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BlueHorseshoe
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Posts posted by BlueHorseshoe
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No because I will be using my own best signals and my own understanding of the available viable signal generators to determine the formulas you are using to generate your signal and I'm not going to reveal that information.Hi Onesmith,
Are you saying that you would mimic the signal but using different algorithms? If so, then I misunderstood your original post. Nevertheless, I think if the code was sufficiently complex then it would be hard to mimic, even through some sort of parallel process . . .
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Once in a while it will work, but a much more sound strategy is to follow those who make the tops and bottoms.What about if you tried for tops and bottoms, but you were willing to give the market plenty of room to move when you didn't get it quite right? In other words, if you entered positions when you anticpated a reversal, but didn't expect to buy or sell the low or high tick?
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which generally means you would have been better off staying out of the trade when you got in and better off staying in the trade when you got out.Adverse selection is what the books call it. Quite frankly, I was shocked the first time I tested a system and required the software to only fill orders when price traded through the limit rather than trade at it. Although I was fully aware of adverse selection, I had massively underestimated the effect it would have.
There are ways in which the order queue can be 'jumped' (not literally), but these require a level of sophistication beyond anything I could achieve.
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Do you have a disaster stop you place before you go to bed? If not, how would you have handled the May 2010 "flash crash" which was not in theory. If the market went against your position and you had a small account - yes, your loss will be infinite.My means are assessed on the premise of what I am willing to lose before entering the market. Entering without stop (not even disaster stop) is declaring that you have infinite deep pockets.
I know I can only control my initial risk when in the market. I need to at least expect what I am ready to give up! But again, my time and means are not infinite so maybe I am ignorant to what you are saying!
Hello,
My current strategy would have handled the 2010 flash crash without any difficulties at all. Unfortunately I had only been trading for about two weeks at that time, and was busy losing money trying to daytrade using hopeless tactics from the John Carter book. What's more, because the day of the flash crash coincided with the day of the general election here in the UK, it got absolutely no news coverage whatsoever!
However, I do understand the point that you're getting at, so fast forward fourteen months or so and you have the huge sell-off off last August. My strategy (which I was trading in real time) handled this very poorly indeed. So if you go and look at JSwanson's original equity curve for buying pullbacks, and see the massive drawdown that occurred, this is roughly what happened in my real trading account at this time. Subsequent winning trades have since virtually erased this loss, but a similar event may well occur tomorrow.
I have spent a hell of a lot of time since last August looking at possible strategy revisions, including all manner of stop losses, but have not found anything that is satisfactory or robust. My conclusion: because I trade only with money that I can afford to lose, I am happy to risk trading without a stop in order to swing for the bigger gains.
I hope that's a helpful answer.
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I have heard that line before and it's false. Everyone knows there is nothing out there that can make 100% winners. No one could ever and will ever develop that (legally). So the idea that people who have winning strategies are not allowed to sell their systems or shouldn't sell systems because they should be billionaires is completely false.No one in their right mind would go all in or bet $1 mil a trade on a system that is 60% right, or even 90% right. Because they DO have drawdowns, and they DO have losses. But overall there can and are systems that make decent money over time if you follow the rules that are set up for them and do not get greedy.
How do I know??? I am a client of a fund that uses automated trading for some of the programs and I made almost 100% return this year AFTER all fees!!! Best I have ever done while in the "trading business", and I am sure they made a crap ton of money off everyone they have as clients too :rofl:
I agree with your post, but . . .
Here is a system with a 100% win rate. I'm going to share it with you completely free of charge or obligation. I have not made any money from this system for myself, but please feel free to use it in your own trading. Should you decide to use it, make sure that you follow the system rules exactly.
1. Buy the DJIA in 1903.
2. Sell your position tomorrow on the open.
3. Don't take any more trades.
I hope that's helpful and will lead some of you further down the road to riches.
Oh, and if you experience any difficulties implementing this strategy, please DON'T pm me.
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Next prices mathematically possible...............Except that this is financial market data, so that's not strictly true. Otherwise Bollinger Bands would work a lot better than they do.
