Thoughts on "The A to Z of trading career - musings of a professional trader !!"

[lemondew]

Just started with a backtesting and new into this. So hoping that I get a good start. Till now I been doing a whole lot of things and have not paid much attention to studying backdata.

For making more for starters the options are
1. Improve system
2. Increase capital.

However I had lot of periods where I was not into trades. So basically added some more system. And basically kind of resource sharing between systems where resource is capital.Something we guys studied in Operating systems.

So the code became if system1 is using resource then system 2 cant do and it can trade only if resource is free. Also we give priority to systems. Then analysing results. This helps those who are not into always in trade type of swing systems. Kind of better resource utilisation.

Exactly. As a matter of fact, most of the times, real trades follow fat tail distribution and not normal distribution (meaning - the worst case scenario seen in the past might not be worst after-all as the distribution can get fat-tails). So, i always advocate to keep the worst case as twice the maximum DD we see in backtesting and basing the trade risk on that number.

As Michael Moubassin pointed out in one of his books - "Substantial empirical evidence shows that price changes do not fall along a normal distribution. Actual distributions contain many more small change observations and many more large moves than the simple distribution predicts."



How does it matter if DD happens now or later, lemondew? One incontrovertible fact of this profession is that "drawdowns are inevitable" . Accepting drawdown as natural aspect of trading will take us long way in this profession. As i always mention, longevity is the key. To survive longer, risk management is the only tool we can use and if we focus on the big picture, other aspects of trading gets lost in distant oblivion compared to 'risk management' !!

 

[lemondew]

Which period is defined as long-run?

William eckardt discards ideas which evaluate trades less than 1800 trades. Thats the minimum. Same time he also talks about risks of going to back...

Interview here
http://www.futuresmag.com/2011/02/28/william-eckhardt-man-who-launched-1000-systems?page=2

 

[copypasteaee]

Just started with a backtesting and new into this. So hoping that I get a good start. Till now I been doing a whole lot of things and have not paid much attention to studying backdata.

For making more for starters the options are
1. Improve system
2. Increase capital.

However I had lot of periods where I was not into trades. So basically added some more system. And basically kind of resource sharing between systems where resource is capital.Something we guys studied in Operating systems.

So the code became if system1 is using resource then system 2 cant do and it can trade only if resource is free. Also we give priority to systems. Then analysing results. This helps those who are not into always in trade type of swing systems. Kind of better resource utilisation.

The game is about sustaining for just another day. This idea may accelerate the growth of equity curve but it also increases the risk of ruin if the draw down of multiple systems happen on same time. I rarely have words to express my thought process, may be some one else will enlighten more.

 

[Nikhil Dogra]

Well Nikhil - you are confusing money mgmt with emotions. With this message, i guess you are hellbent to follow the instincts Fair enough. It's your money and your choice but i still don't see any merit in your idea. It is just my opinion and am known to be wrong more than rights.

May i ask you this question - what is prompting you to take gut trades? Lack of success in positional trades or just to quench your mental stimulation? So, Mark asks this question all the time - "are you in this game for money or thrill or to prove your intellectual worth"? The answer to this question will open up pandora box of answers and will vary widely from person to person. Please ask yourself and answer them. I have mentioned this quote earlier from Ed Seykota - 'market gives everyone what they want'. This statement might look superfluous and even downright cocky but think about it. It cannot get deeper than this. But looking at your signature, you seem to hate quotes . Jokes aside, think hard and come up with a solution to this issue. When you reach the bottom of it, hope its not too late.

Coming back to your example - What if market moves according to your system (say 200 points intra) with 1 lot instead of 4 lots? We cannot afford to have ambiguity in rules (let alone anything that can trigger emotional roller-coaster) and gut-based trades are reserved for experienced/discretionary traders. When you are an hardcore algo guy (mechanical trading) in positional, am not sure where this urge is coming from. Time to introspect, Nikhil

• The urge for intraday is due to old school days i.e pre CTT days where i used to do hardcore scalping in some commodities for ticks & now only market that can be replicated is in index options after factoring in expenses etc.
  
