my journal 2

This is a discussion on my journal 2 within the Trading Journals forums, part of the Reception category; Here's the only part that actually made me laugh, so far, within the first 70 pages of Market Wizards. And ...

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Old Mar 31, 2010, 6:37pm   #591
 
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Market Wizards: Larry Hite

travis started this thread Here's the only part that actually made me laugh, so far, within the first 70 pages of Market Wizards. And with this, Larry Hite just became my favorite Market Wizard, even before Ed Seykota, because his interview is just better, sorry, Ed.

Quote:
You have an incredibly strong respect for risk. Were there any personal events in your trading career that ingrained you with that attitude?
When I first became involved in commodities, I noticed that if you bought pork bellies in September and sold them before July, you almost always made a profit. So I formed a fund with a group of friends, and I put on this trade. It worked. I doubled the money. I felt like a genius.
At the time, I had a friend who followed the corn market. I didn't know anything about corn; I only knew about pork bellies. He talked me into buying the new crop corn and selling the old crop. Since this was supposed to be a relatively safe trade, in that I was offsetting my long position in one contract month with a short position in another month, I really loaded up. Shortly thereafter, the government released a surprising crop estimate. In response, the month I was long went limit-down and the month I was short went limit-up.
I was in such despair that I remember walking out to the stairway and literally getting down on my knees and saying out loud, "Dear God, I don't care how much I lose, but please don't let the account go into a debit." At the time, I was working for a sophisticated international firm, and just as I was making my providential plea, a Swiss banker came walking down the staircase. To this day, I still wonder what he must have thought.
Here, I even found a recent picture of my new hero:
snap1.jpg

It's been Jesse Livermore, then he committed suicide, so not my hero anymore. Then it was Ed Seykota, because he was one of the pioneers of system trading. And now it's Larry Hite, because his interview tells me more about this business, or rather it agrees with me more than Seykota's, and therefore I understand it better.
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Old Mar 31, 2010, 7:13pm   #592
 
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re: my journal 2

travis started this thread Ok, now my mom is home as well. She came from the other city (which I won't name), where she works during the week. So now major frustrations are coming my way, and soon I may resume scratching my head. Nothing is more frustrating than hanging out with both my parents at the same time.

Anyway, that GBP trade went all right, and finally I am having my so long awaited profitable day:

Friday: made money

Monday: lost big money
Tuesday: broke even
Wednesday (today): made money

Had it not been for allowing the CL_ID to trade, I would have made money every single day pretty much. But it's too late to think about it now. I will let it trade, the CL_mother_****er, and it will give me my 2000 back sooner or later, just like it took it. It's not like my systems are ganging up on me to make me blow out my account again. There's a risk of it happening, but no conspiracy. The most likely thing is that my capital will increase. If instead I had been trading discretionary, a loss would have been enough to make me gang up on myself and definitely blow out my account. That's what's great about these guys. They don't panic, nor feel any pressure, excitement, boredom, fatigue...
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Old Mar 31, 2010, 10:04pm   #593
 
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re: my journal 2

Quote:
Originally Posted by travis View Post
Ok, back home. The trade is losing money. I still haven't touched anything. So far it looks like my third unprofitable day in a row. I've got to hang in there, and not crack under pressure.
As someone who has done the same sort of thing but on a higher frequency basis, when you start up a new system, you should be a real sceptic. Try running a backtest from your historical data source and check you get (almost) the same trades and prices each day. This is very tricky with high frequency stock trading, but for what you are doing it should be pretty easy. It should tell you if there is anything that differs between the world of backtesting and that of real money on the line...

Sounds encouraging. Systems NEVER zoom up on the first days live!
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Old Mar 31, 2010, 10:14pm   #594
 
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re: my journal 2

travis started this thread Yeah, thanks, but I have been doing 8 months of forward-testing, in case you didn't notice. Thanks for the feedback though. They do match (back-testing and forward-testing).

