System Development with acrary

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vola as such is almost tradeable. calc the range over the last ten days. the average range since '92 is 5%. the average dailyGain is about 0.01%. if the range over the last ten days was above 7.5%, the expected dailyGain for tomorrow increases 0.19%. conclusion: the more volatile the more bullish expectation for tomorrow.

in general this thread should have more strict codes of conduct than usual threads on ET. for example the last paragraph i wrote might be seen as offTopic. i am not sure if it was not better to let acrary roll out the thread and not comment too early too much. comments appreciated.


peace
 
i propose to post secondary material to this thread in another one. i suppose that multiple discussions could start, which could disturb communication here. i for myself will try to restrict comments to issues which were started by acrary and comment on those of others in the other thread.
 
i understand the system search process that acrary practices like this:

1. find set ups
tool: correlation analysis

2. test set ups
tool: self coded, tradestation, whatever

3. evaluate results derived under 2.
tool: monte-carlo-like analysis of trade distribution


i think it is the combination of the three steps, which enables to use very specific set ups with several variables and still make sure it is not an overfit.
 
Quote from sunnyskies:

acrary, are we moving along here? I mean did we start to develop a system in this thread, or going to start?
More...
He said in his first post that his attention would be intermittent. But, I'm also patiently anxious to see what he will offer in this thread.

I'm very happily reviewing all that he has contributed in the past. :cool:
 
this is a very simple system:

it only takes trades between 2:45 to 3:45 PM (NY time)

go in direction of a new extreme no stop loss out on the close.

it makes about 50 ES point per year or 1 point per week:)
no EDGE just change for lunch.

any suggestions to improve it.
 
I hope you guys aren't offended if I ignore your questions for now. I'd like to spend my limited time posting some new info. from my notes to get things started.

For the first topic, I tought I'd post on some work in the area of consistency. Any serious trader knows they are responble not only for profits, but also the minimization of drawdowns.

The first thing I think of when I think of consistency is timeframe. I want to be consistently profitable over x timeframe. The x could be each day, a week, a month, a year, 10 trades, 50 trades, etc. Each person needs to decide the timeframe that they need to be consistently profitable. It's pretty common to see posts like I want to be a daytrader and make y dollars per-day every day. That trader has decided that their timeframe is one day for consistent profitability.

Make a decison on a timeframe over which you want to be consistently profitable. In the coming posts I'll show you some tools to help reach your goal and show what it takes to reach it.

Before I go any further I wanted to make sure everyone knows these two concepts.

Expectation of a trade = (PW * AW) - (PL * AL)
Expectation of profit factor = (PW * AW) / (PL * AL)

where

PW = probability of a winning trade
AW = average size of winning trade
PL = probability of a loss
AL = average size of a loss

Just about everyone is familiar with the expectation of a trade or just plain "expectation". I've not seen anyone ever post about the expectation of the profit factor so I'm mentioning it here. This will be useful in the following posts.
 
Ok, now you have a timeframe for being consistently profitable. Now what does it take to achieve it? One more decision has to be made before continuing. What level of confidence do I need for consistent profitability. Some will be happy with 90%, others 95%, and some like me require 99%. So, to put it together in my case I require consistent profitability on a monthly basis with a 99% level of confidence. So in other words it's ok for me to have a losing month once every 8+ years.

One series of studies I did was to find out what were the important factors in consistency. I did tests on size of expectation, % wins, profit factor, number of trades within a timeframe, and the effect of dispersion of trades (std. deviation) has on the results. For instance, here's a run for a daytrader that does 10 trades a day with 70% wins and makes $500 on each win and loses $500 on each loss. As you can see this is quite profitable at the 50% level (the average over time). However you can also see that after the 80% level the trader actually loses money. So for a daytrader with these numbers they only have a 80% chance of achieving their goal of consistent profitability on a daily basis. If that level of confidence is ok, then they have a example to use going forward.
 

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Now what happens if that daytrader decides he wants 95% level of confidence so that he'll accpect one losing day per month. What changes would he make? If he doubles his expectation does that help? As you can see from this run, he still only has about 80% confidence level with double the expectancy on each trade.
 

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How about if he increases the winning percent to 80% and keeps the expectancy at $400, so that each win now becomes $600 and each loss now becomes $400.
 

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