poker player tries his hand at futures trading

[fletch2]

Another really good day. I'm getting a bit lucky I think.

Starting capital $5000
3 weeks later: $8210

Yeah, I know, lucky. But I'll take it.

I've got three strategies working together now. I've chosen not to use a net signal from the three, but rather to have one baseline strategy and two possible overriders. I am now always in the market one way or the other. If neither of the overriders is putting out a signal, I trade the baseline method. If one of the overriders contradicts the baseline, I reverse and go with it as long as the signal persists.

The method tests out at $46k for one year trading 1 ER2 contract. I'm still sticking with my $15k goal, however, as there's quite a few parameters now between the three strategies and I'm probably a bit overfitted.

Fletch

 

[cnms2]

fletch2,

You seem to design, test and improve your trading systems all by yourself, and your results are very promising. I read your thread from the beginning and as far as I remember you didn't care for the comments you got, also you don't give out almost any information about how your systems work so you can't get any feedback either. I wonder why are you continuing this journal?

 

[fletch2]

Quote from cnms2:

fletch2,

You seem to design, test and improve your trading systems all by yourself, and your results are very promising. I read your thread from the beginning and as far as I remember you didn't care for the comments you got,

I cared for your comment. I should have given you a thanks, but looks like I missed the opportunity to do that.

So... thanks for the pointer! That was an interesting article you linked to.

also you don't give out almost any information about how your systems work

Well, why would I do that? Does anyone ever give out how their systems that they intend to trade work?

My systems are dirt simple. Laughably simple. That-couldn't-possibly-work simple. To give any of it is to give all of it.

I think my post of 12-22-05 06:34 AM was not contentless. I intend to make various types of analysis posts like that from time to time. I really enjoyed reading acrary's posts about his methods for system trading, although he never gave out any information about how his systems themselves worked, either. I don't pretend to have his level of knowledge or as much to offer as he did, but that's the spirit I'm going for here.

so you can't get any feedback either. I wonder why are you continuing this journal?

I'm just getting started. Who knows where it will go. Maybe this will turn out to be just the story of another guy blowing up his account after thinking he had a shot at being a winner.

People keep journals that do nothing but sit in a desk drawer, never to be read by anyone, and consider them to have value just in the process of writing things out for themselves, and possibly for future review. This journal has at least that much value to me. If it generates good discussion or interaction at some point with ET readers, that would be a bonus.

Fletch

 

[thn5625]

Hello,

I have a couple of questions about your system without you having to divulge any actual techniques.

Ok, with the return you posted I became curious.

What is the leverage you are using?
Do you use tech. analysis to generate signals?

 

[fletch2]

Quote from thn5625:

Hello,

I have a couple of questions about your system without you having to divulge any actual techniques.

Ok, with the return you posted I became curious.

The actual return or the backtest return?

What is the leverage you are using?

I'm trading 1 ER2 contract, so I guess each contract is worth $60k (I guess I should probably know that!). So I guess that's a factor of 12x. I'm clipping the tops of the trees trading this system with $5k. My risk of ruin is substantial, but as I do in poker, I have contingency plans for scaling back the variance (and potential profitability, of course) of my strategy if I start to take serious hits. Fortunately that hasn't happened yet.

Do you use tech. analysis to generate signals?

I'm not really sure what falls under technical analysis and what doesn't. I was reading "Practical Speculation" by Niederhoffer and he has a whole chapter about how TA is total bunk, but then he seems to go on and do what looks to me like TA to generate trading ideas by exploring correlations. I guess that's not TA for some reason?

Do I use price to generate signals? Yes, that is part of it, but not all of it. I also use other things, so I don't know if that's still considered TA or not.

Fletch

 

[thn5625]

Thanks for the info. The return I was referring to was the actual return you had for the past three weeks. Nice.

My actual models are very simple also, as I find it more productive to focus on tweaking my methods, testing new methods, and tweaking my risk strategy. I find that having a multitude of methods protects my money stack much better than trying to find the "holy grail". The name of the game is to survive in the long haul.

As for tech. analysis: Traditional TA I think has to do with moving averages, indicators such as MACD that display price momentum. Essentially its trading based on two main variables, price and time. Using those variables to observe momentum, price action, price trends, ect... can be used to be very profitable indeed! I find it useful b/c if my strategy is based on price action to anticipate future action TA is priceless. If used blindly will lead to ruin.

