The CL/NQ experiment

[Tonkadad]

....
my desire to be right ....

Gabe

Really examine what you wrote above,, this line of thinking is going to destroy you. The only thing in the market that is right is the market, not you.

Why don't you get out of losing trades because you want to be right. Why do you move your stops because you want to be right. Until you exit a losing position you still have the possibility of being right. Think how crazy all of the above sounds.

What are you willing to do to become a successful trader? Are you willing to give up your need to be right?

 

[dbphoenix]

The idea behind doing back-testing using a computer is to remove the subjectivity of us humans.

I am willing to bet that a trader who is doing manual back-testing will have different results for the same data every time he/she will run a back-test. (Maybe not NoDoji because of her very detailed plan)

Of course he will. That's why the backtest must be done manually. But you're thinking like an engineer, not a trader.

With all due respect a high W/L ratio is not a guaranty for a profitable outcome.

Which is why I included the P:L ratio. It doesn't take a mathematician to see that if one lets his losers run and cuts his profits short, he will lose regardless of his winrate. But if he has a winrate of 80% and a P:L of 5 or 10 or 15:1, he will not only do quite nicely but will have the confidence to trade his plan without question. This enables him to trade size, and trading size using a consistently-profitable trading plan is the only way to achieve long-term success.

A "positive expectancy" isn't going to do you any good if you run out of money before the expectancy part kicks in, and that can be a good long while if the win rate is low, without even considering the psychological effects of repeated losses.

 

[foozler]

This enables him to trade size, and trading size using a consistently-profitable trading plan is the only way to achieve long-term success.

Over the last few months that I've been working on developing a consistently profitable trading plan of my own, this concept has been mentioned in one form or another by several of the traders whom I've studied. In fact, one of the final few "steps" of my own "twelve-step program," so to speak, is precisely that: To trade size.

As dbphoenix has noted, Gabe, you've been presented with a lot of gold here in your journal. I think tonkadad identifies for you the particular problem you need to solve in order to mine and profit from all this gold laying at your feet

 

[Gabe2004]

What are you willing to do to become a successful trader? Are you willing to give up your need to be right?

The choice is clear and I am working on it.

Gabe

 

[Gabe2004]

Of course he will. That's why the backtest must be done manually.

If you agree that manual back-testing will give different results at different tests than I think that your logic is flawed unless I don't understand the above sentence.
The whole idea behind using a computer to do the back-testing is to remove the human aspect from the test.
The only SMALL problem I have is that I don't know how to program that well.

A "positive expectancy" isn't going to do you any good if you run out of money before the expectancy part kicks in, and that can be a good long while if the win rate is low, without even considering the psychological effects of repeated losses.

I agree with you but then this is where back-testing comes in.
If one sees that over time the maximum consecutive losses is X then a proper position size can be arrived at to avoid running out of money.
Of course a Black Swan event can happen and the 2007 economic crisis is one example.

Gabe

 

[dbphoenix]

If you agree that manual back-testing will give different results at different tests than I think that your logic is flawed unless I don't understand the above sentence.
The whole idea behind using a computer to do the back-testing is to remove the human aspect from the test.
The only SMALL problem I have is that I don't know how to program that well.


I agree with you but then this is where back-testing comes in.

If one sees that over time the maximum consecutive losses is X then a proper position size can be arrived at to avoid running out of money.

Of course a Black Swan event can happen and the 2007 economic crisis is one example.

Gabe

The whole idea behind using a computer to do the back-testing is to remove the human aspect from the test.

Which one may want to do if he is backtesting an indicator-based system. But judging from your charts, this is not what you're trying to do (though you do plot an EMA which is preventing you from taken the proper entries). If you were trying to backtest such a system via computer, I'd say go ahead, even though you'd have to do it all over again at some point in the future, most likely some near point.

A system based on price movement does not require constant maintenance because price is self-correcting. But this has all been hashed out in the If You Could Go Back In Time thread, with NoDoji and me and a few others against the world.

If you want to "remove the human aspect" from backtesting, and by that I assume you mean that you don't want to have to interpret trader behavior in order to determine probabilities and make judgements regarding trading decisions, then you've chosen the wrong approach. The "human aspect" is what trading price is all about. If you have no interest in that, then plot a MACD and an RSI and a slosto and begin again.

If one sees that over time the maximum consecutive losses is X then a proper position size can be arrived at to avoid running out of money.

Not if that maximum happens to exceed itself, which it may well do since markets are unpredictable. Even so, with what does one begin again after his resources have been depleted by that maximum number of consecutive losses?

Remember that this whole notion of "positive expectancy" was developed by someone who couldn't trade profitably, but failing traders have latched onto it like ticks because it provides the allure of being able to pursue a losing strategy and yet eventually show a profit, sort of like the promise of the afterlife. Unfortunately for those traders, it's nonsense. If one doesn't have a winrate considerably better than that 30% so regularly touted, he's going to go broke. Even 50% will be a trial without spectacular trade and risk management, each of which is rare among traders and practically non-existent in combination.

Of course a Black Swan event can happen and the 2007 economic crisis is one example.

An example of what? That decline was easily predictable. In fact, I sold my house in Phoenix in spring of '08, and not due to indicators but rather plain ol' price charts.

 

[dbphoenix]

Incidentally, I have neglected to mention another resource which will be of particular interest to those who have no idea what a trading plan is nor how to develop one: Game's Making of a Method. It's by far the best current example of process in this forum.

