I am actually wrong in this argument, but for none of the reasons TSGannGalt was so poorly trying to articulate. Adding the extra layer will do nothing for profits -- it will only waste development and testing resources. Why? Well, you see, whether TSGannGalt NETS contracts or I take every trade, we end up entering the IDENTICAL number of trades, and during the period he is NET flat, I am HEDGED flat. Whether he sells one long contract he holds when he gets a short signal, or I take the short, we have identical exposure and the same number of trades. Lets show a contrived example for the sake of pedagogy. I will use TSGannGalt's L, S, F system to mark signals. Assume the time-series and signals as follow, 800 L F 801 L F 802 L F 803 L S -- Here, TSGannGalt will be flat 802 L S -- Here as well 801 L F 802 L F 802 F F Now, assume my system, where I don't net out trades. I go LONG @ 800 and sell that at 802. I also go SHORT @ 803 and cover at 801. A total of 4 points profit with 4 trades. TSGannGalt, on the other hand, will go LONG @ 800, sell out at 803, re-enter at 801 and sell out at 802. He gets a total of 4 points with 4 trades. Now, this is a rather contrived example, so let us now generalize it. I was speculating that such a system as I was proposing might be useful in the case where a 15-minute counter-trend shouldn't net out a daily trend, as it doesn't invalidate the daily trend necessarily. Let's assume I am trading M contracts for the long signal, and N contracts for the short signal. In my case, I will be long M contracts from 800 to 802, and short N contracts from 803 to 801. A total of 2M + 2N profit. In TSGannGalt's system, he will be long M contracts from 800 to 803, short/long M-N contracts (still long if M > N, short if N > M) from 803 to 801, and then long M contracts from 801 to 802. In the case where M and N both equal 1, the systems are the same. Expanding, we can see that when M=N, the systems are identical. His net is identical to my hedge. What about if M != N? In my case, the profits are the same: 2M + 2N. In TSGannGalt's case, you get 3M - 2(M-N) + M ... which is 2M + 2N. Again, not a surprise. Netting and hedging are IDENTICAL. We can generalize this to any situation. Instead of constants, we can use A, B, C, ..., Z to represent price moves. You can see that they are the same. So, all in all, TSGannGalt was right (though, quite unable to explain why). You hear that, TSGannGalt -- you can gloat all you want now. You are indeed correct, sir. There is no benefit in developing such a system. BUUUUUUUUUUTTTTTTTTTTTTT (oh come now, TSGannGalt, you didn't think you could get me that easily, did you), I also talked about having one system invalidate the signals of the other, so let's look at that. Now assume that I am trading a M contract trend following system and a N contract counter-trend following system, on the same time-frame -- meaning that 'counter-trend' will now invalidate trend-following. Examine the situation now. 800 L F 801 L F 802 L F 803 L S -- Here, TSGannGalt will be flat 802 L S -- Here as well 801 L F 802 L F 802 F F TSGannGalt gets the same results as before: 3M - 2(M-N) + M. I, on the other hand, get 3M + 2N + 1M. Wait, what? That's right -- if instead of simply NETTING, you can recognize when one signal INVALIDATES the other, you can INCREASE PROFIT. By identifying that on the same time-frame, my counter-trend invalidates my trend, I can not only go short, but I can also take my profit from the long, meaning that I am now bias short to take advantage of the counter-trend. So the benefit lies not in where they DON'T INVALIDATE each other -- because in that situating, NETTING is identical to HEDGING, but in where they DO invalidate each other.
By the way, I just wanted to say that I don't actually trade in this manner: I just don't think it is appropriate to respond to a question by calling someone a 'retard' without fully exploring the concept, or at least explaining why it is a trivial exercise.
wat Holy shit this forum is crazy. Good thing I don't give a shit if someone on a forum thinks I'm a retard.
Yes. We also cannot forget that everyone online is of above-average intelligence, very rich, extremely successful, very attractive, and very good with the ladies... I mean, how are we plebs supposed to compete?
You keep on making all these dumb comments... It's actually surprising. So what's going to happen under a losing trade? All you're doing is increasing the risk... Dude... I take back all the stuff I've wrote about you being a retard. Seriously... everytime you post, you continue to go dig deeper into looking what you work so hard not to...
And what happens under a winning trade? I increase return. Thus we have to determine whether the third layer (or "system" as you want to call it, which is fine), increases or decreases the overall risk/reward layers. The more accurate the underlying signals, the less risk you are adding with the third system. So yes, it does require extra back-testing of the system and extra resources, but it may increase over-all return. Taking the excess risk may be favorable. As for your fragility comments, which I forgot to address before -- the third layer adds no more fragility than your 'netting' system. If I you have systems A and B and I have systems A, B, and C, we would have potential 'operational' schemes: A B ------ X-X System broken X-O Only trades B O-X Only trades A O-O Trades both (with 'netting') A B C ------- X-X-X System broken X-X-O System broken X-O-X Trades B X-O-O Trades B O-X-X Trades A O-X-O Trades A O-O-X Trades A and B (with 'netting') O-O-O Trades A and B and C (we have 2^3 cases, which you seemed to miss in your post) So, as you can see, the only difference in overall 'fragility' of the system is no greater than your system. 1/4th is total system failure, 1/4th is trading B only, 1/4th is trading A only. 1/8th is equivalent to your system, and 1/8th is potentially superior (again, depending if system 3 actually works). Anyway -- as I said, I don't actually use a system like this. I just wanted to explore the implications. It seems to be that it would only increase return in the case where you could accurately identify when you receive a signal that invalidates a current trade. If you could do this with great accuracy, then you could increase returns without increasing risk. On the other hand, if you are inaccurate in this procedure, then you are right, TSGannGalt, it would increase risk significantly. I may never be the smartest guy in the room, so I try to make up for it by doing everything I can to explore and learn. This was just another exercise in determining if there was any benefit to this sort of system. Like most in trading, it is a balance between risk and reward.