you can be trading against the system if short term you believe
the market is going down further. As a trade off the
charts. If you have to hedge the system, just my opinion,
you've got too much money in it. For the system to work you
should be putting more money on the table today, not taking money
off the table by hedging.
Hmmm, Moss take a look at that phrase "as the money pours out of
our accounts"....the trade is down about 1% from the entry. If
you're having that kind of response what are you going to be
feeling when a trade is down 4% (or 7.7% or 15% according to some
work-ups, ahem)....anyway it sounds like you will be likely to
panic out of the trade before it (most likely based on history)
turns around and becomes a winner. If you can't take the heat you
can hedge if you get it right but that can have costs/risks too.
Maybe think about whether your position size is appropriate to your
willingness to face the headwinds that will be inevitable at
times.
yes we cannot advise you on that since we are not investment
advisors. Otherwise buying a few puts if you are buying 100's
or 1000's of shares of SPY is one way to hedge your trade.
However I will say that maybe it's better to initiate
something like that earlier in the trade. Doing it now the market
is quite oversold in the short term, therefore buying the puts last
Friday would have been lower risk vs buying them now with the
market down strongly days in a row. When putting on risk
protection, think about putting it on at good risk/reward prices vs
waiting for the market to have good move against the trade and
getting more stretched away from the mean
Hedging is not a bad idea when you expect the system trade to
take some heat in the short term. I've taken more than enough blog
space already talking about this, so I'll keep it short. One way to
hedge system longs is by shorting out-of-the-money calls. I was
expecting the system trade to take some heat in the short term, so
I shorted the ES June 17 1340 calls and ES June 17 1325 Calls last
Friday. Just a way for me to buy some time as the system trade is
underwater.
I dont particularly want The BPT crew to have to spend the time
answering this question again and again, so I'll respond by saying
( as they have mentioned about a thousand times) trade according to
your risk tolerance.
Posted by traderrandy on 6th of Jun 2011 at 03:53 pm
it just goes to show, that even when most traders try
to use a mechanical system designed to take the emotion out of
trading they still take unnecessary risks with their accounts and
sweat their decisions
Yep I say it all the time and I know from experience, the big
misconception out there is that mechanical systems take away the
emotion when trading, but that's a big farce, in fact they can make
you more emotional!
A Mechanical system's real purpose is to instill a discipline
and a methodical way to trade that's it, but take away emotion, no
sir!
In fact, mechanical systems are rarely mechanical systems.
Most people treat them like multiple-choice tests, taking a
trade if it fits their sense of where the market is going, or it
fulfills some emotional need. The real challenge when running
a mechanical system is adhering to it.
In that regard, I think that it may actually help that the SPY
system isn't free. Perhaps because people are paying for it
they may be more likely to follow it.
Today is a great test. Every emotion generated by my
glands is telling me to get out of the market. The system is
telling me to invest more in it. I did what the system said
and I feel good about that. I'll feel even better if, after a
few more live trades, the system performs in live trading as it did
in backtesting.
that's true algyros, unless they are totally automated by a
computer that takes the trades for them, I agree that a most of the
public treats them as you described i.e. like a multiple choice
Automation certainly helps, but you wouldn't believe how many
people discuss whether they should "take" a trade or not. The
bottom line is that human psychology can be a formidable foe.
Well put Al and Auni. The reason why this system makes
money is because it truly is a 'buy low, sell high' system.
When you stick emotion, fear, and greed into the trading equation,
more often than not, we do the opposite. Like Al, everything
in me is telling me to sell out and go to cash, but I too went long
at the close. Only time will tell....
I suspect that every one of these trades on this system are
going to feel counter intuitive. It is never going to be easy
buying when the market is really oversold because it should feel
like the wrong time to buy, and that is why most people never make
money in the market. Look, everyone knows that the employment
and factory numbers from last week are showing that the economy
isn't recovering and the economy is still cold. Most
investors are selling that news and causing the markets to become
extended to the downside. It will always feel like the wrong
time to be buying.
auni- I should add something like this to the FAQ,
that many/most of the trades will feel counter intuitive, maybe not
always the 1st entries, but
especiallythe multi entry trades because they are
entered when you are already down from you 1st or 2nd entry
etc.
Now regarding this current trade, it may end up either being a
winning trade or a losing trade, but the result is the same; many
trades are like this for the system and people should be aware of
it, so if/when we get the crazy or emotional emails, I can say, did
you read the FAQ? Did you look at the actual trades so that
you have a feel for how the system actually trades? That's
why I've suggested that everyone really take the time to look at
the trade examples, and really study the system closely so that you
know how the system works and why kind of trades that it takes, so
that you better prepared for the emotion of the trades that will
seem counter intuitive.