So, who do you prefer, who's your hero between:

1) Richard Dennis
2) Larry Hite
3) Ed Seykota

By what you've read in magazines and books (they're all interviewed in Market Wizards). Do you know them all, or do you know other legendary system traders? I am just getting to know the field. Until now I've been doing everything by myself, reinventing the wheel and so on.
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Old Mar 31, 2010, 10:25pm   #595
 
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re: my journal 2

Great journal. You should consider leaving the system to run for week at a time and not allow yourself to check it. That way, the markets will be closed more or less when you are looking at the systems and your results. In the meantime, to take your mind off it during the week, take up a hobby that will absorb you mentally. Full contact kick boxing or something similar.
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Old Apr 1, 2010, 6:51am   #596
 
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re: my journal 2

travis started this thread Thanks, I don't know if I should keep writing though. I was reading these statistics on hacking and it looks awful:
http://www.eecg.toronto.edu/~asosin/...tatistics.html

If anyone wants to break into your computer, they can. Not anyone can, but if someone who can do such things, wants to, they can. And definitely on this forum there's plenty of people who can have such skills. Now how smart is it to keep on writing "hey, guys, I've got these perfectly profitable systems on this computer, and this is my ip address"? I think I've been quite an idiot. The problem though is that everyone writes about hacking, especially the media, but no one ever lists any statistics, so I had and still have no idea how easy it is to be hacked. By the way, if you can give me any information on this, it would be appreciated. All I know is that yesterday, as I wrote in a previous post, there was a precise moment when my mouse started moving very slowly as if someone was connected to my computer via vnc, teamviewer or a similar remote administration tool. Of course, since no such tool was even turned on, nor do I have any trojan installed, then I started worrying about hackers. It really sucks. I should just stop writing this journal, before it's too late. If it's not too late already.

Good article here:
http://cmitsolutions.wordpress.com/q...s-been-hacked/
Quote:
...
•Your computer seems to be working overtime – the fan is on, the disk is spinning away, but nothing’s happening.
•It takes a very long time to open programs and perform simple tasks.
...
Hmm, wow, this hiker guys really knows what he's talking about:
http://forums.devshed.com/security-a...ed-466632.html
Quote:
Firewalls help cut down on people trying to hack, although, if someone is good enough, and want to hack into your machine, then they will be able to get around a firewall. There's nothing that will prevent someone from hacking into your machine... there are ways to deter attempts though. However, unless you're someone with a wealth of useful information on your computer or at your business, noone is really going to bother.

As for what you see when someone hacks in.... generally speaking, nothing. A true "hacker" will leave no evidence of them having been there. At least no evidence for you to see. As mentioned, trojans help allow others to log into your machine and mess around, but they are not hackers. A hacker doesn't need a trojan to log into your machine.

However, if you feel that you have been compromised, try scanning with Trojan Hunter or a variety of other software applications out there. Although, if you're that concerned, then reinstall as suggested.

As for the pdf comment.... a general rule of thumb, don't open a file that you have no idea what it was sent for. There are a ton of people out there that send out viruses/trojans as email attachments for unsuspecting users to open, which then installs a program.

Trojans allow backdoors to open for users to log into your machine. They can even be sent an email or an instant message everytime you log on, so that they can log into your machine.
In a way he sounds reassuring, because since I was seeing my computer slowing down as described in the first quote, then it must have not been a good hacker, if it was one at all.

Bottom line is I've been an idiot, because, since there's no defense against good hacking, then I shouldn't go around writing journals on how good my systems are. My goddamn sincerity can only get me so far. It's not always a good thing. I can't always have the attitude of "please, don't hurt me, because I am a good, honest, sincere person", or "I am trusting you, so don't let me down". Man, I am such an idiot. I did get a lot done here, but I must really consider closing the journal and starting a journal on a poetry or psychiatric forum, so I can talk about my madness, without mentioning my systems. Right now, I am looking at this one:
http://forums.studentdoctor.net/

I am not a doctor, but I could be a student maybe.
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Last edited by travis; Apr 1, 2010 at 7:31am.
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Old Apr 1, 2010, 8:56am   #597
 
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more thinking about drawdown

travis started this thread Some more tests and thinking about drawdown, with the help of excel and all the stats I have on my systems.

On average, they trade 8 to 9 times per day, and win 6 out of 10 times.

