System Development with acrary

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acrary

This thread is about the process of developing systems/methods and the detail that surrounds them. I've been semi-retired for about three years now. I'm now 48 and the older I get, the less desire I seem to have doing trading related work. At this point I have about six looseleaf notebooks filled with material I've not found elsewhere. I think some of it would be useful to just about anyone. There is some material I don't want to divulge while I'm still actively trading, so what I post about will vary and not be all inclusive.

I have ADD, so this is probably the best way for me to post some material from some of my notebooks over time. In the past I've posted a idea or two when I had time and then moved on to other things. This has no doubt made others mad, so I hope to only hang out here and post followups. I'm not around all the time, so it may be days or weeks before I get back to this thread. I hope Magna won't close it without me requesting it.

As far as the material, I'll post stuff that I believe is somewhat unique and has some value to people wanting to improve their overall trading or models and methods.

I respect all opinions as they reflect the persons knowledge, values, and life experiences to that point. I don't respond to opinions as there's no way to argue objectively such matters. I try to post objective material so others can do the same calculations and come up with the same conclusions. If we differ on interpretations of the output, then so be it. I have no interest in participating in flame wars. Hopefully the differing opinions will not be edited out of this journal so others that share the viewpoint of the poster can PM them and do their own research.

Please do not PM me with questions. I've let my mailbox fill up several times because I get overwhelmed when I have 15-20 PM's since the last time I logged in. Anything worth discussing is worth posting to this journal. If you have some secret formula and want my opinion, please keep it to yourself or ask someone else's opinion.
 
Acrary,

You are one of the top three most respected posters on ET, in my opinion. I look forward to the progression of this thread, and hope that I might be able to contribute to the discussion in some useful way.

Thanks,
-Eric
 
I would be curious for you to expand more on the aspect of how some systems that you have rigorously developed for an edge, tested and proved "valid," - but then do not perform in "realtime" trading.

This is a very long desert of disappointment that any mechanical trading systems developer has been stranded in for more time than they care to admit.
 
Hi Alan,

I bought the "Toughness Training" book by Loehr. Thanks for recommending it. Incredible book. I was also working with the Poulos article and trendiness. I learned all about William Feller and the root mean square displacement studies. I had never heard of this stuff before. Thanks again, you have really opened my eyes to so many new things.

I've been thinking about your max DD calc from your prod5 model for a few days now and I am stumped. If you are not using monte carlo to generate the 10,000 runs of 120 trades, then the only other thing I can think of is that you are randomizing the value of the Zscore to produce winner & loser outcomes (while maintaining constant values for win%, mean and STD).

Outcome = Mean + (Zscore * Std. Dev.)

Are you able to explain how you generate the 10,000 runs of 120 trades or is this a proprietary process?

I hope I'm not being a pest. I have looked this up in every book I have, and I searched ET and the internet for a few days now to try and figure this out for myself, but I cannot find any info that resembles what you are doing.

I would also like to add that I think you are a legend and a genius. Your altruistic nature of helping others speaks for itself. As you expressed to me in the past, your goal of helping others to succeed so that they in turn can help more people succeed sets a fine example for all of us to follow. Personally, as I have profited from information you have shared I have reached out and helped others and will continue to do so. I hope that as other people read this journal, they will get the same message and help others as well.

I hope things are going well with your new house.

Good trading,

Allan
 
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Quote from Bruto Blukowski:

I would be curious for you to expand more on the aspect of how some systems that you have rigorously developed for an edge, tested and proved "valid," - but then do not perform in "realtime" trading.

This is a very long desert of disappointment that any mechanical trading systems developer has been stranded in for more time than they care to admit.
More...

I've only had one method die a quick death. I attributed that to a book that explained the edge. The few that I've stopped trading were because of major market changes such as the continuing decline in volatility of the SP/ES markets. I developed the edge test to see the deterioration coming and stop trading against a model before it started to lose money. The only thing that makes sense to me is to identify when a method is starting to decay and replace it with one that isn't. Then monitor the old one to see if the favorable market conditions return.
 
Quote from CharlesXT:

Hi Alan,

I've been thinking about your max DD calc from your prod5 model for a few days now and I am stumped. If you are not using monte carlo to generate the 10,000 runs of 120 trades, then the only other thing I can think of is that you are randomizing the value of the Zscore to produce winner & loser outcomes (while maintaining constant values for win%, mean and STD).

Outcome = Mean + (Zscore * Std. Dev.)

Are you able to explain how you generate the 10,000 runs of 120 trades or is this a proprietary process?

Good trading,

Allan
More...

I went back and looked at the program to see exactly how it works. What I'm doing is loading a table of z scores for all values from .5 to 99.5 in .5 increments. For example, the z score value at 51.0 I'm using is .025. Then the program randomizes both the % win based on the win percentage input and the size based on random from .5% to 99.5% and ranked for outcome, profit factor, and MAX DD. When I created this, I was thinking of a VaR Analysis where you can see the distributions of outcomes and DD on graphs at various levels. I think the proper name for the test is Monte Carlo VaR Analysis if you want to look it up on the net. Sorry for the confusion.
 
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