How much do you stick to your strategy?

Discussion in 'Strategy Development' started by andread, Apr 19, 2006.

  1. andread

    andread

    I keep on reading about how people should stick to the plan they made, even if it implies an occasional loss.
    Still, besides the common beginner's mistake to forget the plan (and lose money), I also read about discretionary trading. I have to assume different people just do things in different ways, but I would say it's true that a human being (who can at least read news better than any mechanical system), can definitely have an advantage.
    So I would like to ask:
    1) is your system fully specified? Do you define exact values and conditions for entry, exit, stop, and so on?
    2) do you *always* stick to it?
    3) if you answered yes to both 1 and 2, and your system is not automated yet, why don't you automate it?
     
  2. Either:

    a) the trading plan incorporates many different variables, some of which are subtle and may not be able to be automated

    b) lack of programming skills/knowledge/experience

    c) it's not necessary, the plan is working fine as it is

    or OK,

    d) don't trust that the coding, once done, will remain proprietary if the system proves to be as profitable under automation as it appears to be when implemented by a trader

    Later,

    Jimmy
     
  3. Cheese

    Cheese

    A plan which includes toleration of losses and drawdowns is an attempt at controlled gambling.

    Assuming index futures markets and intraday trading, a plan is an attempt to put on paper a full understanding of the particular market you choose to trade in, in its day long perambulations. Your plan is then an attempt at defining how (buys and sells) to take from the maximum points offered each day your optimum take.
    :)
     
  4. andread

    andread

    Can you make an example of such a variable? The only case I can imagine is a variable that is made by personal judgement, like a confidence value. That would imply some personal discretion
     
  5. Markus

    Markus

    NOT fully specifying entries, exits, stops and profit targets is the No.1 reason why traders fail. Having a trading system means having a pre-defined set of rules you have developed to guide your trading. You probably have heard the saying “Let your profits run”. Unfortunately most traders let their losses run. Your trading system should get you out of a position when the predefined stop is hit.

    Trading with a system removes emotions from trading. If you don't have a strategy and you try to make decisions when the market is moving, you are liable to become emotionally attached to positions. You may experience panic and indecision when the market does not move in your favor, as you do not have a prepared response. That's when most traders lose their money. If you have predefined entries and exits, you will know what to do no matter what the market does.

    Difficult question. I believe that traders who add a discretionary trading element to their trading system will be more successful than "pure" system traders. But there's a fine line.

    Example:
    If you have a trend-fading system you might want to skip trading on days when you know the market will be trending, e.g. unemployment reports, quarterly GDP data or Fed meetings.
    But you should avoid adding a discretionary element like "I think the market will turn around and move up again, therefore I am changing my stop.", unless you can read the market pane (Level II) and KNOW that the market will turn around.

    I do believe in automation, especially if you're struggling with discipline. Many traders have a great trading plan (or system), but they don't have the discipline to execute it. The easiest way to follow a trading plan is to automate it. I believe that almost every trading system can be automated, and you could let the computer trade for you. You won't have to worry about your discipline any longer, as the computer mechanically trades every setup for you. This will also help you controlling your emotions (see first answer).

    Hope that helps,

    Markus
     
  6. My EOD system is fully automated.

    The only entry signals I ignore are those triggered after acquisition announcements.
     
  7. 1) yes
    2) <i>ALWAYS</i>
    3) It is and I love it. Wouldn't be able to trade it manually.
     
  8. Do not expect yourself (or Cheese, for that matter) to be able to grasp what is being suggested to you by others.

    As you become more an more conscious of the subject, you will begin to see what is in front of you.

    One of the difficult aspects of markets is that they do not operate in terms of opposites. In day-to-day life many people have an orientation that is in terms of opposites; thus, when they turn to deal with markets and making money, they are stymied by their orientation.

    Getting acquainted with the variables of the market is a prerequisite for giving direction to those who do stuff like software, etc.. You will find that commercial products (like market software) are not at any stage of development so far that allow these products to be useful when it comes to market operations.