Now I'll also calculate how much they win vs. how much they lose, simply by a ratio of sum of wins vs sum of losses. Hold on... it wins 350k and loses 200k. Let me do some more math... damn do I suck... let's say that roughly it makes twice as much as it loses, also considering that I'd be using my best systems and not all systems. So, ok, this guy trades roughly 10 times a day, wins 3 out of 5 (or 6 out of 10), but those 3 it wins are twice as big as the 2 it loses. So that's about 3 times 2, which is 6 vs 2. So I guess I could say the system has a profit ratio of 3, according to this formula:

% wins * average win divided by % of losses * average loss

0.6*2 divided by 0.4*1 = 1.2/0.4 = 3

At any rate, in order to further simplify things, I will pretend that my system has equal size wins and losses, and it wins 75% of the time.

The reality, every 5 trades, is like this:

+2
+2
+2
+2
+2
+2
-1
-1
-1
-1
=12-4=8

But to simplify things, I will make it look like:

+1
+1
+1
+1
+1
+1
+1
+1
-1
-1
...what the heck... it doesn't work.

Can we say that winning 60% of trades and having a average win twice as big as an average loss, equals to winning 75% of time and having wins and losses of the same size? Let me think about it again.

The original daily trade hypothetical sequence was like this and it still makes perfect sense until here:

+2
+2
+2
+2
+2
+2
-1
-1
-1
-1
=12-4=8

Oh ok, I see it now... that's like having 16 little 1 point trades, of which 12 win and 4 lose, so it is indeed 75% of 1-point wins. But the problem.. oh, I see why the final profit didn't sum to 8! Because in fact the ratio of wins of 75% is correct, but I still need 16 of them to get a profit of 8. Obviously... but since I suck at formulas it took me this long.

Anyway, once we've established that I can simplify and say my system wins 7.5 times out of 10, I can now see how likely is every day to close with a profit or a loss.

You see, as I was getting dressed, I was thinking that if we had 2000 trades per day, with this ratio, or any profitable ratio, we would be more likely to end the day profitably than if we only had 2 trades per day, because of the law of large numbers or whatever they call it. So here's what I'll do on excel. I will run the random number function, "=random()" or whatever it is, and see how the law of large numbers or whatever it's called plays out over my daily trades.

The mentioned function returns a random number between 0 and 1. Now, in order to pretend there's a 75% of them profitable, I need to pretend that the numbers under 0.25 are the losing trades, and those above it, are the winning trades.

Ok, let's say these are my ten trades:

0,14
0,85
0,98
0,32
0,77
0,04
0,60
0,13
0,65
0,49

As expected, despite the numbers being random, they follow a pattern, the pattern of probability, and the outcome is that 3 numbers are below 0.25, and 7 are above, which of course in my example means 3 trades are unprofitable and so on. So this would be a typical day in my trading, and the outcome of the day would be positive. I will now automate the calculation of the negative vs positive trades and run several days, and see how many of these days are profitable, which simply means they have more than 5 winners, which means more than 5 numbers above 0.25. Then later I will run it on samples of 50 numbers, which corresponds to the amount of my weekly trades. Later I will do 200 cases, which is my monthly trades. This will tell me how likely I am to have unprofitable days, weeks, months.

profit_probability_according_to_different_time_intervals.xls

Ok, there it is (attachment above). Just to be on the safe side, I also added a sheet where I pretended that my systems were as bad as 60% of wins, with ratio of win/loss of 1 (equal wins and losses). It turned out that, due to the big drawdowns of my systems, this second sheet represents better their performance - not in terms of profit but in terms of regularity of profit. That is, they make a lot more when they win, but they don't win as often as 75% of the time, on a daily basis. I realize it's all more complicated than this, but I simplified it enough for it to be useful to me.

The following summary says it all. With 10 daily trades, after running random numbers for 100 days, here's what I get:

with 75% of wins (numbers above 0.25 being considered "wins")
AVERAGE of WINS
Daily: 7,51 out of 10 trades
Weekly: 37,55 out of 50 trades
Monthly: 150,2 out of 200 trades

Non-profitable days: 6 out of 100
Non-profitable weeks: 0 out of 20
Non-profitable months: 0 out of 5

with 60% of wins (numbers above 0.40 being considered "wins")
AVERAGE of WINS
Daily: 6,02 out of 10 trades
Weekly: 30,1 out of 50 trades
Monthly: 120,4 out of 200 trades

Non-profitable days: 35 out of 100
Non-profitable weeks: 1 out of 20
Non-profitable months: 0 out of 5

This last one is more like my system. Actually my system is even worse, as it will have about 1 unprofitable week every 10. So what can I make of this? I have a much better idea of how the frequency of my trades (combined with % of wins) can affect the likeliness of every day/week/month being profitable.

