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#1
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Re: Making a 2+2 trading system
Start at a base system first.
3. Daily 4. Equity Index (to smooth for unexpected exogenous events) 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 10. Rigorous back testing is a good idea 11. If you plan on writing a book, i guess |
#2
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Re: Making a 2+2 trading system
[ QUOTE ]
4. Equity Index (to smooth for unexpected exogenous events) [/ QUOTE ] 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: [ QUOTE ] 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. [/ QUOTE ] 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. [ QUOTE ] 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 [/ QUOTE ] 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 |
#3
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Re: Making a 2+2 trading system
i think talking about points 2-11 is kind of pointless until you/we figure out point 1.
i'm quite interested in following such a project and possibly contributing and even putting some money into the market if we actually devise a decent system, but discussing exit points and money management seems silly when we havn't even begun figuring out an edge. |
#4
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Re: Making a 2+2 trading system
What security would this hypothetically trade?
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#5
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Re: Making a 2+2 trading system
[ QUOTE ]
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. [/ QUOTE ] In short term trading entries and exits points are all you have- so we are agreeing here. The points sit at the center of a trading system. Specific price zones will define the risk of a particular trade- which is equally important. Probably most important is stress testing a system for situations that might lead to a total blow-up of the account capital. The equivalent of a "major leak" in poker. I always ask "how much can I lose" or "where am I going to sell and take a loss" before assessing the potential for upside opportunity. A randomly picked backroll number -- ie "$5000" -- is not a target or a stop loss because it runs the risk of being determined by your personal financial situation rather than the specific influences impacting the direction of the trade. One ought to size positions in a fashion where bankroll never faces a crippling loss with one trade. But risk management is irrelevant in the absence of the logic layer that determines when one enters and exits a trade. |
#6
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OBJECTIVES
I decided to think about my objectives first, since until I make some kind of inventory, I won’t really have any guidelines on what I want from this exercise. What is it I want to achieve? I think this is pretty much mostly a personal issue, but I’ll make a few generalisations about my own situation as it relates to the mechanics of using a trading system.
I’ll have available the equivalent of $25,000 for this particular system. I have stable money tied up elsewhere but while it isn’t money I can really afford to lose, I won’t top myself if I did. I think this is a reasonable amount so that it is meaningful and I’ll be able to practice decent position sizing using most of the instruments I intend to trade. I have an income and don’t need profits from trading. If I take this system live, then I hope to have more than $22500 after 1 year in this account. I think it is reasonable to assume I might not make any money (at least in the first year) but my initial profit objectives are actually to limit my losses to less than an average 1% per month over the course of a year. People might flame me for this, but it is not easy losing this little while learning to actively trade. Unless you’ve never tried actively trading, or your name is Timothy Sykes, you’ll know what I mean. Attainable objectives, baby! I work during the day but have enough free time. I want to trade using EOD data, but may only be able to adjust (guaranteed) stops during trading hours. I currently live in Asia, so the easiest markets for me to trade would trade during European business hours (GMT 0 - +2) so I can enter orders before the open and adjust them before, or close to the close. I have a little more time to devote to this system than others. One of my systems involves spending 5-10 minutes per day checking some prices. The medium term system takes a little longer, plus some time to prepare a trade if there’s one available or being managed. I expect to spend a few hours each night managing this system and record keeping depending upon how many markets I can trade, or how often signals are issued. I need to learn more about statistics as related to trading so I can properly analyse results. (if anybody gas a recommended book/website then let me know). I also need to learn to program some backtesting software. The entries, exits, and position sizing I use is simple yet still difficult to program (for me) into various backtesting software. I've previously done all testing in Excel and while it allows you to become more intimately aware of your systems behaviour, it takes a [censored] long time. I’m not going into detail about my personal finances or experience except to say I’m not flush and have limited experience and reasonable success (ie-haven't busted yet!) trading. Follow me to stockmarket rags, SHOE. |
#7
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Re: OBJECTIVES
Also, if people are interested and want to contribute/flame - please keep responses in the relevant sub-threads.
ie-this subthread is titled 'objectives' |
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