Naif's Trading

N

naifwonder

So this is my first post on my journal. I figure that I would keep a journal about how my trading career is going so I could hopefuly learn something from it and this seems like a good place to do it. I recently coded my system and got it to the point where I am comfortable trading it with real money. So far, I have only taken one trade based on it a few days ago and the trade worked out very well. Had to take early profits though because I had an insurance agent come by (crashed my car) and I didn't want to leave the trade unattended (wasn't ready to do that yet since the system was still new).

Anyway, since the system is so new, I will post the backtest results below and will keep this place updated as to how I do in real life with real money as I go along. The system only gives about 6 - 8 trades a month so the inactivity factor is fairly annoying. However, I would take quality of quantity in trading any day. I will be adding more entry conditions as time passes given that they do not harm the accuracy rate. My goal is to eventually get atleast 1-2 trades daily. When there are no trades, I will just post my opinions on the market.

I do not like to use systems that are less than 85% accurate since my account does not give me much room to tolerate loss. This system netted 114.10 points ($11,410) per contract on the ER2 over a 5 month 11 days period with 97.06% accuracy. The profits aren't absurd, but the success rate is what I am really going for here. Anyway, the results are attached as an image.
 

Attachments

The system had a great week so far, unfortunately I was not able to trade it because my computer decided to stop working properly. I got it fixed now so I will be ready for next time.

These are the system results for the week:

Monday: No signal
Tuesday: No signal
Wednesday: + $290.00
Thursday: - $190.00
Friday: + $500.00


Wednesday's trade was the only one I took but even than I couldn't follow through due to the insurance agent coming to my house. Managed to make 1 point off of it though. If my calculations are correct, the month should end with roughly 22 to 33 points in profit. So far, so good though.
 
It has definetely been my best month of trading so far. To be honest, I'm actually getting a little nervous because everything that is happening seems a little to good to be true. I am still going to take it slow and scale down on the systems actual profit targets until I gain 100% confidence in it.

In other news, added some tweaks to the system and doubled the profits that ER2 generates and increased ESZ's profits by about 25%.

Got another 2 points on friday but the system got about 7.0
Another week or two of this, and I will start following the exact profit targets and if that goes well, will increase how many contracts I am trading at once.

I'm thinkin about how to invest my money for the long term now - something that yields a good return within 3 years or so. I'm finishing up my 3rd semester of college right now so I want to have an investment set up that can help me pay back my student loans by the time I finish.
 
Naif you need a bigger sample size then 34 trades! Anyone can make a system that good with that many trades over that time period.... put some more time in your backtesting or you will learn the hard way.
 
I agree with apex, with such a small number of backtested trades, you may have over-optimised your system. The risk is that if your system doesn't actually have a positive expectancy, with only 6-8 trades a month it may take you a while to find that out.

You should test it on out of sample data if you can. Although I assume that the ~4 years of data you already used is all you have.
 
By all means, continue testing your system, and continue trading it as well.

You may be one of the "lucky" one's who didn't have to go through a couple of years of hours, days weeks and months of screen time (as well as more than a few G's) to figure out how to put together a good working system. :)

Best-O-Luck to ya.

Since you're in school, here's a couple of books that deal with system design and analysis and you might enjoy reading.

The Trading Edge

Evidence-Based Technical Analysis

Trading Systems That Work

Just stick to the path. Eventually if you need to diversy as you start trading more size (we're talking months, years down the road), look at using money management to minimize your risk and diversifying across different markets or trying out different systems.

Keep going at this rate you might not need to submit a resume ...

Regards,

JJ
 
I definetely agree with you guys. That is why I have not been following the system completely because I do not feel my sample size is large enough yet. My software (esignal) only gives me access to 120 days worth of data at a time. I'm working on getting my hands on some more data and should have that soon.I am waiting to reach about 100 trades or so before I really start following the system completely. However, until than, since my profit targets exceed my stop losses by so much (up to 8x), even if I follow my system just 30% of the way the profits are still very good.

