The ACD Method

redbaron1981 said:
I have heard it stated multiple times on this thread that ACD is not mechanical, however that is limited only to your own current perception/experience of ACD.

From my own experiences and most probably me being a control freak, I really wanted to apply ACD from a more qualitative standpoint, also to have vast statistical evidence to backup that when a = b there is an increased likelihood of c happening etc.

Basically I wanted to have as much confidence that ACD works before committing any capital to it. For me that meant forming hypothesis, rigorous testing and calculating probabilities.

During my testing I woke up during the night with an idea of how I might be able to use ACD in a mechanical framework. Luckily enough I keep a notepad by my bedside to write down any ideas like this that pop up through the night. After a few very late nights/long days coding I finally had robust rules that can be applied going forward using ACD on multiple markets. Yes I understand markets change over time but there are certain aspects of ACD that remain robust through out time no matter what the conditions.

If I had limited my own studies by testing only topics discussed on this thread, I would never have made the discoveries that I made. In short ACD really is only limited by your own creativity.
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I most certainly agree with your final paragraph, and I willingly concede your first paragraph is absolutely right. How about that?

The last paragraph? I developed ACD derivatives based on options concepts that are marvellously useful. Took months of work, but when I got them right, it was heaven sent.

The first paragraph? The biggest limitation on my use of my derivatives is they don't work when a reversion to mean is in progress, meaning they work up to a point and then are nullified by reversion to mean, in the same way ACD is useless when headline news overwhelms our numbers. Oh, I developed them for FX, you don't get those 10%-20% moves common in stocks.

Now I suppose if I had your coding skills I could readily analyse how far from the mean they will still work, and have a gold mine. I don't, at my age I'm not going to spend that time learning, and whilst I'm sure I could find an enormously complicated workaround in Excel, it would take more time than I'm willing to spare.

My choices in life are increasingly shaped by this.

https://www.theguardian.com/lifeandstyle/2012/feb/01/top-five-regrets-of-the-dying

I know when my time comes I certainly won't be wishing I had spent more time working, so I skip trading on a Friday to watch rugby. That said, when I'm feeling down, I go upstairs and pull up my spreadsheets and look at stuff, work on something. I lose myself in them and find balance again.

So I absolutely agree with you, and my advice to all youngsters on here is to learn coding so you can easily do what I can't.

If I were young and had to make that decision, I would willingly sweat blood to become proficient.
 
Ahem...cough....cough...

http://traderfeed.blogspot.com/2017/04/how-tough-has-trading-been.html

Saturday, April 15, 2017
How Tough Has Trading Been?


Thanks to a savvy trader for this graphic of the Soc Gen Short Term Trading Index, which is the composite results of the largest diversified futures funds holding positions for less than 10 days. Even the longer track record is net negative. Interestingly, hedge fund performance was positive for the first quarter of 2017, but the performance of CTAs was negative over that same period. These results mirror my own experience working with trading firms: those trading short-term and those trading in a momentum/trend style have been performing worst. Those performing best in Q1 were ones focused on Asia, as well as activist funds and funds trading volatility strategies.

In other words, those market participants with specialized strategies have been outperforming the generalists. Working at a number of funds as a performance coach, I can tell you that--on average--those placing directional bets on interest rates in Q1 greatly underperformed those trading relative value strategies. Even among day trading firms, uniqueness of strategy has been an important predictor of success thus far in 2017. Those traders day trading big liquid instruments have underperformed those finding unique opportunities in carefully selected individual stocks.

I'm not so sure this is all that different from the dynamics in the broader business world. If new participants enter a crowded space, they are less likely to be successful than if they find unique niches. This is an important challenge for those aspiring to trading success. The risk tolerance of most trading firms does not permit long holding periods for directional positions. This tends to throw everyone in the short-term camp depicted above. You're not going to win by playing the same game as everyone else, just as you're not likely to find gold if you prospect the hills that have been well picked over by previous miners.

It's not enough to learn how to trade; it's critical to trade uniquely. It's not enough to trade with rules and discipline; one must also find opportunity creatively. The firms achieving the results depicted above are trading trends in liquid markets in a disciplined fashion. A great approach to success would be to research strategies that made money during months when those other participants were performing worst. There is no guarantee that future returns will mirror backtested ones, but digging for gold in well-mined fields is a poor risk/reward proposition.
 
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