System development and trading

Slow Learning Elf said:
How curve-fit do you think your strategies are? Are all your signals purely price-based?
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In some sense yes, if you take a long only strategy thinking that over time the market goes higher, you'd be correct. But if your start date is at the peak of a rally, then your performance would be red out of the gate.

95% price based on daily bars, for day, swing and trend strategies. I upload free yahoo data after the open and 30mins before close. I have 3 strategies that use either an rsi (which I use opposite of how most use it) or ATR to generally avoid very volatile periods and finally a long term Moving average.
 
poopy said:
Are you using marked PNL to buy the insurance or are you buying puts at the outset (synthetic call)?
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I am using marked PnL on the directional option call or put. When pnl exceeds the cost of adding an ATM hedge I will look to add 2nd leg/hedge. But I am only experimenting with longer term strategy. Ideally I go out a couple of weeks on leg1 and I try to pay no more than 1%-2% of time value, depending on ATR% of the underlying.
 
I encourage everyone to look at your strategies, google strategies posted lately and a long time ago. Get creative and test them, more than likely these strategies no longer work. A good example is Bollinger Bands. BB's were initially created as a tool for breakout trading. Someone at some point decided to do the opposite and developed a new age of mean reversion strategies.

Years ago I noticed that ORB Opening range Breakouts were spotty at best on most markets and absolutely horrible with the EURUSD. So like a fool I decide to to the opposite, and wow it was working. So I fired up ninjatrader and set it to fade ORB at UK opening. I would sleep and this strategy just kept winning for 6 months, then it stopped. Was it my broker trading ahead of me?

The point is we all have read the same trading books over the years, the markets are either going up, down or sideways. Stick with daily bars open and close. Once you get into intraday, your tested data might be different than your brokers data. Some backfill or filter out certain trades and exchanges/dark pools. Even if you get that in line, is your computer clock in sync to the exchange/data set clock. Be creative, don't get bogged down with PHD malarky on what works and what doesn't. Find your edge, inspect the equity curve and be honest with yourself. That wiggly line is what you'll be living, if you go live and your test shows a max drawdown of 10%, and your live trading drops 20%, bail on that strategy.
 
RockMachine said:
I am using marked PnL on the directional option call or put. When pnl exceeds the cost of adding an ATM hedge I will look to add 2nd leg/hedge. But I am only experimenting with longer term strategy. Ideally I go out a couple of weeks on leg1 and I try to pay no more than 1%-2% of time value, depending on ATR% of the underlying.
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Ha, cool. I've been using the free synthetic call calc for years on D1 trades. Long shares -> ATM put mark -> buy reference put with D1 gains = synthetic long call at zero outlay -> sell 2x 40D calls and buy wing. I've done about 200-300 synthetic call flies over the last 10Y.
 
poopy said:
Ha, cool. I've been using the free synthetic call calc for years on D1 trades. Long shares -> ATM put mark -> buy reference put with D1 gains = synthetic long call at zero outlay -> sell 2x 40D calls and buy wing. I've done about 200-300 synthetic call flies over the last 10Y.
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Interesting, but wouldn't a 1/2/1 fly cap your upside/ downside profit potential? I could see the benefits here by holding the underlying and not realizing taxes, collecting dividends and you can't lose. Iv'e never done a butterfly so please excuse me if i'm wrong here. Thanks
 
RockMachine said:
Interesting, but wouldn't a 1/2/1 fly cap your upside/ downside profit potential? I could see the benefits here by holding the underlying and not realizing taxes and collecting dividends and you can't lose. Iv'e never done a butterfly so please excuse me if i'm wrong here. Thanks
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Ostensibly the fly would be zero outlay as you've converted share gains into the vol-trade. You're starting with a "free" synthetic call and have shorted the body of the fly (2x 40-delta calls) at a gain on (initial) marks.

The fly should have no impact to BP so you can go back into shares, adjusted for the current fly delta.
 
poopy said:
Ostensibly the fly would be zero outlay as you've converted share gains into the vol-trade. You're starting with a "free" synthetic call and have shorted the body of the fly (2x 40-delta calls) at a gain on (initial) marks.

The fly should have no impact to BP so you can go back into shares, adjusted for the current fly delta.
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Initially I used the free (synthetic) call or put as a vol-trigger to cover the underlying. Say that you're long Delta1 and price rallies in XYZ. Volcorr beta to index may favorably impact the market in the put component of the long synthetic call leg. Generally these benefit longs more than shorts, but there can be oppo on the vol-line if you're short spot -> long call = long synthetic put -> potential vol opportunity in short OTM put body on the fly build as you've bought the call and shorted 2x 40D puts.
 
poopy said:
but there can be oppo on the vol-line if you're short spot -> long call = long synthetic put -> potential vol opportunity in short OTM put body on the fly build as you've bought the call and shorted 2x 40D puts.
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As market drops your 40D put vol will be bid.
 
Interesting how on friday's expiration "Max pain" can often act like a magnet. Maybe there is an edge to that?

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