• Yes i hate conventional quotes because majority% of them are taken out of context
  
• I actually run a portfolio of strategies on different timeframes so its going on pretty decently on that front however the intraday system is the only system where i am getting the urge to override based on good old school days.

I went to attend a wedding this week so i had a lot of down time to ponder over it & so far i am coming to the conclusion that money is getting in the way i.e portfolio we can make withdrawls quarterly whereas with intraday we can make withdrawl twice & thrice a week

 

[ncube]

We hopefully never face the worst drawdown till we make lots and lots of money. A drawdown after we made a good deal of money is OK.

@lemondew, valid point, its normal human psychology that we always try to measure in terms of what is directly visible to us. In trading terms it is the monetary returns. However if we try to analyze it in bit more detail the underlying thought process is that its not money rather once we have confidence in our system, process and expected draw-down's, it is quite fine mentally when we actually face the draw-down.

Let me give you my example, in 2015 I took live one simple trend following system (I trade long only eod equity) which I had been researching for quite some time. At the end of the year I got a pretty good return of about 51%. I was very excited with the results and thought I have an unbeatable system. However in 2016, I started getting series of losses and at one point I got 26 consecutive losses and draw down was more than 20%. Now If I had started with this system in 2016 I would have been disappointed and would have abandoned it. However since I had the confidence and proof of result from 2015 I was comfortable enough to continue with this system.

So whenever you start with a new system, always the first question you should ask yourself is “Why do you think your system will make money?” If you are not able to answer this question is a very simple language then you are doomed to fail trading this system. I have seen many traders say that they trade based on moving average crosses over or OBV above/below certain moving average etc which is fine...But why it should make money and what is the guarantee that it will make money in future, there is no proper answer, most will say I have back tested this system on 10yrs data and have seen good results. However this is not sufficient, one should know your system well, under what market conditions does it make money, unless you are clear about these you will not have the confidence nor you will know how to analyze when you enter the draw-down phase or when to stop trading the system.

BTW, I ended the year 2016 with a profit of about 18% using this system..

 

[lemondew]

Just like 1 system we have already back studied the worst performance of the combination as a whole. And we just hope the results arent worst. only that things will happen faster. ruin and recovery and profits if combination is good. Ruin and back to pondering if its bad.

The game is about sustaining for just another day. This idea may accelerate the growth of equity curve but it also increases the risk of ruin if the draw down of multiple systems happen on same time. I rarely have words to express my thought process, may be some one else will enlighten more.

 

[ncube]

ncube,

Your post reminded me of my high school math teacher ...with all the 'directly/inversely' proportional pointers

Just came out of habit... my job involves working extensively on numbers, equations & formulas...and I think I should control my thought process as even my family and friends have started complaining that I talk to them in Mathematical terms...

 

[ncube]

Just started with a backtesting and new into this. So hoping that I get a good start. Till now I been doing a whole lot of things and have not paid much attention to studying backdata.

For making more for starters the options are
1. Improve system
2. Increase capital.

However I had lot of periods where I was not into trades. So basically added some more system. And basically kind of resource sharing between systems where resource is capital.Something we guys studied in Operating systems.

So the code became if system1 is using resource then system 2 cant do and it can trade only if resource is free. Also we give priority to systems. Then analysing results. This helps those who are not into always in trade type of swing systems. Kind of better resource utilisation.

@lemondew, from this post I presume you are not full time trader like me. So I will share my trading methodology, see if it can help you in developing your strategy & setup.

1. I do not trade derivatives as it is leveraged and requires full time commitment which is not possible for me as part time trader. Sometimes I do day trade whenever I get some screen time which is more like hobby without any serious thought on making money. Can be considered as a way of satisfying my ego beating the market which many say can be done by only 5% of traders..Ed Seykota quote is rightly applicable for me here

2. I trade long only equities eod and spend about 30 min each day to check for trade signals and place orders for next day. Coming to my trading system it depends upon the current market conditions and I classify Markets into 3 categories:

• Up-trending
• Range-Bound
• Down-trending

3. In Range-bound markets we can have few systems but it requires frequent monitoring to take quick profits and hence I don’t trade this market, however if you can give time you can develop a system for this market.