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I've read that locked ELD code can be cracked by paid services. Does anyone know of any other way to protect Easy Language indicators? What do developers do who sell Easy Language indicators?Hi Tradewinds,
Without going into the DLL process, there are a few things you can do within TS to make the indicator more secure. A determined hacker will still get what they want in the end, but they'll need to be pretty damn committed about.
Break the indicator's code down into as many modules or 'functions' as possible, so that the indicator itself becomes an empty vessel.
You can now protect each function individually. Use passwords that employ the maximum number of characters TS allows. Use a combination of letters, digits, and symbols. Don't use a word that is recognisable in any language.
Doing this will mean that, even running pretty fast software, the code will take about three days to crack. And they'll have to do this with each individual function in turn, which could take weeks, or even months, depending on the complexity of the indicator.
Take steps to make the indicator more complex than it needs to be, and introduce empty functions near the start of the code. As most hackers start to crack these, they will quickly become pissed off and fed up.
As I said, this makes things harder to crack, but not impossible.
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If others are able to visually observe the output of your code in the form of it's signal on a chart then even without seeing it's code it's possible to create code which mimics your signal with a high degree of accuracy.Hi Onesmith,
I'm not convinced by this. Can we test you?
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So who sells options, why do they do it, and how (if at all) do they go about limiting risk?
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I agree with you. All you have to do is say you bought at the about low tick and say you sold at almost at the high tick. Don't say you got the exact low and high. People might think you are bullshitting.Yes, you need to seperate 'buying the low tick and selling the high' from 'successfully trading reversals'. The former would be the ideal scenario. Although it seldom resembles the ideal scenario, the latter can still be a profitable reality, and is not just a delusion of vendors. Anyhow, there are plenty of vendors around selling other ideas (One of today's highlighted threads starts with a quote from a Covel book on trend following for example).
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I am aware that I appear to have hijacked JSwanson's thread with digressions - so no more posts from me here now.
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I cant believe this is the easiest arb on the earth, as I know there are people out there with faster computers and brains than I!!!
I was watching the scenario pretty much all day and it was constant.
Anyone know why this state exists?
I can't help you with an explanation, I'm afraid. What I do know is that if this is the easiest arb on earth, you've just shared it with several thousand other traders . . .
Thanks!
Bluehorseshoe.
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And from a practical stand point - I wouldn't know how to assess win/loss ratio of a system with no "losses"!!Hello,
You would calculate the win/loss ratio exactly the same as you do for any other system. A win occurs when a position is exited for a profit, and a loss when it is exited for a . . . loss.
Just to be clear - I am not saying that I will allow a position to run indefinitely against me. Hence I still have losing trades when I exit at a loss. I am saying that I don't have a hard stop in the market. This means that the theoretical size of my loss, if the market moves hard against me, is the entire value of the contract for longs, and infinite for shorts. I am willing to bet that though this is the case in theory, it won't be the case in practice.
With regard to how deep a trader's (or fund's) pockets are, please see my response to MightyMouse above - you don't need deep pockets to do this, you just need to trade within your means.
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Hi Joshdance,
Reading back through your post it seems that I have probably misunderstood you and mis-represented what you were saying. Sorry about that!
I think that my statement relating to volume distributions is perhaps also unclear. By no means was I trying to imply that anything like a textbook bell-curve occurs with any regularity. I was suggesting that volume typically diminishes as the point of support or resistance is approached. There is a (slightly perverse) sense in which this is definitionally true: there is always less volume one tick below the low tick than there is at it. I am not claiming that this really occurs according to any ideal model. The 'bell curve' may well end up looking like a whale's silouette, but even a whale has a nose!
Rationally, I cannot find any reasons why a market trading at ask would cease rising other than because no buyer will consent to buy at one tick above the high, or because sellers start offering below it; in either case, there is insufficient liquidity at higher prices, and the market will trade towards where there is liquidity.
"Sure, there is a low tick and a high tick, and unlikely that that high or low has lots of volume transacted. But typically there will be an area around where there is high volume."
