Reversing a losing system?

Discussion in 'Strategy Development' started by pistolpt, May 21, 2012.

  1. If you have lost money year after year on trading, why not do the opposite of what your strategy says? Like George Costanza - do the opposite.

    I would think this would work unless you have a high batting average with the losers just completely knocking you out. In that case you would lose too much before your loser (winner) would recoup.

    Just a thought. I've read alot of sad journals here.
  2. We have talked about this several times. Finding a consistently losing system is as hard as as finding a consistently winning system.

    Think about it: you reverse a losing strategy hoping it will make money and suddenly the original turns profitable and you lose.
  3. exactly. and i might add that most consistently losing traders really dont have a system, they dont really follow any rules and so its impossible to reverse something you just make up on the fly.

    the truth is most traders that have rules and are losing, the losses are mostly made up of transaction costs and the gross p/l is usually near break even over time.
  4. asap



    the reversal of a losing system is becoming a broker and charging fees per transaction to traders.

    i am not saying there isn't profitable trading but rather saying that other than the above example, the reverse of losing trading system is also a losing system.

  5. Knowing this right here is probably one of the most valuable things I have learned.

    It took about a year for me before I looked at my stats really deeply enough to see that I'd be about break even after that year hadn't it been for transaction costs.

    From there I decided I could only trade things with "bang for buck" cl , tf, gc, ect. or trade on a long enough time frame where spread and comish are nearly non existent vs range for whatever instrument.

    Yeah that's not all there is to it but it's a huge thing that needs to be considered that is so overlooked.
  6. there's an app for that..................:)

  7. Trading consists of entries and exits. Doing the opposite of a losing strategy may improve the entry but will not improve the exit.

    The entry is less important then the exit. Some traders have great entries but do not know how to manage there trades. they find they are in the money constantly but end up selling when the stock moves against them to a loss.

    Of course though the entry is important. It just is less important then managing your trades. Now this may vary depending on the volatility of the market you trade.

    If you have a losing system it is more likely to be an exit flaw rather then an entry flaw. The reason be because you have more then likely invented your system based on a probable entry. Your profit targets are your problem. Now your profit target also has a risk. Even though it may be a highly probable profit target what risk does it cost you when you get one wrong. So finding that fine line in your edge is simply adjusting stop losses and profit targets . Assuming you have a good entry.

    Two traders can have opposite entries and still be profitable. There profit targets would more then likely be different. One trader may be looking at a longer time frame and if the trade goes against him he will see it as a better deal now and cost to dollar average. Another trader may be going in the opposite direction but he was just looking for a bounce and he will take his profits because he realizes that it may just be a pull back. In the long run the long term trader also profited and since he cost to dollar averaged he had an even nicer return. Both these traders had different entries but knew how to manage there trades.

    Therefore the management of your system is more then likely the problem so reversing it probably won't change a thing.
  8. I've tried this in the past and it won't work...I'll tell ya why...

    I've coded countless trading systems...some were profitable but the vast majority of them were net losers...

    For the losing trading systems, I simply reversed the entry and exit signals. Well, it worked in making the losing systems profitable but the problem you run into is that once you run the modified system OOS, it will become a losing system again. So, essentially, by simply reversing the entry / exit signals you are engaging in curve-fitting - i.e., you're massaging the data until it tells you what you want to hear....

    But, there was a bigger awakening that occurred during this process which is:

    All Mechanical trading systems (both profitable and unprofitable) are ultimately curve-fitted to past data and will eventually fail. Unless, you have the resources to hire programmers and statisticians, creating a reliable mechanical trading system that can withstand the ever-changing nature of markets is out of reach for the retail trader.

    My solution: focus on intuition, discretion, market structure, trade management, and money management to stay a step ahead of the market.

    Result: My last losing day was April 25th, 2012...and it was a small losing day at that.....
  9. I've also found this doesn't work. Going back and looking at the trades on the charts led me to this opinion: with a system with larger TP than SL, it enters at many points from where price wavers both up and down by the SL amount before moving the full TP amount. In this case, a certain percent of the trades would lose regardless of entering long or being flipped short. If these "unwinnable" trades could be filtered out, the system's profitability would increase. Reversing the system has no effect; so a 35% win system remained around 35% or usually lower after reversing.
  10. dom993


    I have found the reverse works quite well ... I mean, start from a winning system, take opposite side on each signal with identical trade management ... results (for me) was negative, to the tune of -150%
    (~ -90K P&L for 600 "inverse" trades vs ~ +65K for 600 "normal" trades)(position size 1 contract / trade).
    #10     May 22, 2012