Would You Trade This System?

J

jayjay121

There is alot of experts here on ET, and i would like to take the chance to put my system forward for some feedback if at all possible. For many years i was a discretion trader and i lost money.

This system is backtested but please be assured it has been done absolutely correctly with every fill in backtest exceeded before it was counted so 100% fill would have occured in real time, especially as this is trading SPY only and im never trading more than 2500 shares a trade. SPY is one of the most liquid instruments as you know. If i disable 'exceed limit order parameters', so system fills orders when price just touches my exits/entries then, results are obviously much better and almost win every week, but im putting realistic performance out there for you to see and judge, hence the fills have all moved through limit orders before being counted.

It trades a particular type of pattern that seems to be repeatable, the pattern is based on cycle analysis. It is a type 3 system as i never tweak entry parameters to fit better, so to speak. I firmly believe ive done the backtest as reliable and as honest as one could. I'm not into kidding myself, been there done that, got the t-shirt.

Also the last 4 months the results are actually real live trading results and infact slightly running above backtest results so i know backtest is reliable.

This is the same system (parameters) un-touched for 10 years with no optimising in between years or anything like that.

The results are not fantastic and my main concern for my system is the smoothness of performance which im working on refineing by blending other systems.

Please judge my system and please give me some feedback as i respect your advice. I would just like to know wether you professional guys would consider this system or would performance be too low for you?, PLEASE BEAR IN MIND PERFORMANCE BELOW IS SCALABLE TO YOUR LEVEL OF INVESTMENT, JUST MY INVESTMENT LEVELS ARE LOW RIGHT NOW.


Kind regards,





$100k starting bank.
10 year Backtest Trading SPY only.
Both entry and exit exceed limit order before being counted. So slippage is in.
Commissions at 0.004 per share allowed for.

Net Profit $411,605.00
profit factor 1.28
total trades 6031
percent profitable 63.72%
ave winning trade $496.46
ave losing trade ($683.86)
ave trade net profit $68.25
max consec winning trades 17
max consec losing trades 9
Total commissions $120,620.00
Max shares held 2500
Net Profit per share 0.027

Worst drawdown $17,440.00 (10/23/2008)
Max Trade drawdown $7,875 (11/20/2008)

Annual profits (no compounding as i will be withdrawing, 100k bank and max 2500 shares per trade)

1/1/2012 $41,220
1/1/2011 $42,675
1/1/2010 $32,040
1/1/2009 $58,255
1/1/2008 $80,475
1/1/2007 $30,695
1/1/2006 $22,740
1/1/2005 $16,870
1/1/2004 $25,640
1/1/2003 $29,815
1/1/2002 $72,220


91 winning months
27 losing months
1 losing month every 3.37 months
Max consec losing months = 2
max consec winning months = 11

winning weeks = 62%
winning days = 55%

Largest winning trade 05/07/2010 = $4,225
 
I know lescor (a professional trader here on ET) currently long term averages 70% winning days, and 84% winning weeks. And my system gets no where near that. Lescor trades multiple non correlated systems though, so we are talking alot more frequency. If i am able to trade this small edge i have with more frequency then i too could smooth out daily and weekly winning. I need to apply my edge to more symbols to which im currently working on. If this small edge is traded more often (currently averages 3 trades a day), over more instruments, then i feel i may have something.

I am also nearing completing 5 other systems that im trying to blend together, they are all of a similar performance to the above system, But im very weary of too much correlation among them.

What do you think?
 
As for multiple symbols, yes this trades multiple symbols with similar results on several hundreds of stocks. I posted SPY because it is the main market symbol and also because i am awaiting the 'portfolio' software in tradestation and right now i can't show an overall equity curve for a basket of stocks.


trading mulitple symbols smooths results, for example im finding the same signal for goog say and the same signal at the same time for spy say will sometimes result in different outcomes, but both stocks are 10 year on year postive expectancy so overall result is when spy is drawdowning, google is not always following (weak and strong stock theory on the day). Im finding the same concept among a basket of stocks, so yes when trading this same signal among several hundred stocks the performance is not nessercerely better, but alot smoother.
 
I received a couple of pm's stating results are ok as long as it has not been curve fitted. To which i agree completely.

Well i dont want to be ultra defensive about my system, as im looking for brutal honesty and debate, but i write the following to address this curve fitting issue:


The system above is a simple pattern that seems to be repeatable to some degree, it is based on cycle's that somewhat repeat, kind of like a double bottom, or double top pattern with a mean reverting element and a few good filters included.

Im not using any indicators or TA, trendlines, ma's, fibs, s and r, macd, rsi, etc etc, as i personally not too found of conventional TA. I am more a quant type who uses stats to form probabilities. I believe a system must be able to tollerate losing trades as you can drive yourself mad trying to find the perfect trades and this is not a perfect game as you all know.

So im trading a pattern similar to a double top, double bottom with some extra filters using cycle analysis theories with a mean reverting element. So can you see that im not changing and messing with any indicator parameters to suit, using fibs, trendlines, ma cross over's etc. It's just a pattern, not momentum, order book. I suppose the system uses exhaustion theories to some degree but thats about it.

