Am I a good Trader

[new_trader]

I have back tested a system, I have forward tested the system and now I am trading the system with real money. I have been trading for almost 2 months and have not missed a trade. I am down 50 points on the E-mini S&P500. Despite everything that I have read and written here, I am starting to lose faith in my system, and myself. However, I am determined to stick with it until I have been trading for at least 6 months or longer, even if it means losing more money. I don’t want to give up but somehow I this is being irrational!?

Any thoughts?

No need to be kind, I can take criticism.

 

[barjon]

nt

not an unusual experience i think

firstly, the initial period of real trading should, in my opinion, be with small money and still regarded as a test. i hope this is the case as you continue.

secondly, are you absolutely sure that the entry/exit rules you established have been equally applied across the the back/forward/real tests? this may seem obvious but it needs really thorough checking. the same applies to any subsidiary conditions you may have established.

thirdly, re-examine any relevant rules/conditions you may have discarded in developing your system during your back and forward phases to see if they would have improved matters in the real trading.

fourthly, check that general market conditions were reasonably similar through the various test phases.

lastly, don't lose heart but do keep it small until things improve. if they don't - then back to the drawing board. all good fortune.

good trading

jon

 

[new_trader]

nt

not an unusual experience i think

firstly, the initial period of real trading should, in my opinion, be with small money and still regarded as a test. i hope this is the case as you continue.

secondly, are you absolutely sure that the entry/exit rules you established have been equally applied across the the back/forward/real tests? this may seem obvious but it needs really thorough checking. the same applies to any subsidiary conditions you may have established.

thirdly, re-examine any relevant rules/conditions you may have discarded in developing your system during your back and forward phases to see if they would have improved matters in the real trading.

fourthly, check that general market conditions were reasonably similar through the various test phases.

lastly, don't lose heart but do keep it small until things improve. if they don't - then back to the drawing board. all good fortune.

good trading

jon

jon,

I honestly believe I am doing trading with meticulous detail and accuracy. I am obsessive in that respect. I trade using stops and all my trades have been opened and closed precisely, without any slippage. I exit my trades according to my system, not one second earlier or later. I check my exits against the data provided by IG Index and there is only a 1% difference in almost 40 trades. I have tried many permutations of the system yet cannot improve it without over optimising or curve fitting. I am trading the minimum possible - 1 ES contract.

As far as discipline is concerned, how many traders can open a trade, shut down their PC and ignore the markets until it's time to close their trade? That’s what I do. I am comfortable with my stops, even though it's painful when they are hit. I try as much as possible to divorce myself from the trade, but sometimes I do change the TV over to Bloomberg to find out how my trade is doing. I honestly don’t think I am doing anything wrong and should be proud of the fact that I am consistent with my methodology. I’m doing everything by “the book” but can’t assuage the feeling that I am being narrow minded.

 

[charliechan]

sorry to state the obvious - but clearly something has changed.

what would your results be if you tested them over the data you have actually been trading? would they be the same as your real results? (ie do another forward test)

where are you trading - globex or spread betting?

do you know bloomberg tv data will be delayed by 15 min?

personally, im not a fan of back testing much. if an idea is working, i can see it in recent data.

 

[new_trader]

sorry to state the obvious - but clearly something has changed.

what would your results be if you tested them over the data you have actually been trading? would they be the same as your real results? (ie do another forward test)

where are you trading - globex or spread betting?

do you know bloomberg tv data will be delayed by 15 min?

personally, im not a fan of back testing much. if an idea is working, i can see it in recent data.

charliechan,

I have tested it from the start of 2002 right up to the end of 2005, that’s Dec 31, 2005! It has been consistently profitable each quarter. We are only in March 2006. Do you honestly believe that the markets can change so radically in such a short time?

I am trading on Globex with an American broker.

The index quotes on Bloomberg are definitely live (delayed a few seconds maybe). They certainly mimic the quotes I get from my broker.

 

[Tuffty]

When backtesting, your un-overcurvefitted results would have given you a number of trades. If a monte carlo analysis on these were done you'd get a distribution of what sort of draw down to expect from the system. You'd then know when to pull the plug based on these results v. real time. Sticking with a system that doens't replicate the results distribution of draw downs from monte carlo testing is financial suicide. A bit like not having any stop loss protection.

 

[charliechan]

new trader - yes i do believe the markets can change dramatically in this short span of time.

as far as es though, it hasnt

however you should remember that from 02-05, volatility has been an the decline. without looking at your results, it is hard to say anything meaningful. for example, you could have had some very good results in 02-03 when there was some volatility that compensated for poor results in 05 say. if you are just looking at an averaged mean expectancy figure and comparing results, you may not notice. this is a very basic and simplistic mistake i am sure you will agree, but it just shows how it is impossible to give advise without knowing a lot more info - probably more than you would want to put in a post!

are your 40 trades a meaningful sample in relation to your tested results?

im probably not the best person to advise though because this kind of trading (hoping today will be like yesterday) isnt really my cup of tea.

all the best

 

[Charlton]

Something's missing or something's changed !

charliechan,

I have tested it from the start of 2002 right up to the end of 2005, that’s Dec 31, 2005! It has been consistently profitable each quarter. We are only in March 2006. Do you honestly believe that the markets can change so radically in such a short time?

I am trading on Globex with an American broker.