After the upgrades I have added today, the system has reached over 230 points on the ER2 in the past 5 months and 14 days with 60 trades, 1 of which was failed. This means that so far the accuracy rate has stayed constant even with an increase in trade sample size. My S&P system is at about 200 points right now as well with around 55 trades with 1 failed trade, also in the past 5 months and 14 days. As you guys have stated though, all this just seems to good to be true so I am taking it nice and slow until my sample size reaches at least 100 trades. If at 100 trades the system is still this accurate, I believe it will be fair to say that this system has proven itself adequetly enough to follow completely.

I am hoping for success in this system yet anticipating nothing. However, it would please me a great deal to see this system keep going at this rate. I will definetely keep you guys posted and thank you for all the feed back. It is much appreciated.

PS - I have stated that I am waiting to hit the 100 trade mark to determine whether or not this system has truly proven itself. Would you guys consider this enough or should I wait for more? I am looking forward to what you guys would do so that I can make a more informed decision on the manner.
 
Quote from naifwonder:

PS - I have stated that I am waiting to hit the 100 trade mark to determine whether or not this system has truly proven itself. Would you guys consider this enough or should I wait for more? I am looking forward to what you guys would do so that I can make a more informed decision on the manner.
More...

Hahaha, the trading savant is asking us what he needs to determine the viability of his system?!

OK, I'll give it a shot.

You've been trading in a flat-out Bull Market, with relatively minor retracements, so all of your trades are going to have a bullish bias to their results.

Basically you're going to need an Ugly Bear Market and a go no-where Range Bound market to determine whether your system is truly robust ... or whether it's just been a happy coincidence that you've done so well (it's called being fooled by randomness).

So long as your system is not over optimized my vote is for the former.

Lets see.

JJ

edit: so you see, it's not the number of trades that are critical here, it's the different types of trading environments and making sure that you're system is both generic and adaptive enough to handle them ... a tall order, but it's possible.
 
The whole concept of an overall market direction shift has also been a worry of mine. For that reason, I have been workin hard at improving the short side of my system. Short trades account for slightly under 40% of all the trades for my system so I want to get it up to at least 50% within the next week. This should help greatly in the event of the market turning more bearish than bullish. As far a flat market, I am not very concerned about that. Even if the market closes where it opened, as long as their is even a 3-6 point price movement in the intraday sense the system should do just fine. The system has plenty of entry conditions with lower profit targets which thrive in such conditions. Overall, in the event of the market lacking the current bullish bias I suspect that one of two things would happen:

A) The short trades will become prominent over the long trades in terms of quantity

OR

B) The rate of return for the system would decrease but would still be considerable

The chances of a complete system failure does not seem likely given my current data. However, this brings me back to my original problem of further quantifying my already existing data. Until this occurs, I cannot justly make highly confident assumptions about the future of this system.

My system is very specific as well and that is a major factor of why it has worked so well this far. I have left enough slack though in my entry and exit conditions to adapt to changing markets so I do not feel that over optimization will pose a problem here.

Regardless of all this, it would only be fair of me to say that I cannot know for certain how my system will react to a drastically different market condition until it actually happens. I can only prepare for such a shift and that is exactly what I will be doing by upgrading my system constantly to adapt to the market in an appropriate fashion. Let the market do what it will and I will react accordingly.

Fundementally speaking, I feel that the market still has enough steam to sustain an overall bull market well into December so until than I plan on taking advantage of the bullish drive of the market.

Oh, and BTW:
Hahaha, the trading savant is asking us what he needs to determine the viability of his system?!
More...
I doubt I have earned such a title yet but I do appreciate the suggestion. :p
 
Well its good to see that you are not trading this blindly and understand the obstacles in the future. I would say in order to feel fairly confident in a system, it would need a MINIMUM of 500-800 trades. It looks like your average trade size is decent, so that is good. You may want to check out slippage, especially on the ES if you are placing limit orders. It will have to trade through your price to get filled about 60-70% of the time. Keep up the tracking and get ahold of at least 5 or 6 years worth of data so you can evaluate the robustness over different market conditions. Also make sure not to over optimize and use walk-forward testing. You also want to see how well it does on other markets. You dont have to listen to me, but these are necessary components for the birth of a new system.
 
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