Risk to ruin is also very important to me. One of my methods work so well for the past two months that I am so tempted to reduce risk to ruin but as you know we have to stay disciplined to our strategies.

Im going to look over the book you mentioned.

Like poker TA if used properly can be used to "reveal the hands" of major players.

 

[fletch2]

As for tech. analysis: Traditional TA I think has to do with moving averages, indicators such as MACD that display price momentum.

Yeah, my "TA" is not traditional in any sense, I don't think. I don't use any indicator that has a name that I know of.

Risk to ruin is also very important to me. One of my methods work so well for the past two months that I am so tempted to reduce risk to ruin but as you know we have to stay disciplined to our strategies.

Right. I'm being a little bit undisciplined trading my $5k account using my method which is always in and hence pretty swingy. I actually have two $5k accounts so if worst comes to worst I'll just sock the money over from the other account. I guess I'm effectively working a $10k account, which gives me a little more breathing room. My system's worst downswing (oh yeah, "drawdown") in the backtest over 3 years is about $3500. This is an isolated drawdown, the next closest is like $1500.

Im going to look over the book you mentioned.

It's a bit of an odd book but not bad as trading tomes go.

Like poker TA if used properly can be used to "reveal the hands" of major players.

I've wondered about this. Are the patterns I am trading generated as a side effect of some other set of popular strategies, and if so, aren't those strategies losing money, and if so, why are people continuing to trade them?

Fletch

 

[thn5625]

Quote from fletch2:

Yeah, my "TA" is not traditional in any sense, I don't think. I don't use any indicator that has a name that I know of.

I've wondered about this. Are the patterns I am trading generated as a side effect of some other set of popular strategies, and if so, aren't those strategies losing money, and if so, why are people continuing to trade them?

Fletch

Yeah, I scorn traditional views on TA. Even traditional critiscms of TA. To survive I want to form my own opionions on why some TA works and others dont.

As for the last comment, I have found that the players are:

smaller traders who can be divided into:
short term speculators
long term speculators
These speculators have an arsenal of methods from TA to
Fibonacci, to ...whatever is under the sun.
large traders and institutional traders which are divided into:
mutual funds, hedge funds, ect..
with multiple strategies from
long term buy and hold to short term price arbitrage and also
TA, fib, ect...

At any point in time the market movers can be any combination of the above.

Its hard for me to believe this population works in deliberate union but I do know people such as George Soros and other successful traders observe a herd characteristic that come from basic human traits of fear and greed. These traits tend to move the markets too high or too low and back and forth.

This you can exploit this emotion just as I would assume you do in poker.

Speaking of poker do you play texas hold em. Bronson was quoted as saying this is one of the few "pure" games left. There isnt really any statistical edge however I have read that the edge comes from the psychological edge of knowing your opponents hands. What do you think?

 

[cnms2]

You seem to be on the right track. Good luck!

Quote from fletch2:

...I'm just getting started. Who knows where it will go. Maybe this will turn out to be just the story of another guy blowing up his account after thinking he had a shot at being a winner.

People keep journals that do nothing but sit in a desk drawer, never to be read by anyone, and consider them to have value just in the process of writing things out for themselves, and possibly for future review. This journal has at least that much value to me. If it generates good discussion or interaction at some point with ET readers, that would be a bonus.

Fletch

 

[steve46]

Hey Fletch:

I am a mechanical engineer. As of this Christmas I will have been trading for 13 years. I retired at 54 just a couple of months ago. For the last 10 years, I managed a small private fund.

I like to see intelligent people arrive. I hope you stay a while. As you can see, the internet offers quite a diverse audience for this type of endeavor. I like to characterize them (gently) as an eccentric "cast of thousands", just like an old time big budget movie.

I noticed that you read Alan Crary's posts. I don't know the man, but from his commentary, I can see that he is a competent, successful professional doing his thing. His advice on testing and implementing multiple systems has helped me significantly.

During the time I have been here, I have made good use of the search function. I have also found valuable information in the form of casual references that I followed up on, leading to system ideas, vendor resources, data feeds, etc.

Unfortunately many of the best and brightest don't show up often. This will become clearer to you as you accumulate a little time here. I am sure you will in time learn who is who, and then I advise you to make use of the PM system. Many of us prefer it as it reduces the time dealing with crazies.

Good luck with your project. I am interested in it for many reasons, and hope you find success.

Best Regards,
Steve