Trading Strategies: Systems Across Different Instruments & Low Probability Systems

[secxces]

Hey All,

I wanted to get some feed back on something that is becoming rather evident to me. Hopefully a few active live traders can throw out a few answers.

My question is basically, when trading futures, forex, or stocks, systems that typically trade well on one instrument, will not have a chance on another? True or False?

Ok, Now more in depth. What I have come to find rather enormously annoying is that every time I have seen, spoke with, or read any active stock traders methods, whether he be a scalper, sector trader, mean reversion trader, gap trader, fader, etc, I notice that the systems are rather simple. My point is, without the proper stock scan selection, and without it being more inefficient market, as opposed to futures, or forex, these systems would not work.

Many books and trading discussion are built on trading stocks, and not futures. Because of this, I believe it has skewed any learning curve a newbie has when he tries to get into the forex, or even a slightly educated noobie getting into futures.

Ok after all of that, now I have tried to essentially set up scannable criteria on futures. 100's of different criteria more or less related to the way indicators are lining up or behaving. That didn’t work. I have tried anything and everything that a mildly profitable stock trader would do, with 0 successes in futures. Implemented dozens and dozens of systems, that failed. Spent 100’s possibly 1000’s of hours looking at charts, and have come up with a lot of patterns, but nothing that makes me feel comfortable to build on. (And no, as of right now I want to conquer the beast and not switch to stocks.)

Now my second question... lol. If futures are so efficient and the markets are more of a random walk as opposed to stocks, then a trading system on these types of markets (i.e. forex, futures) would have to focus more on the direct money management side and a lot less on the direct probability ratio the system has? I have spent most of the time trying to come up with winner/loser 80/20 70/30/ 60/40 and realized in these markets, having a system with a 50/50 win/loss ratio along with having larger winner then losers ultimately give you the keys to the kingdom. I realized looking at it more in a 3D perspective as opposed to, just buying high and selling higher or fading this extreme and that extreme, put your stop here........ in futures, these type of inefficiencies are very few and far between.


Ok that’s my topic, Can a few throw some ideas out there. I know it’s not in the form of a question. However, maybe I’m right because of this or im wrong because of this, or congratulations you found something obvious.


Oh and Sorry for the grammar. Typing this on a PDA at the airport.

-secXces

 

[panzerman]

Quote from secxces:

I have spent most of the time trying to come up with winner/loser 80/20 70/30/ 60/40 and realized in these markets, having a system with a 50/50 win/loss ratio along with having larger winner then losers ultimately give you the keys to the kingdom.

Your ratio could be 10/90, but what you want from a system is positive expectancy. Also related to expectancy is payoff, which is the probability of a win times the reward to risk ratio.

payoff = p*(reward/risk)

Seek to maximize the payoff, not just the probability of a win.

 

[secxces]

Quote from panzerman:

Your ratio could be 10/90, but what you want from a system is positive expectancy. Also related to expectancy is payoff, which is the probability of a win times the reward to risk ratio.

payoff = p*(reward/risk)

Seek to maximize the payoff, not just the probability of a win.

Oh I understand this completely. I was just wondering if my statement is correct in saying that most "stock" systems are simple, and typically have a higher win/loss ratio as opposed to futures trading systems, which would have a lower win/loss but a higher avg win then loser. I know there are both types of systems in both markets, im just curious if its more weighed on one side with regards to the types of systems traded on certain instruments. And I was trying to get a dialogue and brainstorm some ideas here, possibly get some experiences from some profitable traders.

 

[IronFist]

Most futures traders trade indexes.

So the only strategies that would work on the ES future would be ones that worked on SPY (the stock).

 

[lindq]

Quote from secxces:

And I was trying to get a dialogue and brainstorm some ideas here, possibly get some experiences from some profitable traders.

Each instrument (stock, index, future, currency, etc.) and each market has its own "personality". A search for a unified approach will lead you down blind alleys and isn't a good use of your time if you're just starting out.

However, in every case, simple is best.