The point I am making is that the area won't just be "around" - it will always be above the low or below the high, and the market will have traded back towards that liquidity leaving the high or low tick as the tidemark we call support or resistance. The support or resistance occurs because the market has encountered a lack of liquidity, and has headed back the way it came to areas of higher liquidity.
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This could be a really interesting thread to follow.
My understanding, quite different to Joshdance's above, is that a market gravitates towards liquidity pools, and not away from them. So I expect areas of support and resistance to occur where there is little interest (or widespread agreement) from buyers and sellers. From a historical perspective, I would expect support or resistance to be accompanied by low volume. The absolute S/R point (one tick above the high/low) has zero volume of executed orders.
If you look at volume within a trading day, the above is exemplified by the gaussian distribution that MP traders pay so much attention to - the closer you move towards the high or low of the day, the less volume is typically executed at those levels. Ironically, of course, a lot of volume is often executed at the prior day's high/low.
However this is all just my understanding (and doesn't actually guide my trading in any concrete way), and I have had price action traders who spend a lot of time watching the DOM tell me that my understanding is misguided in other threads - so my word clearly isn't gospel!
Hope that at least provokes further discussion on this topic.
Bluehorseshoe
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I am interested in implementing a switch on my systems to stop trading when 'x' drawdown(s) occurs.XS
Hello,
Equity-curve trading is an interesting topic that remains fairly esoteric - it doesn't seem to be mentioned much on here.
One very simple approach, rather than an 'x' drawdown in fixed dollar terms, is to cease trading when the equity curve crosses below a moving average. Obviously this MA could also be optimised, although I am not aware of any software for doding so - maybe some of the more sophisticated portfolio analysis programs may be capable of this?
Here's another point you might like to consider: a strategy that is profitable will have an equity curve that is mean reverting. This means, in theory, that you would want to increase trading following a drawdown, as you can shortly expect a renewal of the upward equity curve. This is only true in so far as you can be certain that your system will continue to mantain a positive expectancy. If, on the other hand, you had doubts about this, then an 'x drawdown' type rule for cessation of trading can provide an objective way to define 'system failure'.
I hope that's of some help to you - good luck researching a complex and seldom discussed topic!
Bluehorseshoe
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It seems to me that your method for trading without stops is underleverage ?Thanks Nemesis - you've described in one word what took me several paragraphs to explain!
I wouldn't say that I'm under-leveraged against my account though. I would say that I'm underleveraged against my 'net worth', if that makes sense?
The obvious downside of this is that I'm not making anywhere near as much money in real dollar terms as I would be if I took advantage of the opportunities to use greater leverage. The reason I avoid this is because although I am prepared to weather what many would probably consider a very significant risk in percentage terms (a risk that any single trade could potentially wipe out my entire account), in real dollar terms I am not prepared to risk my net worth in this same fashion.
Bluehorseshoe
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I abhor that category of failed traders who fleece sheep to cover their trading losses.Ha! And then there's that category who fleece sheep but don't have any trading losses to cover because they don't actually trade . . .
OneSmith has provided me with valuable coding assistance recently and didn't attempt to sell me anything, so I'll happily second his statement above and recommend seeking help from him with coding.
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I am "old fashioned" maybe. I believe I should get out as soon as reasonably possible when a trade isn't working.I don't think that it's in any way old-fashioned . . . But I do think that it's more relevant to other styles of trading (trend-following, momentum and breakout trading etc). In my experience, with the type of strategy that JSwanson is describing, then when you catch a falling movement you need to give it plenty of room to carry on falling before you get the desired bounce. Would that I could catch the bottom every time, but in reality no system does this. Using a very wide stop is a necessary evil with this type of trading, and the wider the stop, the better the results typically are. No stop-loss is the next logical step.
If 67k is no big deal to you, I salute you.
Ha! Alas, it's a very big deal to me - I hope my comment didn't come across as bragging! I'm based in the UK, where we can spread bet for amounts as little as 20c per tick. This is a massive advantage for traders with small accounts. So a complete collapse of the ES when I was long would probably only cost me $5-6k ( I currently trade at a few dollars per tick) - not really the end of the world for me.
