[kimchi]

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4. Equity Index (to smooth for unexpected exogenous events)

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Stops can protect against nasty surprises and if I trade a volatile stock which regularly gaps overnight, then I have the option to use guaranteed stops.

My bias (illusion) is that any market can be traded in a simlar way, but I'm leaning towards liquid midcap equities with little or no dividends (dividends screw up my simple models). However, I'm planning on trading shorter term than I have previously and a quick eyeball at my broker's FTSE ex-350 quotes (ie somewhere between FTSE AIM and 250) shows spreads approaching 0.5% which may be too much like paddling upstream. I haven't checked other markets' small cap spreads but I imagine they're at best the same.

The upward bias in stocks however (and the limit on the amount a market can fall), has made trading from the short side significantly less EV than the long side during previous backtests.

I think following highly liquid, highly traded markets like some commodities, forex, DJIA puts you up against the high stakes pros:


from the above Simons article:
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As the selloffs in July and August showed, many quant funds are chasing the same investments. For example, as of June, Renaissance and rival AQR Capital Management LLC had four of the same top 10 stock holdings: Johnson & Johnson, Lockheed Martin Corp., International Business Machines Corp. and Chevron Corp.

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These guys have to trade the same big markets as their position sizing limits their scope. The little guy with his piddly little account (me) can skip around these guys without worrying about slippage, but can probably also do so on relatively illiquid and less followed (less efficient?) markets.

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5. Trade set up is the money engine obv
Start simple and expand from there
6,7,8,9 are all subsets of 5 imo


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I'm wondering why you think so. I believe money management is the most important part of a system as your edge is worthless if you bust out. Exits are also more important than entries as they define your initial risks and your profits.

It's evident from many threads on these boards that most people concentrate on entries. "When do I sell GOOG" suggests the investor bought without clearly defined exit criteria. He might have made a perfectly timed elegant entry, but appear not to have considered the exit. It's so easy to allow a winner to turn into a loser, or to prevent a small winner turning into a big winner without proper exits.

I think all the above points (1-11) are related, but need to be considered individually to meet whatever objectives are decided upon in #2