to a higher level in time?

Also, in that case I am sure you would agree, that there could well be other systems that perform at twice that, but with the same risk levels involved?

Just a few thoughts.

Best

Natalie

 

[DT-waw]

Quote from Girlpower:



However, surely you would agree that additions and modifications/improvements to any system can be achieved, which would mean that the numbers would look healthier wouldn't they?

Also, in that case I am sure you would agree, that there could well be other systems that perform at twice that, but with the same risk levels involved?

This system is optimized. Not much room for improvement. I haven't found anything better than that. Maybe other members can show ES backtesting performance 2x better?

Here's an example which shows how it is hard to choose the optimal parameters:
Simple system, EMA crossover with profit target, on 15-min bars.
EMA 14/45 with 3.5% target: net profit 867 pts
EMA 14/65 with 4.5% target: net profit 255 pts

 

[dbphoenix]

Quote from Girlpower:



Why would it be a silly goal? After all, with such a goal, even failure to achieve it would propel the levels of success to a new plane would they not?

Best

Natalie

A much more likely outcome would be that the trader would take unreasonable chances to attempt to achieve such a goal. If there is a system somewhere that will achieve 15 ES pts per day, then there may be something to talk about. But to believe that the likes of ET members could earn at this level per contract is hopeful, to say the least.

 

[Girlpower]

Quote from dbphoenix:



A much more likely outcome would be that the trader would take unreasonable chances to attempt to achieve such a goal. If there is a system somewhere that will achieve 15 ES pts per day, then there may be something to talk about. But to believe that the likes of ET members could earn at this level per contract is hopeful, to say the least.

It may be hopeful, but with such a target and sensible money management etc. i.e. not taking stupid risks to achieve it, isn't the end result of striving for that kind of a goal going to achieve more than aiming for a 1 point a day goal?

Best

Natalie

 

[Girlpower]

Quote from DT-waw:



This system is optimized. Not much room for improvement. I haven't found anything better than that. Maybe other members can show ES backtesting performance 2x better?

Here's an example which shows how it is hard to choose the optimal parameters:
Simple system, EMA crossover with profit target, on 15-min bars.
EMA 14/45 with 3.5% target: net profit 867 pts
EMA 14/65 with 4.5% target: net profit 255 pts

OK - But the whole point of this thread is raising mental limits.

This basically means that just because you have not yet found a better system than the one you currently use it doesn't follow that it doesn't exist, but more that it has not yet been found. Surely?

best

Natalie

 

[dbphoenix]

Quote from Girlpower:



It may be hopeful, but with such a target and sensible money management etc. i.e. not taking stupid risks to achieve it, isn't the end result of striving for that kind of a goal going to achieve more than aiming for a 1 point a day goal?

Best

Natalie

If the system one is employing can't yield 15 ES pts per contract per day, the trader isn't going to earn 15 ES pts per contract per day either.

Perhaps you're confusing "mental ceilings" with "enough is enough".

 

[illiquid]

I don't think many people actually sit down and figure out their average/day, then think of that as a ceiling -- the ceiling more likely comes from achieving a certain monetary goal for the day, then getting nervous or just stopping because they don't want to see it get away from them. Conversely, I'm sure many also tend to press and strain when in a period of drawdown -- in this case it's not some ceiling pressing down on them, it's the floor going out from under. These are habits I try to fight each day

But as regards for general mental limits and self-fulfilling prophesies, the best start would be to realize and concentrate on one's own bad "habits", then work slowly to weed them out of one's thinking, day by day. But like learning how to quit smoking, cold turkey usually doesn't work.

 

[DT-waw]

Quote from dbphoenix:



If the system one is employing can't yield 15 ES pts per contract per day, the trader isn't going to earn 15 ES pts per contract per day either.

I disagree. Using discretionary entry & exit and/or position size mgmt one can "beat" his own system. Most traders can't beat systems, but some are able to do that.
Curve fitting on historical data is simple. It is much harder to fit to the forthcoming curve.

Take these two things (discretionary skills and optimization issues) into an account and we may say that it is almost impossible to beat optimized system's performance over the long period of time.