4. Unless one trades derivatives, in down-trending market there is no option available for equity traders. Also I don’t recommend anyone to trade short side of the market. Though it looks similar to up trending market in reverse direction it’s not the same. The statistical returns will not be same as that of uptrend system when applied for downtrend. Think about it, it’s really an interesting concept..and many traders are not aware of it ..

5. So whats left is only the up trending market and this is where one can make good money trading equities eod. We can have many Systems based on whatever criteria one uses, however after many years of experimenting with various indicators I came to the conclusion that just price action based robust systems which makes intuitive sense is all that is required to trade successfully.

6. Now I use only one system to trade, however as you said there is this problem that I will not be able to utilize my full capital efficiently, hence to overcome this I use the same system across multiple time frames. I have kept it simple by using just 2 portfolios short-term & Medium/long term. The advantage here is that if the trend continues for long term bulk of my capital gets invested in long term portfolio and since I am using only one setup It helps me to manage portfolios well.

7. Though this trading methodology is boring and also the returns will not be very high however it is easy to scale up and diversify. Also the drawdown is limited and over long period compounding will take care of itself. During range-bound & down trend market I move my capital to debt funds. Not trading when markets are not suitable is also a very good strategy...

Important learning: Keep trading simple & stress free so that you can focus on life apart from trading..

 

[raju.vzm]

@lemondew, from this post I presume you are not full time trader like me. So I will share my trading methodology, see if it can help you in developing your strategy & setup.

1. I do not trade derivatives as it is leveraged and requires full time commitment which is not possible for me as part time trader. Sometimes I do day trade whenever I get some screen time which is more like hobby without any serious thought on making money. Can be considered as a way of satisfying my ego beating the market which many say can be done by only 5% of traders..Ed Seykota quote is rightly applicable for me here

2. I trade long only equities eod and spend about 30 min each day to check for trade signals and place orders for next day. Coming to my trading system it depends upon the current market conditions and I classify Markets into 3 categories:

• Up-trending
• Range-Bound
• Down-trending

3. In Range-bound markets we can have few systems but it requires frequent monitoring to take quick profits and hence I don’t trade this market, however if you can give time you can develop a system for this market.

4. Unless one trades derivatives, in down-trending market there is no option available for equity traders. Also I don’t recommend anyone to trade short side of the market. Though it looks similar to up trending market in reverse direction it’s not the same. The statistical returns will not be same as that of uptrend system when applied for downtrend. Think about it, it’s really an interesting concept..and many traders are not aware of it ..

5. So whats left is only the up trending market and this is where one can make good money trading equities eod. We can have many Systems based on whatever criteria one uses, however after many years of experimenting with various indicators I came to the conclusion that just price action based robust systems which makes intuitive sense is all that is required to trade successfully.

6. Now I use only one system to trade, however as you said there is this problem that I will not be able to utilize my full capital efficiently, hence to overcome this I use the same system across multiple time frames. I have kept it simple by using just 2 portfolios short-term & Medium/long term. The advantage here is that if the trend continues for long term bulk of my capital gets invested in long term portfolio and since I am using only one setup It helps me to manage portfolios well.

7. Though this trading methodology is boring and also the returns will not be very high however it is easy to scale up and diversify. Also the drawdown is limited and over long period compounding will take care of itself. During range-bound & down trend market I move my capital to debt funds. Not trading when markets are not suitable is also a very good strategy...

Important learning: Keep trading simple & stress free so that you can focus on life apart from trading..

Hi ncube,

I m also in the similar lines as you, but with very less experience. So from how long you are doing this? Are u using options as well? Did you get any chance invest as per your method between 2008 and 2015(market not in uptrend)?

Raju

Sent from my MI 3W using Tapatalk

 

[Subhadip]

one of the best threads of TJ ....Nice ...

Thanks a lot sir ji...