New book on how traders are beating the HFT guys

[drcha]

I've found backtesting helpful, and profitable. I'm a systematic trader because that's what is comfortable for me. But I do not deny that there are other ways to make money.

Just a few points:

-Backtesting is worthless without proper money management and allocation. Backtesting is only a part of developing a profitable system.
-Most backtests I have seen in public are too short.
-Many systems require a filter to adapt to market conditions. One may backtest these filters, too.
-I have backtested many more systems that do not work than systems that do work. There are a hell of a lot of systems that sound plausible but do not work. Over time, backtesting has allowed me to develop a feel for what might and might not work. Often now, I can look at the broad outlines of a system and determine that it is unlikely to work, so I don't bother backtesting it. But I don't use anything I haven't backtested myself, no matter who says it works.
-I have backtested many other people's systems that they claim work, and over their same time frame, I have confirmed that they actually do not work. I think there is just a lot of lying or fantasy going on out there.
-I suspect that experienced traders who claim that backtesting is not needed may be doing some form of internal/subconscious testing, based on their experience and feel for what will work. They are maybe less concrete types of people than I am. That's fine; their methods may work well for them. I'm just not that kind of animal. There isn't one way to do anything: there are many.

 

[Handle123]

I've found backtesting helpful, and profitable. I'm a systematic trader because that's what is comfortable for me. But I do not deny that there are other ways to make money.

Just a few points:

-Backtesting is worthless without proper money management and allocation. Backtesting is only a part of developing a profitable system.
-Most backtests I have seen in public are too short.
-Many systems require a filter to adapt to market conditions. One may backtest these filters, too.
-I have backtested many more systems that do not work than systems that do work. There are a hell of a lot of systems that sound plausible but do not work. Over time, backtesting has allowed me to develop a feel for what might and might not work. Often now, I can look at the broad outlines of a system and determine that it is unlikely to work, so I don't bother backtesting it. But I don't use anything I haven't backtested myself, no matter who says it works.
-I have backtested many other people's systems that they claim work, and over their same time frame, I have confirmed that they actually do not work. I think there is just a lot of lying or fantasy going on out there.
-I suspect that experienced traders who claim that backtesting is not needed may be doing some form of internal/subconscious testing, based on their experience and feel for what will work. They are maybe less concrete types of people than I am. That's fine; their methods may work well for them. I'm just not that kind of animal. There isn't one way to do anything: there are many.

I am like you, very systematic, need my rules, need to do things in steps until something happens, then it is either "A" or "B". Can have 49 other traders tell me I am wrong on how I will trade some instrument, and I ignore everything they say, cause I have built and traded my systems many years. I really think you need 10,000 min. sample for day trading and long term 25 years or longer if you have the data. I backtest very little now, if it not going to fit into what I am doing now, most likely it won't work for me. I think most people leave things out of systems they show someone or post. I can post a signal to enter, but we all know there are filters that must be met to even allow that signal to happen like recent past charting. ie. Quad top but am getting a signal to buy into this, most likely if I would buy lower, breaking of a few pivot lows would negate a signal, so even though it is a signal in one way, price action disallows the signal altogether. Most people love entries are they take least amount of work, but when one has to learn when one can and can not take same signal, they now don't like the signal at all, and why there are so many poor day traders.

 

[777]

In this book, all the traders explained that they did not "backtest" or ever have done it!! Maybe one options trader was making some kind of statistically testing. But it was amazing to me how this backtesting thing not at all was any of these guys strategy.
All the times people in online trading forums talk about not backtesting as the straight way to the poorhouse. Funny... Who's right?

Though another thing that also i very common i trading forums threads is about having the "stop loss" in use. Certainly , this aspect of trading is used very carefully by all the the traders in the book. Actually very much recommended by all the traders, i think.
For me as a beginner - this book is very good value. I think the 20 hours spend reading it carefully have been much better spend, than alot of my long 100 hours in front of the pc screen reading loooong forums threads. Of Course I am now myself contributing to a forum thread and maybe this reply of mine is one off the useless boring ones, I don't hope...

Best...







One thing

Not true.

From the notes on Bot Destroyer:

"I'm told by people who know him that he backtests all kinds of stuff."
_____

Sim-traders and backtesters who do not understand things well may fail because they don't get the same fills. However, that does not mean backtesting has no value.

Renaissance Technologies backtest everything and has made many, many billions daytrading their positions.

 

[777]

I'm serious, this thread seems to point out a misunderstanding of newer traders thinking you need to create a system, then backtest to be successful which isn't true at all. In fact I don't think any of the profitable traders I know rely on backtesting whatsoever.

Are the books teaching this? Why does everyone think this is how you trade?

Backtesting can be part of winning trading. Backtesting has helped some winning traders.

Systematically trading an inefficiencie can be part of trading and you know traders who trade this way successfully.

Renaissance Technologies has made many billions backtesting and daytrading systematically-automated.

However, I do know winning traders who only forward test, usually for small size.

These these things said, I read all of your posts because I know you have beaten trading for lots and lots of money for many years. Also, I like the way you explain real-world trading.

Actually, you and Lescor are two of my favorite posters.

 

[777]

Oh I see.

Well I guess if I showed you a backtested "system" that consistently lost 10% a year for the last 25 years, you would "forward" trade/test it immediately with real cash, because "past results are no indication of future performance".

After all, only clueless traders seriously believe that this losing trading system will keep losing money in the future, eh JustTrading?

No.

But there are situations that a skilled trader may find hard to quickly backtest and there are reasons he may trade it with small size as Lescor has done.

Skilled traders like Dustin who adapt are becoming more rare but are there.

Glitches.. like the begging SOES bandit situation .. that may end quickly may come up.

But yes, backtesting is another path.. as Renaissance Technologies exemplifies. Backtesting can gave great value.

Expert coding is a great skill to have in many areas of life, but Dustin makes lots and lots of money over many years and is telling you the truth about what he does.

- there is value in being savvy, quick on your feet, an experienced winner, and networking with smart people who share important information.

 

[777]

Interviews are fine but I am still looking for an HFT book that says something like this :
- "See this profitable trading system here? Well it's no longer profitable due to HFT activity and here is the proof".

I mean could anybody name just one?

One thing is for sure though, unsuccessful traders can know blame HFT for their own failure.

Anyway, here are 2 other books on the same subject:

The speed traders : an insider's look at the new high-frequency phenomenon that is transforming the investing world, by Edgar Perez.

Dark Pools: The Rise of the Machine Traders and the Rigging of the U.S. Stock Market, by Scott Patterson

Not the same.

This one interviews wining traders,
A noted market structure specialist,
A failed ex-winner who did not adjust & titled

 

[roctheworld]

Trading without backtesting first is like jumping off a plane at 10.000 feet and saying "Gee, I wonder, is that a parachute or a backpack on my back? Oh well, I will find out soon, if it works it works..."

Ditto!