When a SPY Trade System signal shows up on your mobile devise
and, everyone is all jacked up about the trade because, everyone
feels all warm and fuzzy about the signal... then you need to
worry.
Otherwise, the consensus will always be wrong. It has to
be. Something like 92% of all trades places, lose money.
That sort of means that 92% of us are losers. I'm not
pointing any fingers, but read the posts on this SPY forum when
this system gives a buy. And, wait until someday when it
gives a fourth buy, which is statistically the biggest winner.
I bet it will be harder than heck to take that fourth trade
and I can't wait to see the posts when Matt gives one of those
number 4 signals.
I learned it many years ago. My gut doesn't work for
trading. It is totally wrong if I listen to it. So, I
coined my own saying and taped it to my computer 10 years ago:
"Your brain is for trading and your gut is for eating."
So, Matt, you are just going to have to get thick skinned
because, I bet the psychology doesn't change much from signal to
signal. And, that's a good thing.
My gut told me that my SPY bid @128.88 gets filled afterhours
and I went to sleep but unfortunately this was not the case and
futures are now up a few points. Next time I probably won't try to
get a better fill...
True, and I'm following the system regardless of what how my
emotions conspire to undermine my trading.
However, we should be aware that the overwhelming majority of
those "16 years" are backtested, not traded live. From what I
know of the system, it appears to be robust and not the product of
clever optimization, so I expect it to perform well in real
trading.
Still, until that happens, it behooves all of us to be aware of
the difference between backtested and live trading results.
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spy system
SPY system scale in 2nd entry
Posted by jaycrockett on 6th of Jun 2011 at 09:41 am
Thanks, Matt. I so appreciate the heads-up.
SPY puts?
Posted by mossdesign on 6th of Jun 2011 at 03:03 pm
Should we be hedging this system as the money pours out of our accounts?
you can be trading against
Posted by Michael on 6th of Jun 2011 at 03:35 pm
you can be trading against the system if short term you believe the market is going down further. As a trade off the charts. If you have to hedge the system, just my opinion, you've got too much money in it. For the system to work you should be putting more money on the table today, not taking money off the table by hedging.
Hmmm, Moss take a look
Posted by bkout3 on 6th of Jun 2011 at 03:30 pm
Hmmm, Moss take a look at that phrase "as the money pours out of our accounts"....the trade is down about 1% from the entry. If you're having that kind of response what are you going to be feeling when a trade is down 4% (or 7.7% or 15% according to some work-ups, ahem)....anyway it sounds like you will be likely to panic out of the trade before it (most likely based on history) turns around and becomes a winner. If you can't take the heat you can hedge if you get it right but that can have costs/risks too. Maybe think about whether your position size is appropriate to your willingness to face the headwinds that will be inevitable at times.
Make sure you can afford
Posted by diablo4 on 6th of Jun 2011 at 03:22 pm
Make sure you can afford a little pullback on the SPY.....If you can/t then you might have too large of a position.....fwiw
yes we cannot advise you
Posted by matt on 6th of Jun 2011 at 03:20 pm
yes we cannot advise you on that since we are not investment advisors. Otherwise buying a few puts if you are buying 100's or 1000's of shares of SPY is one way to hedge your trade. However I will say that maybe it's better to initiate something like that earlier in the trade. Doing it now the market is quite oversold in the short term, therefore buying the puts last Friday would have been lower risk vs buying them now with the market down strongly days in a row. When putting on risk protection, think about putting it on at good risk/reward prices vs waiting for the market to have good move against the trade and getting more stretched away from the mean
mossdesign, Hedging is not a bad
Posted by cw12 on 6th of Jun 2011 at 03:11 pm
mossdesign,
Hedging is not a bad idea when you expect the system trade to take some heat in the short term. I've taken more than enough blog space already talking about this, so I'll keep it short. One way to hedge system longs is by shorting out-of-the-money calls. I was expecting the system trade to take some heat in the short term, so I shorted the ES June 17 1340 calls and ES June 17 1325 Calls last Friday. Just a way for me to buy some time as the system trade is underwater.
Risk assessment...
Posted by burkmere on 6th of Jun 2011 at 03:07 pm
I dont particularly want The BPT crew to have to spend the time answering this question again and again, so I'll respond by saying ( as they have mentioned about a thousand times) trade according to your risk tolerance.
well said
Posted by traderrandy on 6th of Jun 2011 at 03:53 pm
it just goes to show, that even when most traders try to use a mechanical system designed to take the emotion out of trading they still take unnecessary risks with their accounts and sweat their decisions
Yep I say it all
Posted by matt on 6th of Jun 2011 at 04:33 pm
Yep I say it all the time and I know from experience, the big misconception out there is that mechanical systems take away the emotion when trading, but that's a big farce, in fact they can make you more emotional!
