I used to end up faulting volatility as well, but I also happen to think volatility is an easy scapegoat in failed systems and try to avoid attributing my problems to it, ... as opposed to just identifying abnormalities as part of the system. Estimating volatility is somewhat error prone, and I think a lot of traders just stick their thumb in the wind and either have the right intuition or get burned when they inevitably make the volatility parameter somewhat discretionary.
The curse of systems trading/Why does this happen
- Thread starter Robertwiz
- Start date
I used to end up faulting volatility as well, but I also happen to think volatility is an easy scapegoat in failed systems and try to avoid attributing my problems to it, ... as opposed to just identifying abnormalities as part of the system. Estimating volatility is somewhat error prone, and I think a lot of traders just stick their thumb in the wind and either have the right intuition or get burned when they inevitably make the volatility parameter somewhat discretionary.
I totally agree with you about volatility. Volatility was just one symptom that my system was not functioning. That is what I meant by saying â⦠This turned out to be much harder than I anticipated. I am still adding âdynamicsâ to these old systems. â¦â
I can see where some traders would make volatility a discretionary parameter and only trade trends. But, unfortunately for me, the system I built is in markets all of the time so I had to find a way to trade through congestion, trading ranges and changes in volatility as well as my primary objective trends.
In my case volatility was the main problem, but not the only one. I even went so far as to build my own non standard volatility measures that fit my system. So volatility, in my case, was the key that led me to finding a number of other factors that were giving my system fits.
People always make the assumption when I mention volatility that I mean only high volatility. That is not the case. I discovered I had just as many problems with my system with low volatility after big trends from the lack of price movement.
For me it still boils down to the same thing - knowing what kinds of markets and market conditions best suit my system.
Here's my take on the situation - I think there are multiple issues in play
1. Have you tested over sufficient amount of historical data? I would say that unless you have 1000+ trades in simulation, you haven't. For one currency pair I'd likely be OK with 100, but that's highly specialized.
2. do you have a mechanism to determine when the system no longer makes money in an acceptable way? If not, you're also taking unnecessary risk.
From my personal trading, I'll give you an example: my main intraday system generated ~6000 trades in 2008. 96% of all live trades matched my simulation, i.e. good to trade and working
The same system in 2011 so far has traded only 800 times, and has stopped making money with statistical significance. So, the system has turned itself off and has only trades very few days this year.
When the market comes back in sync with the system (if it does), the system will detect it can make money with statistical significance, and the system will turn itself on again.
Trading is a "game of statistics" - and you need to treat it as such. Otherwise, you'll be frustrated and unable to make sense of it, as there is no "formula" that will make you money all the time.
1. Have you tested over sufficient amount of historical data? I would say that unless you have 1000+ trades in simulation, you haven't. For one currency pair I'd likely be OK with 100, but that's highly specialized.
2. do you have a mechanism to determine when the system no longer makes money in an acceptable way? If not, you're also taking unnecessary risk.
From my personal trading, I'll give you an example: my main intraday system generated ~6000 trades in 2008. 96% of all live trades matched my simulation, i.e. good to trade and working
The same system in 2011 so far has traded only 800 times, and has stopped making money with statistical significance. So, the system has turned itself off and has only trades very few days this year.
When the market comes back in sync with the system (if it does), the system will detect it can make money with statistical significance, and the system will turn itself on again.
Trading is a "game of statistics" - and you need to treat it as such. Otherwise, you'll be frustrated and unable to make sense of it, as there is no "formula" that will make you money all the time.
i'll explain why this happens often.
the reason is simple: any strategy will have run-ups and drawdowns one after the other. never ending series of both.
almost every trader will stop a strategy AFTER its worst period/ in the very beginning of huge run-up and increase size hugely JUST before a serious DD.
So, even with very profitable strategies 95% of traders will lose very, very badly.
the reason is simple: any strategy will have run-ups and drawdowns one after the other. never ending series of both.
almost every trader will stop a strategy AFTER its worst period/ in the very beginning of huge run-up and increase size hugely JUST before a serious DD.
So, even with very profitable strategies 95% of traders will lose very, very badly.
Trader who continue with systems indefinitely may end up losing more money.
Trading is and will remain a zero sum game , if there was any profitable system , the big boys will get in first and screw it up.
These hft and algos will destroy all systems to extinction.
You will all have to become manual discretionary gamblers.
really?
do you have any idea how "big boys" trade?
they trade without any logic, sane rules, research. most are bold, pure, delusional gamblers. see corzine. madoff, vic niederhoffer the list is endless.
there are ver, very few people who even want to trade systems.
then, from these who do maybe 1% know how to do it.
Lol
As long as there is a signal in the market, there will be opportunity.
Last I checked, 100 year old trend following techniques still work.
HFT is a cop out. HFT is for traders who can't make a decision so they scalp small and fast. Easiest algo on earth to program.