The index quotes on Bloomberg are definitely live (delayed a few seconds maybe). They certainly mimic the quotes I get from my broker.

New_trader

I agree with Charliechan. I perceive 3 possible reasons:

- Markets have changed thereby invalidating your initial and tested assumptions
- Your initial and tested assumptions did not cover all possible scenarios
- Markets cannot be predicted and are not subject to simple causal relationships


The third point is a philosophical one and you will need to make up your own mind on that. The first two points are a variation on a theme, because both are saying that the market as tested by you earlier is no longer the same as it was during the test.

If you believe that the markets can be predicted i.e. there is some causal relationship operating then you are dealing with the first two points and will have to:


- Analyse each of the parameters you are using to see how they may be affected by changing market conditions and to analyse the market to determine what might have changed
- Analyse all the parameters that you have included and consider which further parameters you might include to cover conditions you had not previously considered.

Despite saying in your first post that you can take criticism, you adopted a very defensive tone towards the others when you defended your trading discipline and your testing strategy. If we accept your defence on these matters and I have no reason to doubt you, then it points even more strongly to a change in market conditions or missing some parameters that only kick in under certain conditions, which would explain why backtests sometimes work and sometimes not.

As we do not know the mechanics of your system it is not possible to provide precise answers, so I'm afraid it's up to you to investigate, but I wish you good luck in your endeavours.

Charlton

 

[JumpOff]

As far as discipline is concerned, how many traders can open a trade, shut down their PC and ignore the markets until it's time to close their trade? That’s what I do. I am comfortable with my stops, even though it's painful when they are hit. I try as much as possible to divorce myself from the trade, but sometimes I do change the TV over to Bloomberg to find out how my trade is doing. I honestly don’t think I am doing anything wrong and should be proud of the fact that I am consistent with my methodology. I’m doing everything by “the book” but can’t assuage the feeling that I am being narrow minded.

nt, I admire that discipline, but I wonder if you aren't missing out on valuable screen time. Perhaps you don't want to watch your open position, but I think it may be worthwhile for you to watch bars forming in real time in some instrument - even if it's not the one you are trading. I've spent the last two years watching one chart or another nearly every day - all day, and I understand more about market dynamics than I did before.

JO

 

[new_trader]

nt, I admire that discipline, but I wonder if you aren't missing out on valuable screen time. Perhaps you don't want to watch your open position, but I think it may be worthwhile for you to watch bars forming in real time in some instrument - even if it's not the one you are trading. I've spent the last two years watching one chart or another nearly every day - all day, and I understand more about market dynamics than I did before.

JO

Hi Jump Off,

Yes, I do study the charts though not always tick by tick. I think I know the S&P500 intimately but I still don’t make a very good discretionary trader. Things look so obvious in hindsight but it’s very different when confronted with the situation in real time. I like probabilities and feel much more comfortable as a mechanical trader using a system that I have personally scrutinised and back tested. I have a hard time accepting the hypothesis that markets can change, not because I think it can’t happen, but because there are so many successful, highly profitable discretionary traders. I can’t see how this could be possible if a market constantly changed because all of their knowledge and the edge acquired through years of experience would become redundant. Whenever I have a string of losses I usually call up the historical charts and compare them to the most recent charts and they are almost identical. That said, I think I am becoming a quasi-mechanical trader because I am now reluctant to enter a trade when I see a chart pattern developing that looks like a failure. However, I am not happy doing this because I did go through some historical charts to see how good I was with pattern recognition. I didn’t do too well so I believe I will actually impair the performance of my mechanical system by doing this. I have resorted to paper trading for the moment because the drawdown has been steadily increasing.

Any thoughts….anyone?

 

[nesyo03]

If something clearly isn't working, why not find something else that does? Try backtesting another strategy. And of course, trade it live with SMALL amounts.

 

[LongandWrong]

Hi nt,

A couple of my thoughts:

- Were commissions/slippage/spread (esp. if ur s-betting) correctly applied in your testing, and do your current entry/exit prices mirror those your backtesting would've given you? (FWIW, in Feb, my SB account remained flat after about 100 trades, whilst I'd paid the equivalent of half my account value in spread!)

- The idea of putting on a trade and turning off my pc until it's "time to get out" sounds a little odd to me. Is there no room to move stops or adjust position size at all? No offence, but it seems a little ostrich-like. Others have commented that watching markets trade gives them a steeper learning curve in the markets, and I agree. I have strict exit rules myself, but for that one time in a blue moon when the markets go bananas I know I'd rather be watching my position than watching Trisha!!

Good luck with it....

 

[Baldwreck]

My thoughts - I think you need to take the back tests further, if the data is available for the instrument you trade. Human nature won't have changed over time. I've developed a system for indices and currently trade 7 of them, 3 US and 4 European. I back tested the theory to the 70's for the Dow & S&P 1980's for the Nasdaq and FTSE and early 90's for the DAX SSMI and CAC. I also tested the Nikkei and some minor indices such as as Australian ordinaries with similar results.

So personally I am a great fan of back-testing - the limit usually being on the available data. I am also a great fan of not watching what's happening by the minute, despite the temptation!

Good luck in any event.

 

[mark_b_27]

Look at the data you're using for your testing.
Historical data is surprising inaccurate, even for the major indices. DJI, SPX etc.
I developed a couple of index trading models that looked great in back-testing, but failed in real time because the data they were based on was flawed.