bobkoz and others, here's my thoughts on systems, if you are new
to them you should read them,
you have to be careful about analyzing a current trade and then
applying that the the whole system. The rules in place test
well since 1980. You might find that selling everything
yesterday would have a very detrimental effect on the past history
collectively for the system. With systems it's easy to over
analyze the current trade and see something and say man if I did
this, I would done better on this trade. However if you then
looked at the past history your action of changing the conditions
to make the current trade better might causes 15 past trades to
perform much worse. With systems, any changes to a current
trade, must have a positive over all change to the system past
trades as well, you can't change something just to make the current
trade look better. When I build systems, I see a lot of
things that look great, but then I have to test the whole history
to see if my observation had an overall beneficial or detrimental
effect on the system, I won't change a current trade to make it
look better if it hurts 15 past trades.
Otherwise as far as profit targets I do think they have their
place in this system, I will probably expand upon them more than I
did in the last SPY system strategy such as making profit targets
for each trade type vs the system as a whole. For example the
Exhaust Short trade, I probably wouldn't use a profit target since
those trades are quick and have almost no draw down, and don't
catch huge moves, however for some trade types like the QE long
that takes more draw down I would use a profit target, and another
trade type like the Hi short I would use a profit target but a
different size, maybe even vary them from bull to bear market etc.
There's 18 trade types in this system. Also adding some
logical if a move was very large in a short term then a profit
target could be employed more liberally, such as this time the
market had a large move 1 day after the entry.
Systems are like this and unless you have all the data in front
of you and under stand the trades, you have to be careful about
changing trades just to make the current trade look better as you
may negatively impact 20 trades in the past.
I've traded systems long enough that happens with folks is that
they start to second guess every trade, try to enter different
prices, sell a position early before the system, or hold a position
longer than the system, or not taking a trade because they don't
like it, etc, and what ends up invariably happening is in the end
they vastly under perform the system - if the system made 20%, they
make 4% or something. Again if you are a great technician yes
you can trade around the system with subjective technical analysis,
but for most people that is extremely hard and they fail at it, the
get one or two trades right better than the system, then the next
one they totally F up.
Capital Management: People also get into trouble with
systems by putting too much capital into a trade. I've seen
folks who have 100K in their trading account and place the whole
100K into a system trade, I've even seen people do that on margin
so in effect double what they have, or they trade SSO with the
100K. If you do this, you will fail, even if the system
continues to perform well, because of emotions that you plague you
on losing trades etc.
It's best to decide an amount for a system that you feel
comfortable with and then trade the system as it is for a certain
time. Systems all have bad trades here and there, follow it
for 6 or 9 months or longer, do all the trades. keep it
small, after a while after you have profits you will feel more
comfortable and could then increase allocation. I can't tell
you how many times I've seen new people trade a system and their
first two live trades were losing trades, and they give up saying
that the system is crap, and then of course the system then has 8
winning trades in a row and they were not in any of them.
Systems are supposed to give you a disciplined approach and take
the emotions about by doing the trade decisions for you. HOWEVER
this is only 1/2 true, systems actually make you MORE emotional in
my experience because it's too easy to second guess every trade,
thinking is this the time it fucks up, or whatever.
that's the end of my rant, but this comes from years of
experience and seeing others trade systems, and I've fallen victim
to this as well.
that said, there's nothing wrong with this current trade, I
think odds favor it being a winning in the end. Yes would
have been nice to take some off the table yesterday but
whatever
I for 1 am excited about the changes of combining the systems
into 1 new SPY Pro System. You are spot on about everything.
Maybe you should keep this rant and pre-emptively post it
every time a trade has a drawdown before people start
complaining.
I've been in the boat that you are describing...taking some of
the trades and not others (some of which were losers), 2nd guessing
others (which were big winners), investing again with a smaller
position (winner), going a bigger position on the next one (loser).
Look, systems don't take the emotions out of it unless you have
the discipline to trade the system....I've been "following" this
system with one of my accounts since it came out....I'm up only a
few percent while the system is up much more. I updated my
phone email address to alert me when I get emails from BPT. I
think that removing some of the complexity with going to 1 system
will help to stay disciplined.
Here's to 2016 and really following the system, every trade,
every time, same allocation.
Part of the issue is that we are quasi in between the new SPY
and old SPY system. This trade type that we are in is from
the original SPY system. The final version may be adjusted
slightly, especially for scale ins. However I'll probably go
with the original settings for this trade today, so if it enters a
second time, I will confirm. Just realize the final version I
may or may not require a deeper pullback for this particular trade
type and for others, the original version used the same setting
across the board - the new stuff doesn't and manages each trade
type differently.
