I'm going to ignore any questions... Though... 1. Being able to derive a "more core concept" leads to a quantitative market selection process. Which boosts the performance A LOT. 2. Getting a "conceptual" reason, also leads to possibilities of why the short side is lagging with the current provided signal. Which leads to deriving another set of outright signals. 3. Who said Quantitative trading is useless? It helps... a lot... It's how and where you use it... (just like any other tool like statistics). ----------------------------------------- Let me point out a few things to the people asking questions to help talon, a bit, with this thread... Look, it's good that people are asking questions to talon but that's where it ends... All you guys with questions need to digest the questions before posting them. Seriously... to answer any question, you need the appropriate information to derive an answer through logic. Take the question: "What did I have for lunch?" - So far no one can answer it... What if I provide new information that I had lunch at the corner of Clark/Division in Chicago (... there's Subway, Popeyes, and Dunkin' Donuts)... - I either had Donuts, Chicken, or Sandwiches. Then what if I told you I ate healthy... - Probabilistically, I may have had a sandwich. In systematic trading... you need to ask yourselves a whole set of questions and think of ways to find the answer on your own. And to answer those questions, you need to test / isolate a bunch of information to provide yourself with the information to make the best guess. So if I were in most of your shoes, I'll ask talon about how to find answers from the examples given (the system) rather than the answers themselves (of course, it's talon's intention... by having the readers of the thread doing research...) What's sad is that most of you are running/posting blind research close to trial and error without any clear intentions. That said... why not start off with a question. Then write about how your research attempts to answer the question in hand... and then have talon provide you critisizm about how you SHOULD have done it, plus... prolly more important "Are you asking yourself the right questions?". Only my 2 cents... and I'll let talon take over... I'm going back to being a spectator...
Looking at all of the othe systems that I use on a regular basis, this one looks like something that I could get used to using. i mean it is something new and differnt, something challenging. Let me see if I squeeze a play or 2 into my regular routine. wouldn't hurt to try something new. Hell you could always get out with a small loss if it doesn't work out.
No need to go back to being a spectator TSGannGalt. Other opinions and perspectives are certainly welcome here... as I have said many times this is a big part of the reason why I work with other people rather than working alone. I believe I understand most of what TSG is driving at here, even if I don't find his prose always crystal clear. It's important to remind people that different traders, because of personality and background, have very different approaches to system development. Actually... it's deeper than that... traders have different expectations of what a system will be and do. For me, remember I am primarily a discretionary trader (though within a far more rigid framework than most of you would imagine.) For me, years of experience trading and looking at charts (and many of those years unprofitable btw... this is a hard way to learn) have led to pretty good pattern recognition skills and a certain intuition to market patterns. I did not come from a strong math background (though I did come from a strong analytical background if that makes sense), so I had to develop and learn the math skills I needed. I am certain there are many many readers of these forums who have math skills far beyond mine. However, I would also be willing to bet that there are very few readers indeed who make more money than I do trading. My expectation of a system is that it will provide a framework. I may learn more about markets from the development process, and I may find some things that will augment the intuition I have developed. (By the way, there's nothing magical about intuition. It's the result of seeing hundreds of thousands of patterns and have a singleminded focus on market patterns.) I may find some systems that I can trade on a purely systematic basis, but that's not my primary reason for developing systems. I am wrong a lot trading. A lot. I take many very small losses, but my trading skills and low trading costs allow me to break even (after costs) even if trading with no "edge." Note that this will be quite different for most readers here who will be net negative even with an edge, until they have developed these skills. There are probably faster ways to learn to trade, and certainly many paths to success. My sense is that TSG is probably more strictly quantitative where i would call my process more discretionary informed by quantitative techniques. Many valid approaches. One word of warning: I have had people ask questions suggesting that they think my way of trading is easier. I actually disagree completely. I think you would have an easier time getting an advanced degree in math and learning hardcore quant approach than what we do here, which is endlesslly nuanced. So, TSG, you probably see more clearly where we had the disagreement on the art vs science a while back... two sides of the same coin. Just some random thoughts at the end of a long long work day! BTW, only a matter of time before BoWo (who is silent because of he is absorbing his holiday eating no doubt) claims I'm trying to get you all to do work developing a system for me. Strange, but watch and see... it will happen. I should point out that we already trade, on a pretty pure systematic basis, a version of this system. TSG is right... the risk management with this thing in the key. For instance, if you are trading it on 50 stocks you will find a day when the system wants you to be long 46 of those! Something to think about. Last word -- in my opinion, TSG is probably pointing you guys down a road that is a little more complicated that it has to be. Perhaps he can clarify his points better. I certainly welcome his contribution here... even if... no ESPECIALLY IF... they contradict some of my views and opinions.
