Mechanical systems a route to the poor house.

Discussion in 'Trading' started by jwecme, Jun 21, 2006.

  1. jwecme


    I am an unsuccessful trader of ES having wasted years on mechanical systems. I back tested them intraday for months trying juts about everything under the sun to get them to work. I realised after reading Fooled by Randomness of the folly of my actions. You can always back test to data and skew the variables to produce a profitable result.

    The reality I have discovered to my cost is that trading is far more complex and awkward than even the best mechanical system can cope with. It's effectiveness seems to be proportional to the time frame i.e. the shorter the time frame the less effective the results. Intraday I contend that it is useless.

    If anybody disagrees I would love to hear your opinions. So many people say I have found “THE” system then go strangely quiet as they see the dreadful results that occur over time by its’ application.

    Profitable intraday trading is possible through hard work, exp and flexibility not through a secret system or market key! Cue abusive responses.....
  2. I'll spare you the abuses. I'll simply say that there are many profitable traders who trade 100% systematically. I would guess that 99% of them conceived and implemented their own systems, including the writing of the program itself.

    A few of these people post here. It is fairly easy to figure out who is an actual trader and who's sitting in his bedroom in his underwear surfing porn and dreaming about trading.

    Re: the average holding time for successful systems, I can't say. I'm not sure about the contention that shorter term systems would be less reliable that longer term ones.

    I don't know where you got your systems, but if you paid for them, it is no surprise that they didn't work. If you were trying your own ideas for all those years and you couldn't find anything that worked... that's unfortunate, but you're not alone.
  3. I'm not a mechanical system trader. But perhaps because of that I have some input that would have some value.

    Just because you design a "mechanical system" doesn't mean it will work. Remember the old saying: Garbage in, garbage out. You didn't mention anything about the techniques.

    Then too, the market changes over time, such that what worked well at one point, doesn't work as well at another (if it works at all).

    This is why the big payoff comes from using your head, whether it be from the design of some type of mechanical system, or whether it be from discretionary trading.

  4. jwecme


    I agree oldtrader that is sort of the point I was trying to make but you did a better job than me. I started to see the light recently by using all I have learnt but not parking my brain in neutral when doing it. All of the work is not wasted as it helps to formulate that intuition and understanding that results from hard work. I guess I am frustrated that I wasted so long but I suppose it was an essential aspect of my development as a trader.
  5. I think the stock indexes are the toughest markets to trade systematically, and they are particularly tough to trade intraday. Very few intraday S&P/ES systems have ever made money, at least according to FuturesTruth.

    That said, I think there are patterns that will produce an edge. They certainly don't trade every day however.

    An overlooked benefit of unsuccessful system development is finding out what doesn't work.
  6. After watching the minis for a couple of years I think most of the time the moves are too random to use a system on. The only time I find any predictable moves are when you get a large move and trade the pullbacks but it is very hard to wait around for those days.
  7. Coming to this understanding is a great step towards reaching success in trading these markets.

    Markets can be terribly efficient on an intraday basis. When looking on timeframes of 5, 15, 30, 60 minutes, the markets do a wonderful job of twisting and turning to make finding tradable biases few and far between.

    I wouldn't say that it is useless by any means. I trade all four e-mini indexes intraday profitably with purely mechanical rules. However, it should be known that much of the time will be spent trading noise if one does not identify times where a bias is present versus not present. It is far easier to trade biases present on longer time frames, such as daily and weekly instead.

  8. I think mechanical systems (no chart indicators needed) are the only way to go for the ES, but you have to find a way to have what you are doing "mechanically" take advantage of something the instrument does almost everyday. In other words, mechanically trap the instrument within its own nature.

    Indicator based methods combined with discretion are in no way "easier" to perfect than a properly designed mechanical trade system. Also, when I say mechanical, I mean the dynamics of the entry and exit management are the edge - not some signal.
  9. Have any of you tried mechanically trading the spreads? ES - ER2 .... ES - NQ ....... ER2 - EMD

    I trade ER2 outright. I watch the action in ES closely. It seems to me there is money to be made trading the Index spreads.
  10. jwecme has just taken a BIG STEP towards becoming a successful trader...
    A step many never make... and just spiral down the toilet.

    ** At best mechanical systems can be marginally profitable... **
    For 2 basic reasons:

    (1) A very experienced trader may use a quantitative system as a foundation...
    But it will be dramatically improved by expert discretion...
    Primarily in avoiding expensive pitfalls.
    Repeat... experience primarily teaches you to avoid specific types of losses.

    (2) One must stay ahead of the curve.
    Nothing works for more than a few months or years.
    One MUST continuously optimize strategies...
    Or even make the radical decision to move to different markets.

    It's a zero sum game... and very competitive with many genius level players...
    Leaving amateurs running "mechanical systems" at a severe disadvantage.

    Anybody telling you otherwise... is either a fool... or is trying to exploit you.
    #10     Jun 21, 2006