But the point I was making was that a complete collapse of the S&Ps is highly improbable. At least, I am willing to bet on the unlikelihood of it. In fact, I'm willing to bet against any selloff that would significantly damage my equity curve over the long term. As an example - last summer I bought the market immediately before the big selloff. This was a comparatively disasterous trade for my strategy - and the subsequent dent in my equity curve was worse than anything in ten years of historical backtesting. Still, had I been holding a full e-mini contract the loss would only have been about 7k, not 67k. And since then? My equity curve is now back to where it was prior to this event.
The reason for this potentially limiting thinking is that I need to be able to understand why there is going to be money in the market for me to take.
I agree with this sentiment, but I think that there are reasons to believe that a strategy of this type can be profitable. There are more complicated ways of rationalising JSwanson's strategy (mean reversion etc), but here is the fairly simple way in which I like to view it:
Futures contracts exist to transfer risk. To make money trading you need to take risks. Therefore when most market participants are desperate to transfer risk, I want to take on that risk. I buy into weakness because I want to take the other side of the order flow and facilitate the transfer of risk.
My understanding leads me to taking 1000 out of 1000 trades that occur that fit the particular criteria that I am looking for. I really care less if I lose for a day, week or month, etc. because I know that what I am doing is sound.
That's my thinking entirely - I couldn't agree more.
In my opinion, "counting to 3" and dropping a trade in the market is nuts.
Have you ever tested a system with completely random entries? Although I wouldn't claim it's an advisable way to trade, simply dropping in a random order with a large stop and small target if often profitable over time in a mean-reverting market such as the S&Ps.
I am pretty sure too that both curves would have outperformed most professionally managed accounts.
Yes, quite possibly, if a money-management formula was brought into play, but then there may be reasons why the strategy wouldn't have performed quite as well in reality as in JSwanson's backtesting. Having said this, buying a falling market means you can establish positions with limit orders, thereby removing the possibility of adverse slippage.
Thanks for an interesting discussion, MightyMouse.
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The trouble is that the data only occurred in the past and you can't back test the future, so you need a stop a stop in place if you want to survive.I suppose what you really want is a stop-loss on your equity curve - a rule that states to cease trading if a certain drawdown is reached (including intra-trade). Just a thought though, and equity curve trading is a whole other topic . . .
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Your question is a good question.You wouldn't want a stop if you have the advantage of foreknowledge that the second curve would prevail. You can argue too that you wouldn't want a stop if the top curve would prevail. The fact is that you do not know what the curve is going to look like until you get it.
Hi MightyMouse,
Thanks for your reply. I totally agree with you about inference from historical equity curves - there is absolutely no way that you can know that the equity curve will prevail. But if the trading concept here (buying three day pullbacks) ceases to work, then it will cease to work both with stops and without stops. As it currently performs far better without stops, then it is not an unreasonable assumption that its failing performance would be better without stops.
The equity curve is a function of this strategy (which doesn't contain stops). So I don't believe that it's simply a case of adding stops to the strategy; you'd be creating a whole new strategy (with stops) that just happened to share the same entry criteria.
I personally trade without stops. If the S&Ps fell to zero today I would lose most of the money in my trading account - this wouldn't be a huge delight, but it wouldn't be anything more than a dissappointment - I can afford to lose that money, otherwise it wouldn't be in the trading account. So there are other ways to control risk beside using a stop loss that massively reduces the perfomance of your strategy.
Not that I'm desperately trying to convert anyone reading to stop using stop-losses - that would just be irresponsible.
In an effort to try and provide a less confrontational response to your original question, I'll re-run JSwanson's strategy and post a report for different stop-losses within the next few days. Hope that's helpful.
Bluehorseshoe.
