Posted by billnew52 on 27th of Aug 2011 at 10:00 am
Matt,
Thanks for the discussion particularly the part on money
management. I have listened to and read the works of a number
of quality people in this investment/trading game and they all
stress money management. It is probably the least listened to
part of their overall work for one reason: it requires
careful attention, discipline, and PATIENCE. Without
patience, we won't see the results, we lose confidence, and lose
the mental srength (virtue) that is the greatest
requirement.
So, to all those trading the SPY system, let's get in line with
reality. Let's get real!!
looks like an important page to keep, may evolve in the future -
can you guys connect it to the SPY system menus somewhere so we can
access it in the future? this is not a normal post that I can make
a favorite is it?
You should be able to click the Star underneath the post and
then to re-call the post you use the "My Favorites" link underneath
the Tools section and there should be all the posts you have marked
as Favorites. Then once in that "My Favorites" section if you
un-check the Star then it will be removed. Also remember you
can use the Search Box on the left to find old posts especially if
you remember the author and something in the title the feature
works extremely well to locate old posts.
I have said this in the past but I am working on a section that
outlines all this and should then eventually have videos as well as
Matt is working on a new virtual tour. The website has made
many changes recently so we were waiting for those to be solidified
before we took the time to go through.
Hi Matt - One way you could test (and possibly improve) the
predictive power of the SPY system is to backtest its signals over
a difference time period ie. 10 minute or 30 minute bars or by
applying it to another market such as a commodity/currency/etf or
failing that simply another global stock market index. If the
system shows good backtested results on another market it would
encourage the perception it isn't simply fitted to the S&P's
daily data. As an aside - I had no idea the system had been
traded in real time for 7 months prior to its launch. If you
have statistics on its performance in real time that would be
an interesting comparison.
The system did go through a review process. Matt
predominantly executed this analysis so I don't want to speak out
of turn but I would be concerned switching intraday to test since
the dynamic is really much more different especially if you were
not adapting. Even using an individual stock could be suspect
due to the risks (both up and down) of an individual name.
Thank you for the feedback and idea!
Tom -- how about running the Russell thru the system in some way
(don't know how much history IWM has)? Would give a look at whether
the system is robust enough to work with a related but not totally
different market.
If I read your post correctly a $50,000 account would have at an
extreme $25000 allocated to the SPY system. At a
subscription rate of $1200/ yr or 4.8% it seem that this
would be too small an account vs risk reward to play this
system.
What would be the minimum amount size you would recommend to
justify subscribing to the system?
Maybe you could cover this in your
update. I believe a lot of people were attracted to this system
because they are not traders or are not glued to the computer
screen nor want to be 6.5 hours a day.
If it is only prudent to allocate 30% of an account to SPY
what do you do with the rest? I believe these are legitimate
questions.
I do think that the questions you ask and in general the
discussion of your money management and allocations is very
important. Unfortunately those are questions you have to
answer on your side. We cannot answer them for you
(logistically because we could never sit and speak with every
member regarding their situation and proper allocation and
regulatorily since we are not licensed advisers) but I do encourage
you to have that discussion.
Obviously one way to calculate minimum size would be based on
return but that would come with estimations or expectations which
can always be incorrect. Otherwise you can continue to
monitor and use real time posted results but you may need to let
those build to get a good data set to use.
The amount you allocate should be in proportion to the
likelihood of the trades success and the relative size of the
average gain or loss. There are formulas like the "Kelly
criterion" used by money managers (and gamblers!) that can offer
some guidance.
For an even bet (ie. win the same as lose - at least legible if
we consider the lack of a stop loss), the formula would be % stake
= (2 times % winningtrades) - 1
So with the original guidance offering a 90% win rate, the
proportion of your bankroll should be [2 times 0.9] - 1 = 80% of
your account. It would be even higher if you assumed the
average winning trade was larger than the average loser. This
is why it was actually entirely rational that many people bet
heavily on the system as they were led to believe the performance
numbers as marketed.
Note the Kelly formula is just a crude approximation - the real
message is to size you bets in proportion to what you think is a
realistic probability of the trades success.
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SPY System Discussion
Posted by matt on 26th of Aug 2011 at 02:48 am
SPY System Discussion
Why patience is a virtue
Posted by billnew52 on 27th of Aug 2011 at 10:00 am
Matt,
Thanks for the discussion particularly the part on money management. I have listened to and read the works of a number of quality people in this investment/trading game and they all stress money management. It is probably the least listened to part of their overall work for one reason: it requires careful attention, discipline, and PATIENCE. Without patience, we won't see the results, we lose confidence, and lose the mental srength (virtue) that is the greatest requirement.