Again it is what it is I wanted to have all this completed by
year end but couldn't get it done, but the market continues to
trade, it won't wait on me LOL
Posted by tsurplus on 15th of Jan 2016 at 11:14 am
Thanks for the elaboration. I always felt that if you want to
play the system, you put your trust in it, otherwise, dont play. If
you are only 50% sure of the system, well, then play only 50% of
what you intended to trade! Of course, that does not mean we should
not ask questions. For example if I am curious about certain aspect
of the trade, I may ask questions.
yep agree, since you don't know what the system rules are, it
makes it sort of a black box and so it makes sense you will ask
questions and should, and that can also be the source of some trust
issues since you don't know all the rules of the system. I do
try to give some info about trade types as you've seen, such as the
last short on the ES system, based on a 60 length Stochastic
reversing off 80% and other things. Since you don't know all
the rules - there will always be some worry or trust issues I
suppose on your guys part. But again one also has to decide
if they are gonna trade the system or not, and if they do, I think
enough time has to be given, can't over analyze one trade or 2
trades, gotta let it run for a while. And could the system
stop working for a time, sure. But also I think one needs to
start small so that when they let it run, it will mitigate the
emotions, over time if profits are made then allocations can be
increased.
The guys who see a system and notice that it makes 30% a year
and say to themselves, man I if I trade my whole account and double
it on using SSO and SDS, I can make 60% a year, and in no time I'll
be retiring baby! they end up failing because of emotions and draw
downs on losing trades. A system trade that loses 5%, which
is small, could be 10% or 20% if one used a leveraged ETF and
margin, and so someone who is trading a reasonable % of his/her
capital would be just fine with the 5% losing trade, whereas the
over leveraged aggressive guy might not.
My system rant, statistics, psychology, captial management etc
Posted by matt on 15th of Jan 2016 at 10:22 am
bobkoz and others, here's my thoughts on systems, if you are new to them you should read them,
you have to be careful about analyzing a current trade and then applying that the the whole system. The rules in place test well since 1980. You might find that selling everything yesterday would have a very detrimental effect on the past history collectively for the system. With systems it's easy to over analyze the current trade and see something and say man if I did this, I would done better on this trade. However if you then looked at the past history your action of changing the conditions to make the current trade better might causes 15 past trades to perform much worse. With systems, any changes to a current trade, must have a positive over all change to the system past trades as well, you can't change something just to make the current trade look better. When I build systems, I see a lot of things that look great, but then I have to test the whole history to see if my observation had an overall beneficial or detrimental effect on the system, I won't change a current trade to make it look better if it hurts 15 past trades.
Otherwise as far as profit targets I do think they have their place in this system, I will probably expand upon them more than I did in the last SPY system strategy such as making profit targets for each trade type vs the system as a whole. For example the Exhaust Short trade, I probably wouldn't use a profit target since those trades are quick and have almost no draw down, and don't catch huge moves, however for some trade types like the QE long that takes more draw down I would use a profit target, and another trade type like the Hi short I would use a profit target but a different size, maybe even vary them from bull to bear market etc. There's 18 trade types in this system. Also adding some logical if a move was very large in a short term then a profit target could be employed more liberally, such as this time the market had a large move 1 day after the entry.
Systems are like this and unless you have all the data in front of you and under stand the trades, you have to be careful about changing trades just to make the current trade look better as you may negatively impact 20 trades in the past.
I've traded systems long enough that happens with folks is that they start to second guess every trade, try to enter different prices, sell a position early before the system, or hold a position longer than the system, or not taking a trade because they don't like it, etc, and what ends up invariably happening is in the end they vastly under perform the system - if the system made 20%, they make 4% or something. Again if you are a great technician yes you can trade around the system with subjective technical analysis, but for most people that is extremely hard and they fail at it, the get one or two trades right better than the system, then the next one they totally F up.
Capital Management: People also get into trouble with systems by putting too much capital into a trade. I've seen folks who have 100K in their trading account and place the whole 100K into a system trade, I've even seen people do that on margin so in effect double what they have, or they trade SSO with the 100K. If you do this, you will fail, even if the system continues to perform well, because of emotions that you plague you on losing trades etc.
It's best to decide an amount for a system that you feel comfortable with and then trade the system as it is for a certain time. Systems all have bad trades here and there, follow it for 6 or 9 months or longer, do all the trades. keep it small, after a while after you have profits you will feel more comfortable and could then increase allocation. I can't tell you how many times I've seen new people trade a system and their first two live trades were losing trades, and they give up saying that the system is crap, and then of course the system then has 8 winning trades in a row and they were not in any of them.