As to the OP, he has to make the choice to succeed. No one can force him to do so.

 

[Gabe2004]

(though you do plot an EMA which is preventing you from taken the proper entries)

Would you mind explaining how does it prevent me from taking proper entries?

I have played with indicators a long time ago and realized that anyone trading solely by them is doomed to fail.
The only good thing that came out of that period in my life that I was buying/building an ever faster computer every time I wanted to do a more exhausting back-test then before.
It got to the point that I had enough computing power to run a small country but that was not the answer.
I came to the conclusion that I have to develop a trading strategy that will take advantage of something constant and that constant was human behavior.
The moving average on my charts is there as a reminder of the direction of the market.
Not that I would not trade against it but in general I think it is a good idea to trade in its direction.
Also, like NoDoji mentioned in one of her posts, price tends to stay on one side of a moving average more often than not (except for chop conditions).

Gabe

 

[NoDoji]

The only SMALL problem I have is that I don't know how to program that well.

Of course a Black Swan event can happen and the 2007 economic crisis is one example.

The economic crisis was NOT a Black Swan event, not even for long term traders/investors. There was plenty of time to lighten up, hedge, or move into cash.

Even the Flash Crash of May 2010 was not a black swan event. The trend reversal unfolded gradually over a period of days and on the day of the crash there was a well-defined downtrend with no reversal signals and as each line in the sand (support level) was crossed the momentum built up until a capitulation move was underway (and by that point most retail trading platforms were locking up or lagging, so you couldn't even trade off it).

The closest thing to a black swan event you'll experience as an intaday scalper of CL is a gap that sometimes occurs when a major news release comes out.

Granted, there could be a huge terrorist attack that causes price to run lock limit, but that would truly be a Black Swan event for everyone in the market.


As for backtesting, manual backtesting not only works fine, it matched reality far better than the automated backtesting I tried. All the backtesting for my final trading plan was done manually and here's how I did it once I had a set of basic rules:

> Scroll my chart(s) to the hard right edge at the time my trading day starts.

> Reveal one bar at a time until a valid setup appears.

> If a trade triggers per my rules, log the entry price and time.

> Manage the trade according to my core management rule (I start with one rule and include additional info on the spreadsheet as noted in the next step).

> Note the result (profit target or stop loss) and include additional columns for result if stop moved to b/e after N ticks favorable, MFE before price returns to entry price, MFE before price hits stop loss (unless an opposite position is signaled based on a new valid setup), and flexible S/R-based target.

I did many of these analyses with a fellow trader after the market closed, which provided a second set of eyes to ensure that every valid setup was attended to.

The additional data helped me develop filters which further honed an already positive expectancy plan. I then continued my daily manual bar-by-bar backtesting with the new filters/rules applied.

I also took screen captures of valid setups at the hard right edge (where excellent setups look scary as if there's no way there could be a profitable outcome) and I studied them constantly (while repeating the mantra, "Leap and the net will appear", lol!)

The choice is clear and I am working on it.

Foozler's comparison to a 12-step program is very apt for recovery from a poor mindset.

You say the choice is clear and you're working on it. You have been working on it for a long, long time and guess what? It's not working.

You have seasoned traders here who are willing to act as your Higher Power and who can restore you to sanity. (What you're doing over and over again despite the fact that it isn't working is insanity.)

Turn your trading and your will (ego) over to one of these powers greater than yourself.

Read The Disciplined Trader and use it as a framework for making a fearless, honest inventory of your bad trading habits and your defects of character in general.

Admit to yourself and your Higher Power (just post it all here on this journal) the exact nature of your bad habits and defects of character.

Then move forward with the hardest part of all:

Become humble and willing to do the work suggested to you by the Higher Powers here even if you believe it's boring, unnecessary, of little value, doesn't apply to you because somehow you're [different, better, smarter, unique, special].

If you do all this hard work and end up finding yourself in the coveted position of trading a positive expectancy plan appropriately for several days, weeks, or months, then you have to be forever on guard against the first lapse in discipline. Your equity curve early in the journal is a graphic example of what happens when you don't heed Pa(b)st's warning long ago here on ET:

“Being disciplined in the past isn’t good enough: on each and every trade you must be disciplined. Forever. Like a drunk in a program you can NEVER slip off the wagon.”

 

[dbphoenix]

Would you mind explaining how does it prevent me from taking proper entries?


The moving average on my charts is there as a reminder of the direction of the market.

Also, like NoDoji mentioned in one of her posts, price tends to stay on one side of a moving average more often than not (except for chop conditions).

Gabe

Would you mind explaining how does it prevent me from taking proper entries?

See the trading plan I've detailed in my threads and plot an EMA on the charts to see the differences in entries and exits.

The moving average on my charts is there as a reminder of the direction of the market.

If you can't tell whether price is going up, down, or sideways without a moving average, that's probably something you need to work on.

Also, like NoDoji mentioned in one of her posts, price tends to stay on one side of a moving average more often than not (except for chop conditions).

That's because MAs by definition follow price. Unfortunately, they also lag price, ergo price will turn and even reverse before the MA does.

But this is a conversation I've had many times over the years. If a moving average is helping you to succeed, there's no reason for you to stop using it. OTOH, if you're continuing to fail even with its use, then . . .