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Are you using the RSI(2) indicator on the same timeframe as you trade it? The system I've currently built uses the RSI on a daily chart and manages the trade on a 5-minute. It only trades on average once per month. I'm looking at in increasing the number of trades and would be interested in how you utilize it. Do you have any of the stats on your system?Hello,
The strategy uses the RSI on the timeframe being traded, yes. The filters are MAs across this and two higher timeframes (nothing at all original there). A buy limit order is placed at the low of the signal bar (to do so and then instruct the backtest to only fill orders where price trades through the limit is the only way I have of knowing absolutely that I would have been filled without adverse slippage - the strategy works equally well with a order to buy at market at the close of the bar, if you can be confident that slippage is not a huge issue). Another filter rule that I recall working well for the S&Ps was to only buy following a down day, and visa versa.
Another interesting indicator to look at for this type of strategy is the CCI. Because this is already quite sensitive and 'jumpy', there isn't the need to shorten the lookback to the same extent as with the RSI.
Let me know if there's any more info you'd like.
Bluehorseshoe
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A trend following approach could work for you if you have sufficient capital. Successful trend following funds nowadays tend to be incredibly well diversified and have a far more sophisticated trading model than many would lead you to believe: if you've got that kind of cash then I would suggest that you might be better simply placing your capital with a trend following fund with a long track record of decent returns. A good place to start looking would be Micheal Covel's book on trend following.
Another option you could consider is 'swing trading' - operating in that vague and nebulous space between the cool-handed position traders and the hyper-active day traders. Swing traders typically make decisions from daily charts and put their orders in on the close. They often hold positions for less than a week. There are many strategies based around trading pullbacks in trends that can work well that you could investigate.
Your number one rule needs to be this though: decide clearly what your goal is and then find the best way to achieve it. If your goal is to make the best returns on your capital and placing your money with a fund seems the best way to do it, then don't be seduced by the 'glamour' of trading.
Hope that's helpful.
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Yes, I believe I was inspired by Larry on the concept.The blue equity curve above, is from a system that trades with RSI(2) as a key indicator. But there is more behind it as well. You're probably right about 180 being an ideal period. However, I always avoid picking the best values. I would rather keep the 200.
I'll have to look at the Euro with such a strategy.
Thanks for your reply.
I remember reading about the Larry Connors set of strategies and thinking that, though they sounded very plausible and made sense in terms of things I'd already discovered for myself, they'd most likely be disappointing. So I was suprised when I started testing them and seeing very positive results. Nevertheless, Connors leaves a hell of a lot of unanswered questions, and I have no idea whether he has any sort of a consistent track record as a trader. And of course, his focus is on ETFs and individual stocks, so a leap of faith is needed to start looking at his ideas if you want to trade corn or lumber. Fortunately there is some commodities overlap, as ETFs exist for things like oil and gold.
I have used the 2 period RSI strategy you mention (also with additional filter criteria) to create a strategy for intraday trading. I've been monitoring this since last November, and it seems to be performing about as well as could be expected. Unfortunately I don't have the cash, the technology, or the guts to trade it, so I'm sticking with swing trading for now.
I also took a look at the RSI(2) for the Euro this afternoon - it seems that it can be made to perform much better than I recalled, but only with significant optimisation. I think the filter MA needs to come down to about 120 and the overbought/oversold levels at +70/+30. I think when I examined this last year it was maybe backtesting with a 4 period RSI (another Connors idea), hence the discrepancy. So if you do find the time to take it further, I'd much sooner hear about how this performs in Bonds (I can't access t-bill charts in TS as I haven't subscribed for the data feed!!!)
Oh, and one final thing to note - if you're using EasyLanguage for testing, the TS RSI formula is some rather weird modification of the original, and does produce slightly different results.
Will look forward to hearing more from you about this type of trading - it's somehow reassuring to know that there are other traders out there looking at the same kind of things as I am!
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What utter rubbish! Go and look at the track record of a fund like Dunn, Winton, or John W Henry. Totally mechanical trading, and some of them have been doing it for over thirty years.
Yes, there are probably a lot of crap, over-optimised trading systems out there, but the idea that trading systems as a whole don't work is complete nonsense.