Systems are supposed to give you a disciplined approach and take the emotions about by doing the trade decisions for you. HOWEVER this is only 1/2 true, systems actually make you MORE emotional in my experience because it's too easy to second guess every trade, thinking is this the time it fucks up, or whatever.
that's the end of my rant, but this comes from years of experience and seeing others trade systems, and I've fallen victim to this as well.
that said, there's nothing wrong with this current trade, I think odds favor it being a winning in the end. Yes would have been nice to take some off the table yesterday but whatever
Excited about the new SPY Pro
Posted by jgoot on 15th of Jan 2016 at 03:07 pm
Thanks Matt,
I for 1 am excited about the changes of combining the systems into 1 new SPY Pro System. You are spot on about everything. Maybe you should keep this rant and pre-emptively post it every time a trade has a drawdown before people start complaining.
I've been in the boat that you are describing...taking some of the trades and not others (some of which were losers), 2nd guessing others (which were big winners), investing again with a smaller position (winner), going a bigger position on the next one (loser).
Look, systems don't take the emotions out of it unless you have the discipline to trade the system....I've been "following" this system with one of my accounts since it came out....I'm up only a few percent while the system is up much more. I updated my phone email address to alert me when I get emails from BPT. I think that removing some of the complexity with going to 1 system will help to stay disciplined.
Here's to 2016 and really following the system, every trade, every time, same allocation.
Part of the issue is
Posted by matt on 15th of Jan 2016 at 03:14 pm
Part of the issue is that we are quasi in between the new SPY and old SPY system. This trade type that we are in is from the original SPY system. The final version may be adjusted slightly, especially for scale ins. However I'll probably go with the original settings for this trade today, so if it enters a second time, I will confirm. Just realize the final version I may or may not require a deeper pullback for this particular trade type and for others, the original version used the same setting across the board - the new stuff doesn't and manages each trade type differently.
Again it is what it is I wanted to have all this completed by year end but couldn't get it done, but the market continues to trade, it won't wait on me LOL
Matt, are we expecting a
Posted by shinings on 15th of Jan 2016 at 03:05 pm
Matt, are we expecting a second entry for the SPY system today?
maybe - I'll notify a
Posted by matt on 15th of Jan 2016 at 03:11 pm
maybe - I'll notify a few min after the close so that it's confirmed.
Will there be a potential
Posted by laouuu on 15th of Jan 2016 at 01:17 pm
Will there be a potential 2nd entry today?
yes most likely
Posted by matt on 15th of Jan 2016 at 01:34 pm
yes most likely
We trust the process
Posted by zitron on 15th of Jan 2016 at 02:06 pm
thanks and my opinion
Posted by tsurplus on 15th of Jan 2016 at 11:14 am
Thanks for the elaboration. I always felt that if you want to play the system, you put your trust in it, otherwise, dont play. If you are only 50% sure of the system, well, then play only 50% of what you intended to trade! Of course, that does not mean we should not ask questions. For example if I am curious about certain aspect of the trade, I may ask questions.
yep agree, since you don't
Posted by matt on 15th of Jan 2016 at 11:22 am
yep agree, since you don't know what the system rules are, it makes it sort of a black box and so it makes sense you will ask questions and should, and that can also be the source of some trust issues since you don't know all the rules of the system. I do try to give some info about trade types as you've seen, such as the last short on the ES system, based on a 60 length Stochastic reversing off 80% and other things. Since you don't know all the rules - there will always be some worry or trust issues I suppose on your guys part. But again one also has to decide if they are gonna trade the system or not, and if they do, I think enough time has to be given, can't over analyze one trade or 2 trades, gotta let it run for a while. And could the system stop working for a time, sure. But also I think one needs to start small so that when they let it run, it will mitigate the emotions, over time if profits are made then allocations can be increased.
The guys who see a system and notice that it makes 30% a year and say to themselves, man I if I trade my whole account and double it on using SSO and SDS, I can make 60% a year, and in no time I'll be retiring baby! they end up failing because of emotions and draw downs on losing trades. A system trade that loses 5%, which is small, could be 10% or 20% if one used a leveraged ETF and margin, and so someone who is trading a reasonable % of his/her capital would be just fine with the 5% losing trade, whereas the over leveraged aggressive guy might not.
Great note. Thanks for taking
Posted by pinguin on 15th of Jan 2016 at 10:49 am
Great note. Thanks for taking the time to post it for everyone! :)