Hello,
I am a systems trader that has experienced the following curse: Mysteriously systems seem to work the worse once I start using them and when I get tired of the lackluster results, and cut down on trading the system works beautifully again.
A case study: In 2008, I developed a intraday momentum trading system for Forex to catch the strong and powerful 200 pip moves that seemed to occur every day in the Euro and Pound. For a single mini contract, that would mean 200 dollars a day. For about six months, I saved capital and continued to check charts each day. It seemed that there were around two or three tripple digit moves in the Euro each and every week. For reasons related to my day job, and to save capital I waited about six months to the summer of 2009 to start. In the summer of 2009, I started and low and behold, I ended up experiencing one choppy day after another with a few token good days and some mediocre days. I would get up in the middle of the night for four hours and did nothing but break even for three whole months. Mysteriously, the good moves that I saw every week from September 2008 to June 2009 were gone. Even when I had some good days, they were eaten up by three choppy days in a row!!!
It was so frusturating.
I actually did not lose much money trading. I just kind of bounched around breaking even.
I was compared by some good friend of mine to some guy that we knew that I shall call Martin.
Marty was a friend of ours who had the pathological nature of constantly persisting at one real estate venture after another despite real estate not working out for him.
This friend asked me, "If your system is not making you money, you should quit doing it. Don't do something that stops working."
For those of you that understand trend following dynamics, you can understand why trend following does not work like the real world: Sometimes the long a system stops working,the better the chance of a very profitable megatrend.
In Febuary 2009, the good 100 pip moves returned and I started making some decent money. I even caught a 300 point move on March 1st in the pound!!
However, I shut down having been so burned out and being to tired to continue staying up all night to trade.
Recently , I developed a second momentum based system, checked charts and saw it print out several hundred point intraday moves in Forex. However, recently I have started to demo trade it and my luck is during my very first two weeks of demo trading, I have to sit through chop shops and spike reversals!!
My questions are the following:
1. Why does this happen: I develop a good system, watch it for several months "print money" to the extent that it could create 50 percent returns monthly. However, when I start trading it, either for real or by official demo trading, the system suddenly ends up being losing, break even or profitable by only a few dollars!!
After a few months of getting tired of the system, I leave and then see it go back to "printing money."
2. How can I explain to the lay person that does not understand how trend following/ system development is different from the real world that in some cases trading a system that produces fruitless returns for an extended time period is actually the correct thing to do. Based on real world common sense a person who trades a system every day that does not make them money and does not realize "this is not working" is lacking something, based on trend following ideology, remaining with your trend following system during a six month drawdown and adding money to a system that is not working is what you should do?
I would appreciate any thoughts on this matter.
I am a systems trader that has experienced the following curse: Mysteriously systems seem to work the worse once I start using them and when I get tired of the lackluster results, and cut down on trading the system works beautifully again.
A case study: In 2008, I developed a intraday momentum trading system for Forex to catch the strong and powerful 200 pip moves that seemed to occur every day in the Euro and Pound. For a single mini contract, that would mean 200 dollars a day. For about six months, I saved capital and continued to check charts each day. It seemed that there were around two or three tripple digit moves in the Euro each and every week. For reasons related to my day job, and to save capital I waited about six months to the summer of 2009 to start. In the summer of 2009, I started and low and behold, I ended up experiencing one choppy day after another with a few token good days and some mediocre days. I would get up in the middle of the night for four hours and did nothing but break even for three whole months. Mysteriously, the good moves that I saw every week from September 2008 to June 2009 were gone. Even when I had some good days, they were eaten up by three choppy days in a row!!!
It was so frusturating.
I actually did not lose much money trading. I just kind of bounched around breaking even.
I was compared by some good friend of mine to some guy that we knew that I shall call Martin.
Marty was a friend of ours who had the pathological nature of constantly persisting at one real estate venture after another despite real estate not working out for him.
This friend asked me, "If your system is not making you money, you should quit doing it. Don't do something that stops working."
For those of you that understand trend following dynamics, you can understand why trend following does not work like the real world: Sometimes the long a system stops working,the better the chance of a very profitable megatrend.
In Febuary 2009, the good 100 pip moves returned and I started making some decent money. I even caught a 300 point move on March 1st in the pound!!
However, I shut down having been so burned out and being to tired to continue staying up all night to trade.
Recently , I developed a second momentum based system, checked charts and saw it print out several hundred point intraday moves in Forex. However, recently I have started to demo trade it and my luck is during my very first two weeks of demo trading, I have to sit through chop shops and spike reversals!!
My questions are the following:
1. Why does this happen: I develop a good system, watch it for several months "print money" to the extent that it could create 50 percent returns monthly. However, when I start trading it, either for real or by official demo trading, the system suddenly ends up being losing, break even or profitable by only a few dollars!!
After a few months of getting tired of the system, I leave and then see it go back to "printing money."
2. How can I explain to the lay person that does not understand how trend following/ system development is different from the real world that in some cases trading a system that produces fruitless returns for an extended time period is actually the correct thing to do. Based on real world common sense a person who trades a system every day that does not make them money and does not realize "this is not working" is lacking something, based on trend following ideology, remaining with your trend following system during a six month drawdown and adding money to a system that is not working is what you should do?
I would appreciate any thoughts on this matter.