Last thing I want is some male-bonding movie moment like, "Dude... I love you MAN" "No... I LOVE you!!!" But.... this talon guy (never met him) is legit solely based on what his posted. (Unlike some morons or attention seeking guru-wannabes(ex. jack hershey... who writes some stupid shit about Automated Trading, don't care about his discretionary tech anal. + EricP... has a retarded way of trying tp teaching people)) That said... I think we understand each other more than we both emphasize on. It's just a little semantics that's different. Seriously... go on with the thread. We can chat privately via PM... or Google Talk if you want... Don't get me wrong, difference is good. It provides us the chance to open up our perspective. I've got plenty of guys around me (Chicago crew, not NYC like you) that thinks my trading style is weird. talon. I have nothing but respect for you, if not... I wouldn't take the time to research the stuff you wrote. Plus... I'm a well known unforgiving flamer in ET and I haven't flamed...
TSG, You may have addressed this in a round-about way, but, I think that your comments regarding inductive/probabilistic reasoning are slightly mis-leading and possibly flawed. You're asking people, many of whom may be new or relatively inexperienced, to hypothesize and test the validity of their hypothesis on their own. This process is also known as the scientific method. While this process will come easy to anyone with a decent analytical background, a hard prerequisite is a strong analytical mind. That said, ability to perform this process does not mean much in our business. You can do everything right and still lose money because of what you don't know you don't know... Semantics aside (per the scientific method and the details involved), what questions would one start asking given their knowledge of portfolio trading risk management is limited? Suppose one has a strong quantitative background and very good systemic development ideas. The fact that the future is unknown presents many challenges and problems that only experience can teach. One can't ask pertinent questions unless one has the pertinent experience. Even then, the future will present a new set of challenges... Unfortunately, gaining experience usually involves losing money. My take is that you're telling the people here that they need to ask pertinent and well-thought questions, especially when it comes to risk management. Talon presented a hard case example, suppose you trade a portfolio of 50 stocks and one day your system goes long 42 of em... what does one do? What questions should have one asked prior to this experience? Rather than tell people they need more experience to ask the right questions, a more helpful approach would be to share some experiences. How do you limit position sizing with respect to account size? What's a general rule? How many positions based on the portfolio? When does applying discretion make sense? Do you adjust for volatility? None of the above questions ask one to reveal their edge or their process. They are basic questions that are system specific. You've seen the system and you have some basic questions. Again, rather than provide color to this discussion regarding the inadequecy of a posters thinking process, please provide some general experiences when trading a system such as the one talon provided. I know you said you're not answering questions so I'll let this sit for a few days until you or someone else answers and then I'll provide some of what I've experienced... Mike P.S. I learned all of the above the hard-way, i.e. losses. It doesn't have to be that way. Think of this as indirectly contributing to charity.
1. Should a person relatively new or inexperienced be trading to start off with? Should someone come into this thread, take what talon, you (I do like you) or I am mentioning and place their money on it? My opinion states a clear NO. 2. The fact that people lose money = risk. EVERY TRADER has a losing trade, EVERY SYSTEMATIC TRADER deals with failed models. Some idiotic poster/guru in ET may read this and start disagreeing but it happens to everyone (Please don't tell me every model you develop makes money... well you may be an exception from a lot of us...). Though deleted, my emphasis on starting a topic about risk management starts there. 3. Honestly... my emphasis wasn't about following a scientific process... though, now that you've mentioned it, I agree. (Seriously, I never thought of it that way) The intention is rather simple... Do your own tests / thinking. Just let talon know what you're doing and I'm sure he'll tell you what you're doing right / wrong. 4. In terms of limited knowledge... considering your background... would you ask your professor a question where the answer is written in the textbook? When you wrote your thesis, didn't you run your own set of research to make sure no one else has written about the same topic? Look... it is quite obvious that people hasn't used Google to search their questions they ask. In terms of port. analysis... wouldn't you expect people to actually write "Portfolio Analysis" in google? When I sent the query... I got a bunch (32,300,000 queries) about the topic. Also, my friends and previous mentors are actually traders... and they don't have a lot time... if someone had the slightest consideration and understanding about the business, I would try to condense their effort and generosity by eliminating useless questions. Seriously, talon is a nice guy. He actually takes time to provide people but the people receiving the information needs to be equally considerate. One thing I learned being in this business is that people relationships are a 2-way street... you have to be equally professional as a student as much as the mentor being a professional. And... you have some people in here that asked questions, complaining about the industry??? Gimme a freagin' break... some obviously don't deserve to be hired... they have issues before their intelligence. So I'm not asking people to be more experienced. I'm asking people to be more considerate for talon as a trader. It's not an easy job, and obviously it's not a 9-5 job too. Many people don't know what respecting is about. That all said... having a well thought out question is a matter of respecting the person who's teaching you. Sure this is ET and it's the internet, you deal with a lot of BS. But so far, everything talon has done is legit and deserves the (professional) respect that he deserves. 5. It's going to be a repetition but am I asking too much for people in an internet forum? I don't think so, if you think this thread is as viable as I feel it is... then you should agree. Full blown honesty... It really pisses me off that talon isn't getting the respect he deserves... and what's more pissing me off is that people have no idea about respecting a trader who takes his time to post in here. Before you go off asking him to give you a bunch of shit... think about whether you deserve it. At least in my real life environment, we have an iron clad respect to each other. PS. Mike... I not pissed off about you.