    How it is now is like comparing sweeping out a log cabin when a clean room operation should be the standard.

    Fortunately, the compromise most excellent traders make is to just pull out of the market, daily, a percent of applied capital that is satisfactory to them for the time spent.

    Most people park money in streams that just keep flowing by using day to day management. Then they focus their efforts with accounts sized by the limitations of the specific leveraged place where they operate.

    Suppose I list ten variables that I deal with in nine separate ways. The ways are coclor coded. The names of the variables may not be familiar to you, though. I make a total pass on this in a few seconds at most. See how many minutes it takes you to read it as you go from topic to topic and the colors change. Notice the absence of opposites as well.

    The world you and cheese (as a poster so far) are in is a common place to be. Don't worry about it. At some point you will be getting a kind of wake up call. It will be something like being in a strange place for the first time. Survival school is a great example. To decide to deal with what is there is a terrific thing. But most people do not; they just cruise along and suspiciously know that they aren't with it.

    I used to do service projects for the Sierra Club in the low rainfall zone (less than 10 inches) from the Gulf of California to the arctic circle north of Dawson. I always made it a point to serve a different ord'oerve (sp) from the biome each evening and I also pointed out the medicinal value of each flora round and about.

    The surface of trading is very different than the money making part of trading.
     
  9. bolter

    bolter

    andread,
    Successful traders will always tell you to stick with your trading plan/method no matter what. But the difference between them and you is they have a plan/method that they have refined over many years, and has been proven to work. Your plan/method, on the other hand, being a newbie, probably sucks (nothing personal). If you stick with your current plan they'll cart you out in a box. You need to continually refine your plan/method, and you can only do that through trial error. The key point is to honestly examine every day whether your deviations added value or not and document your findings. Through this process you will learn what works and what doesn't.

    Ask them if they stuck with their plan when they first started out trading, like you, and you may get a different response.

    All the best.
     
  10. Hey andread,

    You've got a lively discussion going on here. I find the concept of programming divergences, continuations and reversals in all of their subtle complexities to be beyond my comprehension.

    I can see them very well when they happening in front of me, but I can't figure out the coding (after this exercise maybe i'll give it a try!). That is what I meant, so this would have to fall under the "b) lack of programming skills/knowledge/experience" category.

    cheese, you're a bright guy, but i gotta tell you, no plan wins 100% of the time, therefore ALL PLANS MUST TOLERATE THE POTENTIAL FOR DRAWDOWNS AND LOSSES.

    Grob 109, One of the difficult aspects of markets is that they do not operate in terms of opposites. In day-to-day life many people have an orientation that is in terms of opposites; thus, when they turn to deal with markets and making money, they are stymied by their orientation.

    Getting acquainted with the variables of the market is a prerequisite for giving direction to those who do stuff like software, etc.. You will find that commercial products (like market software) are not at any stage of development so far that allow these products to be useful when it comes to market operations.

    How it is now is like comparing sweeping out a log cabin when a clean room operation should be the standard.

    Fortunately, the compromise most excellent traders make is to just pull out of the market, daily, a percent of applied capital that is satisfactory to them for the time spent.

    Most people park money in streams that just keep flowing by using day to day management. Then they focus their efforts with accounts sized by the limitations of the specific leveraged place where they operate.

    Suppose I list ten variables that I deal with in nine separate ways. The ways are coclor coded. The names of the variables may not be familiar to you, though. I make a total pass on this in a few seconds at most. See how many minutes it takes you to read it as you go from topic to topic and the colors change. Notice the absence of opposites as well.


    Not only do i think that this is great expository writing, but you also just hit the nail right on the head! :)

    You were writing while I was composing this, but Bolter you're dead on the mark also (but after a certain point I would like to just go with what I have, so long as I can catch 70-80% of the moves, miss-out on the other 20%-30%; and 10-20% of the hits, I'll be one very happy camper).

    Later, and Best Regards (you learn a lot at this site)

    Jimmy
     
    #10     Apr 19, 2006