My main argument against my system being curve fitted though is this: How can 6000 trades over 10 years of data using a few simple parameters and no conventional modern TA techniques be considered curve fitted? And the same (very few) parameter set is unchanged over the whole course of the 10 years of data with no parameter changes inbetween to suit changing market conditions?.

For example if i tweak the parameters just a bit for different years or months, i can find alot better performance and improve the stats above by a huge margin, but i simply have not done that as i need honest opinions of realistic trading performance.

Also i have been live trading this for a few months now with small size and when i compare each fills from backtest to live trading im getting every fill the same to which id expect as backtested results are from limit orders that have moved past the price. Infact if i was 100% honest with you, i am actually getting most of the time an extra couple of ticks with the exit as i use some discretion here (not sure wether this is a good idea long term though, as human interaction is a bad thing imo).


What i was looking for to be clear , was your feedback to the actual results and if a professional trader would consider such performance (not system).

So with that in mind, i'd like to re-phrase the question by asking:

If Results from my systems performance and stats were real and actual real verified guaranteed performance. Would you personally trade this system?
 
Well in regard to low latency infastructure. Well I feel my timeframe is not scalping or micro scalping. My timeframe is big enough so i do not get these issues i feel. On average my target is 1 of 30 min atr but it does change with volatility. So we are not taking a couple of ticks scalping. Normally on average my targets are 30 cents to 1.00 ON SPY, never below 20 ticks. Also im not using ultra tight stops.


Does that make sense to you? Please say if im missing something here with the latency issue, so far in real trading ive not encountered these issue.
 
Hi,

Imo it looks ok.

Maybe PF is a bit low, not leaving so much room for error and also after DD can take a long time to recover. Which will require lots of faith and patience.
 
You have not disclosed key statistics:

Timeframe
Number of trades/long/short
Sharpe ratio
Initial account size

You profit factor is borderline noise trading. Hedge funds and other professionals will not even discuss a system with profit factor less than 2. You must increase the profit factor.
 
Thats so much for the feedback, really appreciate it and your honesty.

A profit factor of 1.28 over 6000 trades based on only maximum of 2500 shares, I feel is not so bad. Thats a huge sample size.

Of course i can increase the profit factor if i add another parameter, and have done so, but then i would get less trades and also less net profit overall.

I do not use sharpe ratio's, or rr. Im using prop leverage and use cents per share.

To me all that matters is the bottom line net profit. If i can achieve more overall net profit with more trades but have to accept lower profit factor as a consenquence, then im fine with that. A perfect example is i have a gap system that has a 2.74 profit factor over 10 years, but only has produced 385 trades over 10 years and overall net profit is just above $100k. See why id prefer the higher frequency system?.

Im not trying to pitch this to a hedge firm. My goal is to trade from home like lescor does. I can almost guarantee that lescor does not use stats like sharpe ratio's or risk rewards in his trading also.

Bottom line net profit is all that counts but i agree that the drawdowns are not ideal and the weekly and monthly win rates need smoothing.


I would say against you stating my performance is just above noise, that i feel over 6000 trades this is not bad. If you think about it only a small edge is needed. Casino's and bookmakers only have a small over-round but they kick arse due to volume. This could easily be treated with the same concept in mind.

Lescor has long stated his return over the long haul is between 2-3 cents per share and he is one of the most consistent traders i know of. He like a casino only has a small edge but he does so well due to his volumes of course, which is the advantage of prop leverage.

I would say that 10 years of data and 6000 trades can be no coincedent or noise. I would say yes the edge is very small, but i feel no doubt a postive expectancy system exsists in those results even though its small.
 
Quote from intradaybill:

You have not disclosed key statistics:

Timeframe
Number of trades/long/short
Sharpe ratio
Initial account size

You profit factor is borderline noise trading. Hedge funds and other professionals will not even discuss a system with profit factor less than 2. You must increase the profit factor.
More...


The timeframes are big enough and not micro scalping or scalping.
It averages 3/4 trades a day.
The sharpe ratio is low but i don'tuse this stat in my trading, and remember results are not compounded and profits are being withdrawn, if they were compounded sharpe would be higher.
Intial account size is $100k but you could get away with half of that in this example i feel based on this share size.
Number of short/long trades is almost 50/50.

Thanks again for your feedback.
 
Quote from jayjay121:

The timeframes are big enough and not micro scalping or scalping.
It averages 3/4 trades a day.
The sharpe ratio is low but i don'tuse this stat in my trading, and remember results are not compounded and profits are being withdrawn, if they were compounded sharpe would be higher.
Intial account size is $100k but you could get away with half of that in this example i feel based on this share size.
Number of short/long trades is almost 50/50.

Thanks again for your feedback.
More...

No problem. To buy 2500 SPY you currently need about $450K. Much above 4x margin in your case. This means that you may have used hypothetical profits in your backtest to size positions. This is highly unrealistic backtest. I would suggest you try again with a fixed 100 shares positions. What do you get then for win rate, avg. trade, etc?
 
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