Overall I would say that my system is almost perfectly represented by the 60% of wins table (second one in the file attached), in that I often see two red days in a row, but almost never a whole red week, and so far never a red month. Now I'll need to see how things change when the daily trades go from 10 to 8, and everything else stays the same (60% of wins).

Now, theoretically, if probability were perfectly played out, out of 100 days with 100 trades in each one of them, even wth just a 51% of wins, 100 days would turn out to be profitable, because we'd have 51 profitable trades out of 100 every day. In the same way, in our test with a 60% of wins, we would have 6 daily wins, and every day would be profitable, but we see that it's not the case, and we have 35 losing days, all compensated by the other days, so that on average we still have 6 daily wins. Let's extend this to hundreds and so on.

profit_probability_according_to_time_and_trade_intervals.xls

Ok. This time I kept the formulas in, so i can run different tests by simply double-clicking on a cell and the pressing return.

I'll describe what I see by focusing strictly on the 60% of wins sheets, that vary according to daily number of trades. Premise, no matter how many tests I run, the % of wins is always around 60%, regardless of number of unprofitable days. Here's more, in detail by sheet and number of daily trades:

1) 50 daily trades
AVERAGE % DAILY WINS: varies from 59% to 61%
unprofitable days: varies from 6 to 14

2) 10 daily trades
AVERAGE % DAILY WINS: varies from 57% to 63%
unprofitable days: varies from 27 to 49

3) 5 daily trades
AVERAGE % DAILY WINS: varies from 56% to 64%
unprofitable days: varies from 22 to 42 (due to the odd number and the fact that only 3 unprofitable trades or more cause an unprofitable day)

4) 3 daily trades
AVERAGE % DAILY WINS: varies from 55% to 65%
unprofitable days: varies from 24 to 43 (due to the odd number and the fact that only 2 unprofitable trades or more cause an unprofitable day)

What really strikes me about this is that by bring the trades from 50 to 10, given the same % of wins during the whole 100 days, the number of unprofitable days goes from an average of 10 for the 50 daily trades system to an average of 40 unprofitable days for the 10 daily trades system. That is really something to think about.

Tests #3 and #4 are kind of useless, and poorly made, because I used odd numbers and computed unprofitable days with a different logic.

The tendency is clear though. Whereas I can count on the 60% of wins systems to always deliver 60% of wins, as it was obvious from the start, the more they trade, the faster they will bring me that 60%. If they trade once a month, I could have unprofitable years. If they trade 50 times a day, I can pretty much not have any unprofitable days, because even the unprofitable ones are near break-even. Obviously, my system only trades 8 times per day, so I can expect it, on the weekly timeframe, to deliver the daily performance of a system that makes 50 trades per day, which means pretty much no negative weeks. But to ensure this, I'll first have to make sure the CL trades 1 contract while all the other smaller futures trade 2 or more contracts. Only like this I can avoid that the big CL drawdown screw up my daily profit. To the math guys this was obvious from the start, but since I am bad at math, I had to see it on excel.
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Last edited by travis; Apr 1, 2010 at 1:27pm.
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Old Apr 1, 2010, 1:38pm   #598
 
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more tests on drawdown

travis started this thread Ok today I might get fired. I still did nothing but tests and worked for like an hour or so. Anyway, here's the news.

Once having realized how simple it is, I simply used the random number formula on 100 cells and told it to return a value of TRUE if the random number was higher than 0.4, which is a way to replicate my systems' edge of 60%. Here's what I got but clicking the test for a few times. Usually (I can't tell you how often precisely), the % was between 50% and 70%, more or less on 95% of tests. On the remaining 5%, it was between 45% and 75%. I didn't get any other results. Now, 100 trades means two weeks, so basically, since my systems actually make more than they lose, I can expect pretty much break even results for every single week.

