How to research and verify trading ideas

My thoughts exactly. Although somewhat strange in tone, I thought his posts were helpful, and I think he was one of the few that did some background homework and presented results. (Where is john galt? And bowo is still here?)

 

Still here, waiting to see the analysis part. Not sure it will come, though. I think Talon's boss might have got a hold of this thread and cut him off. If he never posts again to here my money is on that, but he's anonymous, so I'm not sure they would know or not.

 

If you go back though his many user-names (e.g. 'tsganngalt' for example), you will see he has played the dickhead on many other threads. Though he was surprisingly restrained this time.

 

I never even paid attention to his posts.

 

Contrary to popular opinion I am not mentally ill, though I see why you might have thought that. I received an interesting piece of psychoanalysis via PM that suggested I was using BoWo as an excuse to not continue the thread because I never intended to continue it. I don't think that is true either.

But I have to admit I have lost enthusiasm for the project. I'll see what I can do though.

I have gotten lots of questions about my swing trading. I can answer some questions but I'm not too comfortable talking about current positions, or even recent trades. I am attaching a spreadsheet that shows some trades from the end of last year. This was a $1M notional account, so you can reference position sizes from that. The first column is date in, the second is the contract, the third is the size and side (-4 means short 4 obviously), entry price, exit price, date out, net p&l on that specific trade, the trade p&l expressed as a percentage of the risk we were assuming, and lastly a running total of the p&l since the beginning of the sheet.)

the idea is basically to risk a consistent % of the account equity so you're taking on more size as it grows. as the account becomes big, the positions in some of these markets become cumbersome, so we pull the money out and restart the account at $1M notional periodically.

this was a secondary record sheet and is not an accounting statement so there may be errors. i notice lots of exit dates are missing, which is surprising (don't we keep better records of this system? apparently not.), but i think you can probably figure out when they were by price.

there are really 3 different swing approaches - a trend "anticipation" systems which buys as the momentums are rolling together in line, a trend system in an established trend, especially buying retracements, and an extreme countertrend system. the trades are not labeled by system in this sheet.

Note that exits separate the entries... and we do scale out. so if we bought 10 and then sold 2, 2, 4, 2 that would show 4 entries each buying 2,2,4,2 with each exit.

i will answer questions about the system as much as i can, but i'm not comfortable going into specifics. we trade this approach in stocks and futures and also in several different timeframes. this, and the daytrading, is our bread and butter.

there was also about $64K of open profits that you don't see on this sheet.

rename the file .csv and open in excel. why is csv not a valid file type for this board? weird.

 

Thank you for discussing swing trading.

As I'm only a stock guy, perhaps you would consider some history of stocks too.

Thanks,

Bob

 

talontrading-

Can you comment on your swing trading system in terms how the system rules were researched and verified? The thread topic is an excellent one and it would be great to approach it from that perspective.

 

hi bob,

the problem with swing trading stocks is that they are much more highly correlated than the futures markets are too each other. even if you have 5 substantially different swing setups, if the market makes a big move, they are all going to move pretty much in the same direction.

for this reason, we dont trade this system in as pure a form for stocks. rather we tend to trade a few reversal setups and hold 1-4 days and then to take swing based trades that are motivated, for instance, by earnings releases.

because we also daytrade stocks (we do not daytrade futures), we tend to "mess" with the system much more in stocks. it is not at all uncommon for us to come in short a stock from a 2 week swing setup, cover that short or part of it early in the day, and then reestablish higher on the close. (less common is covering it early on and watching it tank all day, but shit does happen.)

does that make sense?

 

good question, and you'll see this is the reason why this was to be the last topic discussed, because it's very messy.

i was making money doing some intuitive trading that had grown out of some intraday quantitative work. so, quite a few years ago i took a step back and verified each of many "building block" concepts first. for instance, what happens after X consecutive up days, what happens after an X standard deviation move, what happens after an X standard deviation move with a few qualifiers (like being in the 80th percentile of price range for the past year, but you must be careful not to ask too many specific questions like this because even this line of inquiry is a bit of curve fitting.)

this was a lot of work... literally tens of thousands of printed pages, but the end result was a fundamental understanding of how markets move and where the technical edges are.

then there is an understanding of maybe what you would call macro technicals, which is a big picture perspective on technicals. for instance, a double top is not a double top if its in the 20th percentile of past price range.

those together boil down to about a 3 page rule sheet with specific spots for discretion actually written into the system.

 

Many well-articulated ideas. Thanks for sharing.

Years ago, I reached similar conclusions to yours about designing systems from simple indicator readings. In fact, I spent about 4 years working at systems design.

I used to skip sleep between 2-4 nights a week (was bartending for income, had no capital to speak of). Taught myself to program, and started trying every recipe in the book for the first year or two.

Then I reached the point where I realized that all the indicators were just different ways of summarizing and displaying the same underlying data set: the price/time/volume trading data. The computer certainly saw it that way.

There was no added information.

So I started trying to teach the computer how to read patterns and do fuzzy logic functions to discriminate in discrete terms between trending moves and consolidations, and to parse between types of consolidations that evolved in a manner that contained the essential qualities of previous consolidations in the same market that had bullish/bearish outcomes.

For a while, I thought I was getting somewhere b/c I had managed to get a firmer and firmer sense of what I wanted the computer to be able to spot.

And that's when I started to realize an enormously valuable side-effect in the process of spending literally thousands of hours trying to teach a computer to be a good discretionary trader and find an edge in a market.

I never succeeded at the task of creating the system. But I have become a profitable discretionary trader. It took a few more years, and it helped a lot when I got into a trading office in Chicago and had the right type of environment and some important influences.

I know this is a bit off your topic. But I just wanted to point out that the process itself can be the source of an edge.

Anyways, good thread.