Odds Czar: Simple Biases in the Futures Markets 2005

[Art Collins]

london us trader wrote

1. I think it is absurd to say the average trader can't succeed unless he is 100% mechanical. I think if you watch the same market day in day out, every tick, over years you can get a strong sense or market feel for the movements of that market. Although, it is good to trade by pre-defined rules based on extensive research and testing sometimes you have to think outside the box. I personally think the best approach, IMHO, is a discretionary trader who generally follows pre-defined rules, although you may view this as the worst of both worlds?

2. I don't think a one size fits all approach is necessarily the best. You state a trustworthy idea must test over a number of different markets. I hold the view that it is better to specialize in trading one market, become an expert in that market and develop a niche for yourself.

i don't necessarily disagree with you on this. i have often said that i don't like to say never and it would not surprise me if there are people out there making money with techniques i consider to be wrong. i actually know guy who might be in the top thousandth of a percent of "feel" traders.

i think our quibbling point might be over the percentage of people who could do so (trade spontaneously or part spontaneous-part mechanical). i still have to maintain that that is an unnatural technique for the vast majority of traders

 

[mhashe]

Quote from LondonUSTrader:

Hi Art,
.............. I personally think the best approach, IMHO, is a discretionary trader who generally follows pre-defined rules, although you may view this as the worst of both worlds?

..

What's so different between you initiating a trade based on a pre-defined set of rules as opposed to a computer initiating the trade based on same set of rules? imo there is no difference except that a computer would do it more efficiently and more profitably because using discretion usually means we dont take the harder trades which invariably end up being the most profitable ones.

 

[Art Collins]

mhashe wrote

What's so different between you initiating a trade based on a pre-defined set of rules as opposed to a computer initiating the trade based on same set of rules? imo there is no difference except that a computer would do it more efficiently and more profitably because using discretion usually means we dont take the harder trades which invariably end up being the most profitable ones.

nothing necessarily has to be different. you don't have to succumb to "not taking the harder trades" it's hard to be that disciplined and if you can't, by all means use a computer. or hire someone to implement your signals perfectly.
we advocate a mechnanical approach, done perfectly without fudging. because you're right, the biggest aggregate profits lie in the trades we fear (and vice versa--our losses often come out of "nowhere" during times of complacency.)

 

[Art Collins]

wolfvector said

Great Thread Art!!

I programmed your bias rules and tested them on 10 years of SPY (Buy/Sell next day at open with commission based only on bias rules, no protective stops). I know your bias rules are for futures, but I trade stocks so I tried them on SPY.

Your basic system was profitable. I also optimized it using (-1, 0, or +1) as the weight for each of the bias rules. Got some interesting results.

i appreciate you support mr. wolfvector!

 

[Art Collins]

Here's a performance report of how the 2-5 indicator performed in the full sized S&P over the last five years. I use full sized for most inter day studies strictly for logistical reasons: Trade Station data is more extensive in the full sized. The market should be more or less interchangeable with the eminis. (If not, we’re probably all in trouble). Link two is the same in the full sized Nasdaq and the following table shows more abbreviated results in the remainder of the financials I track.

Again, “2-5” is a mere indicator—one component of several we’ll be putting together, so don’t get disheartened by the relatively high drawdowns, low return on accounts, or the fact we haven’t included any slippage-commission penalties. Better things will follow. Stay tuned.

Net Profit # Trades % Profit Avg Trade
Russell $44,500 1202 50.25 $37.02
30 year Bond $49,968 1196 51.25 $41.78
10 year note $33,375 1197 51.46 $27.88
5 year note $20,062 1194 49.92 $16.80
Japanese Yen $7,925 1197 6.62 $48.37
Euro Currency $32,450 1197 51.8 $27.11
Swiss Franc $15,525 1195 50.04 $12.99

 

[Art Collins]

Here's the full sized Nasdaq from Trade Station.

 

[Art Collins]

Here are my futures biases for tomorrow, October 18.

A "1" means bullish bias. A "-1" means bearish bias. The total is the sum of biases. A positive sum will be long (L) bias. A negative sum will be a short (S) bias. A sum of zero will be a neutral (0) bias.

 

[kiwi_trader]

Interesting thread Art. I liked LondonUSTrader's comments but feel (with you perhaps) that doing your best in a mixed environment requires a special person or good training to move beyond fears and cognitive distortions.

A trick, if you'd like to post your pictures is to use this format (you post it first then, having found out the url of the picture edit your post by adding this line):

|<|img src|=|"your url here"|>| removing all the |'s

<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=871008">

 

[sunnyskies]

Art, since when did you trade mechanical systems exclusively? Also, can you post your returns since that time in a form of equity chart (not absolute numbers, obviously noone here cares if you made 6 figures or 7, but in terms of % growth) ?

 

[Art Collins]

sunnyskies wrote

Art, since when did you trade mechanical systems exclusively? Also, can you post your returns since that time in a form of equity chart (not absolute numbers, obviously noone here cares if you made 6 figures or 7, but in terms of % growth) ?

first part--hard to answer because it was kind of like addiction recovery--lapses here and there. best answer is my partnership started in 1997. those accounts are totally mechanical and account for 99.9 percent of my activity since.
i think your second question is well-intended but it kind of inadvertantly sets up a lose-lose situation. one thing i try to be is honest--sometimes it's possible to fall short of that unintentionally. a true answer might cause some people to dismiss us (because, for example, our recent performance has been the worst of our history--significant loss last year, just above break-even this year). others could interpret it more as bragging (because we were doing 30 per cent or better several years in a row). not only that--it would involve some real work. in addition to everything else, i've got mails to anwer here
obviously, i wouldn't mind incidentally profitting off more people getting interested in my books, lectures etc. but at the moment, i'm not actively promoting anything. when i have something to sell, i'll get more committed to the not-all-that easy task of assembling the info you request.