There are only three elements you need to consider to build a good system: (1) Moving Average of Price, (2) Current Price, (3) Time. (Some will also add volume to that list, but I've not found it useful.)

When starting out, focus on a single instrument and build a strategy based on statistical probabilities. Get to know the instrument and the market inside and out. Understand what's happening, why it's happening, and when it's happening. (When it's happening is very important, and often forgotten by traders trying to build a system.)

A good trading system is logical. It makes sense. You can explain it easily. It becomes second nature. If it feels complicated, then throw it away.

Once you can trade that with consistency, then you can expand your horizons to add another instrument or market. What you've learned from the first will help you later. But you must first master at least one approach, again using only MA, Price and Time. That's all you need.

What is the relationship of price and MA? Where has it been? For how long? Is MA rising or falling? On what timeframe? How far is price from MA? Where has price been? For how long? Does this instrument trend? Is it prone to trading ranges? How do I measure? Price! Time! MA!

This is absolutely no different than mastering any skill. Start with the basics. Get that down solid, and prove your mastery of those basics by making profits consistently with a single instrument.

All the hundreds/thousands of pages you've been reading that fill your head with sophisticated technical indicators are not designed to make you a better trader. They don't give a shit. They are designed to sell books, and to sell subscriptions. Ignore them. Stick with the basics.

As far as what instrument to focus on, I would stay away from currencies or non-financial commodities, because they can be heavily impacted by fundamentals beyond your view. Pick a single stock with good volume and good fundamentals. Or a single index or financial future.

Do NOT move on until, again, you can show consistent profits, or until you have proven that you can't trade that instrument. Because some can't be effectively traded easily.

When you get to the point that you are making profits, and bored to death (as good trading often does), then, and only then, think about your next step.

Good luck.

 

[secxces]

Quote from lindq:

Each instrument (stock, index, future, currency, etc.) and each market has its own "personality". A search for a unified approach will lead you down blind alleys and isn't a good use of your time if you're just starting out.

However, in every case, simple is best.

There are only three elements you need to consider to build a good system: (1) Moving Average of Price, (2) Current Price, (3) Time. (Some will also add volume to that list, but I've not found it useful.)

When starting out, focus on a single instrument and build a strategy based on statistical probabilities. Get to know the instrument and the market inside and out. Understand what's happening, why it's happening, and when it's happening. (When it's happening is very important, and often forgotten by traders trying to build a system.)

A good trading system is logical. It makes sense. You can explain it easily. It becomes second nature. If it feels complicated, then throw it away.

Once you can trade that with consistency, then you can expand your horizons to add another instrument or market. What you've learned from the first will help you later. But you must first master at least one approach, again using only MA, Price and Time. That's all you need.

What is the relationship of price and MA? Where has it been? For how long? Is MA rising or falling? On what timeframe? How far is price from MA? Where has price been? For how long? Does this instrument trend? Is it prone to trading ranges? How do I measure? Price! Time! MA!

This is absolutely no different than mastering any skill. Start with the basics. Get that down solid, and prove your mastery of those basics by making profits consistently with a single instrument.

All the hundreds/thousands of pages you've been reading that fill your head with sophisticated technical indicators are not designed to make you a better trader. They don't give a shit. They are designed to sell books, and to sell subscriptions. Ignore them. Stick with the basics.

As far as what instrument to focus on, I would stay away from currencies or non-financial commodities, because they can be heavily impacted by fundamentals beyond your view. Pick a single stock with good volume and good fundamentals. Or a single index or financial future.

Do NOT move on until, again, you can show consistent profits, or until you have proven that you can't trade that instrument. Because some can't be effectively traded easily.

When you get to the point that you are making profits, and bored to death (as good trading often does), then, and only then, think about your next step.

Good luck.

lindq,

First, thank you for your response and for going so much into depth. I have been trading for a little over a year with an active live account and with over 400 trades under my belt, Im sad to say I have ended with nothing but breakeven. I guess I should be happy that I at least havent lost any money. Just one helluva learning experience.