But all this is just for the purpose of money. I don't have that much fun getting lost in these numbers and statistics. What is pretty clear to my simple mind is that the more systems I'll have the better it will be in terms of total profit, of drawdown, or limiting the risk of ruin... I just have to build as many systems as possible. I should feel ok only at about 100 systems, which would produce 20 trades per day, which would pretty much guarantee every week to be profitable.

We'll see. I hope to remember this little reasoning I did today. That's why I wrote everything down.

Another important thing to remember is that it's not only the quantity of systems, but also the capital allocated to each system. It doesn't matter that the CL is the system which produced the biggest profit, nor that it is the one that wins the most often. It's not enough to let it trade as much as the others. It should be allocated 1 contract every 3 contracts allocated to the other systems. Indeed, 4 of its worst losses are enough to wipe out my small account right now. I gotta remember that diversifying does not only mean using many systems, but also allocating capital to them according to their maximum drawdown and loss. On this excel sheet, which I just talked about, the other systems would look like a line with one random number, and the CL system would look like one line which counts as much as ten lines and therefore screws up the equity line. Because you'd get (see above for description of functions used):

TRUE
FALSE
TRUE
TRUE
FALSE
TRUE
FALSE
TRUE
TRUE
FALSE (which is so far my 60% return)

and this would be followed by the CL trade which would read either like 10 TRUE or 10 FALSE values, which means it screws up my whole relying on probability to be on my side, with the law of large numbers or whatever it's called.

So that, all of a sudden, instead of having those 100 trades produce a % of wins from 50% to 70%, as the random number function has it, I would have 2 CL trades polluting the whole thing, and, in the case of 2 wins, get something close to 90%, and, in case of two losses, I could get as low as 30%.

Anyway, this is all my little brain can afford for now, but I get the point. It's ok if I am not a Math guy, I get the point, I only want to make money. So: more system, more trades, less capital to the systems with big drawdown, no matter how good they are.

If I were good at math, I would be able to define the whole thing with a formula, which would include everything related to how much capital to allocate to each system, but I suck, so I have to use a few different formulas (for max dd, max loss, ROA values, etc.), and they still don't do exactly what should be done.
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Last edited by travis; Apr 1, 2010 at 1:49pm.
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Old Apr 1, 2010, 1:40pm   #599
 
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re: my journal 2

Quote:
Originally Posted by travis View Post
Thanks, I don't know if I should keep writing though. I was reading these statistics on hacking and it looks awful:
http://www.eecg.toronto.edu/~asosin/...tatistics.html

If anyone wants to break into your computer, they can. Not anyone can, but if someone who can do such things, wants to, they can. And definitely on this forum there's plenty of people who can have such skills. Now how smart is it to keep on writing "hey, guys, I've got these perfectly profitable systems on this computer, and this is my ip address"? I think I've been quite an idiot. The problem though is that everyone writes about hacking, especially the media, but no one ever lists any statistics, so I had and still have no idea how easy it is to be hacked. [/url]
I think these things are overblown, and services are often sold by scaring people sh*tless. Besides you run your stuff on a computer in the US.

Another thing... one of the interviews in Market Wizards says something like "you could write your trading programme in a news paper and nobody would be successful with it". The process of developing and testing it gives you the guts to stick with it. Others won't do that. I wouldn't worry.
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Old Apr 1, 2010, 1:55pm   #600
 
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re: my journal 2

travis started this thread
Quote:
Originally Posted by dog4 View Post
I think these things are overblown, and services are often sold by scaring people sh*tless. Besides you run your stuff on a computer in the US.

Another thing... one of the interviews in Market Wizards says something like "you could write your trading programme in a news paper and nobody would be successful with it". The process of developing and testing it gives you the guts to stick with it. Others won't do that. I wouldn't worry.
Yeah, thanks for the feedback. I hope you're right. The server in the US is not a reality yet. It will take a few more days.

Regarding those guys in Market Wizards, they say that, but I don't see Ed Seykota, Larry Hite, Richard Dennis, or whoever said it, providing the code or even just the principles of their systems on their web sites... what do you think?
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