A Mechanical system's real purpose is to instill a discipline and a methodical way to trade that's it, but take away emotion, no sir!
In fact, mechanical systems are
Posted by algyros on 6th of Jun 2011 at 04:43 pm
In fact, mechanical systems are rarely mechanical systems. Most people treat them like multiple-choice tests, taking a trade if it fits their sense of where the market is going, or it fulfills some emotional need. The real challenge when running a mechanical system is adhering to it.
In that regard, I think that it may actually help that the SPY system isn't free. Perhaps because people are paying for it they may be more likely to follow it.
Today is a great test. Every emotion generated by my glands is telling me to get out of the market. The system is telling me to invest more in it. I did what the system said and I feel good about that. I'll feel even better if, after a few more live trades, the system performs in live trading as it did in backtesting.
that's true algyros, unless they
Posted by matt on 6th of Jun 2011 at 05:33 pm
that's true algyros, unless they are totally automated by a computer that takes the trades for them, I agree that a most of the public treats them as you described i.e. like a multiple choice
Automation certainly helps, but you
Posted by algyros on 6th of Jun 2011 at 08:44 pm
Automation certainly helps, but you wouldn't believe how many people discuss whether they should "take" a trade or not. The bottom line is that human psychology can be a formidable foe.
Well put Al and Auni.
Posted by pebs on 6th of Jun 2011 at 04:50 pm
Well put Al and Auni. The reason why this system makes money is because it truly is a 'buy low, sell high' system. When you stick emotion, fear, and greed into the trading equation, more often than not, we do the opposite. Like Al, everything in me is telling me to sell out and go to cash, but I too went long at the close. Only time will tell....
It will never get any easier.
Posted by auni on 6th of Jun 2011 at 04:03 pm
I suspect that every one of these trades on this system are going to feel counter intuitive. It is never going to be easy buying when the market is really oversold because it should feel like the wrong time to buy, and that is why most people never make money in the market. Look, everyone knows that the employment and factory numbers from last week are showing that the economy isn't recovering and the economy is still cold. Most investors are selling that news and causing the markets to become extended to the downside. It will always feel like the wrong time to be buying.
auni- I should add something
Posted by matt on 6th of Jun 2011 at 06:25 pm
auni- I should add something like this to the FAQ, that many/most of the trades will feel counter intuitive, maybe not always the 1st entries, but especiallythe multi entry trades because they are entered when you are already down from you 1st or 2nd entry etc.
Now regarding this current trade, it may end up either being a winning trade or a losing trade, but the result is the same; many trades are like this for the system and people should be aware of it, so if/when we get the crazy or emotional emails, I can say, did you read the FAQ? Did you look at the actual trades so that you have a feel for how the system actually trades? That's why I've suggested that everyone really take the time to look at the trade examples, and really study the system closely so that you know how the system works and why kind of trades that it takes, so that you better prepared for the emotion of the trades that will seem counter intuitive.
I'll tell you when to worry...
Posted by auni on 6th of Jun 2011 at 11:37 pm
When a SPY Trade System signal shows up on your mobile devise and, everyone is all jacked up about the trade because, everyone feels all warm and fuzzy about the signal... then you need to worry.
Otherwise, the consensus will always be wrong. It has to be. Something like 92% of all trades places, lose money. That sort of means that 92% of us are losers. I'm not pointing any fingers, but read the posts on this SPY forum when this system gives a buy. And, wait until someday when it gives a fourth buy, which is statistically the biggest winner. I bet it will be harder than heck to take that fourth trade and I can't wait to see the posts when Matt gives one of those number 4 signals.
I learned it many years ago. My gut doesn't work for trading. It is totally wrong if I listen to it. So, I coined my own saying and taped it to my computer 10 years ago: "Your brain is for trading and your gut is for eating."
So, Matt, you are just going to have to get thick skinned because, I bet the psychology doesn't change much from signal to signal. And, that's a good thing.
Manage risk,
Auni (Gold-N-Eye)
guts...
Posted by zwyss on 7th of Jun 2011 at 02:32 am
My gut told me that my SPY bid @128.88 gets filled afterhours and I went to sleep but unfortunately this was not the case and futures are now up a few points. Next time I probably won't try to get a better fill...
Your gut...
Posted by burkmere on 7th of Jun 2011 at 10:58 am
Over the past 16 years the System has been much smarter than our "gut.". ;)
True, and I'm following the
Posted by algyros on 7th of Jun 2011 at 01:05 pm
True, and I'm following the system regardless of what how my emotions conspire to undermine my trading.
However, we should be aware that the overwhelming majority of those "16 years" are backtested, not traded live. From what I know of the system, it appears to be robust and not the product of clever optimization, so I expect it to perform well in real trading.
Still, until that happens, it behooves all of us to be aware of the difference between backtested and live trading results.