Second, I will take what you said very much into thought. I have received a few PMs from people I know on the boards, so thank you to you guys too. I will be posting some more ideas here and maybe I can expand on some of my ideas with the help of others.



Until then, anyone else have any thoughts please?

- secXces

 

[secxces]

Ok. To get a little more specific and go into further detail about my discussion here, let me start an example to build on.

Now with regards to building a futures trading system. Lets say your using MACD. Now this is for the sake of argument not for actual purposes (I use T3 Anchored Momentum). Now, if you backtest MACD, on multiple timeframes, typically, across multiple instruments, you will end up with a winning ratio of between 40-60%. Tested quite often, however, your profit vs loss would be highly negative and this would not be a good system by itself but bear with me. Now taking into average say 50% winners, if you were able to develop a strategy that would give you a 1.5/1 ratio of profit/loss, then effectively you would be profitable. Im curious how many have tested a strategy like this on lower time frames, say 1 and 5 minute charts.

This would probably be in a scalping sense, however, it seems it would make more sense trading like this against more random data then against say for example stock data.

Does anyone follow me here?

Has anyone ever backtested such a strategy or currently trade one?

Does anyone have a background of testing systems via some sort of software and would be willing to talk with me in order to get a system like this tested?

Anyone?

Any ideas?




- secXces

 

[lindq]

Quote from secxces:



Does anyone follow me here?

No. Your post makes no sense whatsoever.

You're wandering in the dark. (MACD, Multiple TimeFrames, Multiple Instruments? You mentioned backtested results but you can't backtest? And what the heck does this sentence mean: "This would probably be in a scalping sense, however, it seems it would make more sense trading like this against more random data then against say for example stock data. ")

Read again my suggestions to you.

Good luck.

 

[nonlinear5]

Quote from lindq:

There are only three elements you need to consider to build a good system: (1) Moving Average of Price, (2) Current Price, (3) Time. (Some will also add volume to that list, but I've not found it useful.)

I use neither of these "three elements", and I believe I have a good system (in fact, a couple of them).

 

[txlegalpro]

This makes a lot of sense to me, as a new trader. Thanks for the info.

Quote from lindq:

Each instrument (stock, index, future, currency, etc.) and each market has its own "personality". A search for a unified approach will lead you down blind alleys and isn't a good use of your time if you're just starting out.

However, in every case, simple is best.

There are only three elements you need to consider to build a good system: (1) Moving Average of Price, (2) Current Price, (3) Time. (Some will also add volume to that list, but I've not found it useful.)

When starting out, focus on a single instrument and build a strategy based on statistical probabilities. Get to know the instrument and the market inside and out. Understand what's happening, why it's happening, and when it's happening. (When it's happening is very important, and often forgotten by traders trying to build a system.)

A good trading system is logical. It makes sense. You can explain it easily. It becomes second nature. If it feels complicated, then throw it away.

Once you can trade that with consistency, then you can expand your horizons to add another instrument or market. What you've learned from the first will help you later. But you must first master at least one approach, again using only MA, Price and Time. That's all you need.

What is the relationship of price and MA? Where has it been? For how long? Is MA rising or falling? On what timeframe? How far is price from MA? Where has price been? For how long? Does this instrument trend? Is it prone to trading ranges? How do I measure? Price! Time! MA!

This is absolutely no different than mastering any skill. Start with the basics. Get that down solid, and prove your mastery of those basics by making profits consistently with a single instrument.

All the hundreds/thousands of pages you've been reading that fill your head with sophisticated technical indicators are not designed to make you a better trader. They don't give a shit. They are designed to sell books, and to sell subscriptions. Ignore them. Stick with the basics.

As far as what instrument to focus on, I would stay away from currencies or non-financial commodities, because they can be heavily impacted by fundamentals beyond your view. Pick a single stock with good volume and good fundamentals. Or a single index or financial future.

Do NOT move on until, again, you can show consistent profits, or until you have proven that you can't trade that instrument. Because some can't be effectively traded easily.

When you get to the point that you are making profits, and bored to death (as good trading often does), then, and only then, think about your next step.

Good luck.