So, to all those trading the SPY system, let's get in line with reality. Let's get real!!
how do I keep this page "spy system discussion"?
Posted by pdani on 27th of Aug 2011 at 02:05 am
looks like an important page to keep, may evolve in the future - can you guys connect it to the SPY system menus somewhere so we can access it in the future? this is not a normal post that I can make a favorite is it?
Hello pdani, You should be able
Posted by tom on 29th of Aug 2011 at 07:58 am
Hello pdani,
You should be able to click the Star underneath the post and then to re-call the post you use the "My Favorites" link underneath the Tools section and there should be all the posts you have marked as Favorites. Then once in that "My Favorites" section if you un-check the Star then it will be removed. Also remember you can use the Search Box on the left to find old posts especially if you remember the author and something in the title the feature works extremely well to locate old posts.
I have said this in the past but I am working on a section that outlines all this and should then eventually have videos as well as Matt is working on a new virtual tour. The website has made many changes recently so we were waiting for those to be solidified before we took the time to go through.
Excellent and straightforward discussion Matt!
Posted by bkout3 on 26th of Aug 2011 at 02:52 pm
Excellent and straightforward discussion Matt! Thank you.
Hi Matt - One way
Posted by pfazza on 26th of Aug 2011 at 02:16 pm
Hi Matt - One way you could test (and possibly improve) the predictive power of the SPY system is to backtest its signals over a difference time period ie. 10 minute or 30 minute bars or by applying it to another market such as a commodity/currency/etf or failing that simply another global stock market index. If the system shows good backtested results on another market it would encourage the perception it isn't simply fitted to the S&P's daily data. As an aside - I had no idea the system had been traded in real time for 7 months prior to its launch. If you have statistics on its performance in real time that would be an interesting comparison.
The system did go through
Posted by tom on 26th of Aug 2011 at 03:25 pm
The system did go through a review process. Matt predominantly executed this analysis so I don't want to speak out of turn but I would be concerned switching intraday to test since the dynamic is really much more different especially if you were not adapting. Even using an individual stock could be suspect due to the risks (both up and down) of an individual name. Thank you for the feedback and idea!
Tom -- how about running
Posted by bkout3 on 26th of Aug 2011 at 03:35 pm
Tom -- how about running the Russell thru the system in some way (don't know how much history IWM has)? Would give a look at whether the system is robust enough to work with a related but not totally different market.
Account size
Posted by RM686 on 26th of Aug 2011 at 12:20 pm
If I read your post correctly a $50,000 account would have at an extreme $25000 allocated to the SPY system. At a subscription rate of $1200/ yr or 4.8% it seem that this would be too small an account vs risk reward to play this system.
What would be the minimum amount size you would recommend to justify subscribing to the system?
Maybe you could cover this in your update. I believe a lot of people were attracted to this system because they are not traders or are not glued to the computer screen nor want to be 6.5 hours a day.
If it is only prudent to allocate 30% of an account to SPY what do you do with the rest? I believe these are legitimate questions.
I do think that the
Posted by tom on 26th of Aug 2011 at 03:17 pm
I do think that the questions you ask and in general the discussion of your money management and allocations is very important. Unfortunately those are questions you have to answer on your side. We cannot answer them for you (logistically because we could never sit and speak with every member regarding their situation and proper allocation and regulatorily since we are not licensed advisers) but I do encourage you to have that discussion.
Obviously one way to calculate minimum size would be based on return but that would come with estimations or expectations which can always be incorrect. Otherwise you can continue to monitor and use real time posted results but you may need to let those build to get a good data set to use.
The amount you allocate should
Posted by pfazza on 27th of Aug 2011 at 06:13 am
The amount you allocate should be in proportion to the likelihood of the trades success and the relative size of the average gain or loss. There are formulas like the "Kelly criterion" used by money managers (and gamblers!) that can offer some guidance.
For an even bet (ie. win the same as lose - at least legible if we consider the lack of a stop loss), the formula would be % stake = (2 times % winningtrades) - 1
So with the original guidance offering a 90% win rate, the proportion of your bankroll should be [2 times 0.9] - 1 = 80% of your account. It would be even higher if you assumed the average winning trade was larger than the average loser. This is why it was actually entirely rational that many people bet heavily on the system as they were led to believe the performance numbers as marketed.
Note the Kelly formula is just a crude approximation - the real message is to size you bets in proportion to what you think is a realistic probability of the trades success.