These are interesting questions and I believe addressing them is required in order to have a working trading strategy. If the system generates long signals for 42 stocks in a 50 stock universe this is definitely something to look at. During back-testing such clustering of trades will mean that the overall results of the system depends heavily upon the results during a short time period and thus more on the general direction of the stock market than on the underlying idea (unless we only consider excess market results). To me this would indicate that we need to look into how we evaluate the system's results and also on how the signals are generated. Maybe itâs possible to stabilize the signal frequency, e.g. by looking at volatility? If in live trading and this signal frequency is abnormal compared to back-testing I would probably not use the signals. If the system has been created by looking at excess returns and we hedge the market, selecting from 42 signals with a universe of 50 symbols will become a lottery. Then thereâs the question on position sizing. Many options are available. The answer will depend on the stability of the signal frequency, the balance between long and short signals and the exit rules. Systems for position sizing range from the simple to the extremely sophisticated. A trivial system is to use relative risk, in this case risk relative to the stock market (âIâm prepared to live with X% of the S&P500 riskâ). This works best for a system that only trades one side (long or short) and requires some adjustment for the diversification effect of a broad index. Another related, but a bit more sophisticated, method is to use limits on net and gross exposure. Doing some simulation will help you determine the levels you want to have. If the system generates a stable, balanced, stream of long and short signals sizing becomes simple since we can take our wanted gross/net exposure and calculate the position size from the average frequency and trade length. If the position size becomes uncomfortably large this indicates a too low signal frequency given the size of the trading universe. If signal frequency or balance (long/short) varies a lot, position/risk management will become harder since exposure will fluctuate and you will tend to be either at your net long or net short limit. Then you will also throw away a lot of the signals. This will add to the uncertainty whether back-test results are valid or not.
Good stuff TSG - thanks for not getting worked-up over what I said; my wife, as well as others, have mentioned that my style of communication can be a bit rough. Its mainly because I don't really care about someone's feelings when critiquing/assessing their ideas. Good ideas are good ideas - period, why people attach personal feelings to ideas is beyond me... Anyhow, this often infuriates people ... ehhmm BoWo to be specific, as well as a few others I've communicated with in the past. To those that attach personal feelings to ideas, let those feelings go ASAP. It will serve you well in life to be *very* flexible with your belief systems. Anyway, to address your points, all of which I agree: 1. Everyone has to start somewhere. Real trading with small size is one of the few ways to get one's feet wet without too much pain. However, pain is also part of the process. Learning what hurts can make one more aware of what works. Even if one decides to start trading a poor idea, an argument can be made that trading it forces one to focus on the market. Personally, I've found a few fairly profitable setups by live testing a shitty idea and subsequently feeling very uncomfortable about being in the position. I was able to quantify that move and was then able to create a much better system that did something different. I do believe talon's template system will inspire a few to start taking some half-assed trades, but, a rare few will be able to truly learn something from the live testing process. 2. For every good idea there are 1000 that didn't work. How else would one discover the ideas that did work? You're completely right. Anyone who has told you or is telling you that they didn't have losing models is FOS. 3. Agree. Independent thought is crucial. 4. Agree as well. I understand where you're coming from. Reminds me of the phrase: "There are no stupid questions, just stupid people." There is soooo much literature on some of the material talon has presented and anyone serious about this business needs to study it. But, like you said, this is ET. I truly wonder how many of the posters reading this thread actually realize what a great gift they're being given here. I would speculate that one needs a level of knowledge just to recognize the real versus the mirage. It is likely the general knowledge level is kinda low, I mean, parts of this country still truly believe that the earth is 6k years old... go figure. 5. ...6000 years old, we walked with dinosaurs and "God" created the earth in 7 days...LOL all I have to say is know your audience. That and delayed gratification is sooo 1990... you think people actually want to do the work these days? Hah! Mike
This is almost surreal... not sure this has ever happened before in the history of the internet. We have a thread with differing opinions and no flaming. Weird. Again, not ignoring you guys... I'm out of the city but actually finding myself working longer hours on 'vacation'... first of the year really means something in my book and if I don't do the work, the next 12 months can suffer. I did take some time to spread some holiday cheer in BoWo's forum. He's trying to ignore me for now, but could be entertaining over there if he manages to put together a semi-coherent response. Anyway... there are so many good questions and valid points in this thread I don't know how to prioritize them or respond. Keep it coming... at some point in the next week or so I'll get my sh*t together and post something worthwhile here.
Hmmm, this seems a bit inconsistent with the short-term nature of the strategies you've discussed most here. I guess you have a staple of longer-term strategies as well?