Abandoning the mechanical approach

[new_trader]

I am convinced that if you want to make serious money in the markets you must abandon the mechanical approach. I have tried many different mechanical systems that I’ve developed and they all have good times and bad. One thing that remains consistent throughout my extensive manual back testing of them is that my ability to determine when a trade is going to win or not is improving. Today I made a few paper trades relying completely on this ability and I was correct on every trade.

 

[dpfuller]

Good luck nt,

I came to the same conclusion, mechanical systems work sometimes and not others - FACT. The best investment I made was to try to understand price better (read Steve Nisons - The Candlestick Course, which I feel has been invaluable), how it reacts at previous s/r levels, identifying ranges and volume.

I'm currently paper trading different approaches, with my goal to trade intraday swings.

 

[zentrader22]

...some traders prefer discretionary trading, others system trading. That depends on you...

And you are right - there are enough deficits of mechanical trading systems. But the conclusion, that mechanical trading systems or system trading have to be avoided, to make serious money in the markets is wrong. Really. Most of the profits in the professional financial business are made using trading systems and not by genius of the "gurus"...

The prerequisites for this are an optimized system development process and as a result a stable and robust trading system.

Only my two cents...

bye,
zentrader

 

[rog1111]

You'd be amazed at the prevalance of very simple mechanical methods among successful hedge funds. The difference lies in their expectations. If they can turn in 15% pa ROI or more over the medium term in a fairly conservative fashion, with a reasonable Sharpe ratio, then that's a good performance. Also they may run several different systems simultaneously.

Many small traders seem to have huge expectations around % performance and consistency, due mainly to being underfunded from the start. There is the additional problem that they work one system at a time, and this then leads to the premature abandonment of systems that are going through a poor patch, but would have worked out fine over the year.

Sure, trading this way can be a very tough ask for the small retail trader. Perhaps trading every day in return for negative results over a couple of months or more can be quite soul destroying, and requires a huge amount of faith in the ability of the systems to come good in the end, especially where monthly bills need to be paid ! However, results can still eventually be very satisfying.

My advice is to stick at it. Or perhaps run mechanical alongside discretionary methods if you want to feel as though you have some control over the situation !

Just my £0.02

rog1111

 

[damianoakley]

It's true that mechanical trading systems have good times and bad - but I would say that would be true of any trading system, mechanical or discretionary.

In fact, it's true of virtually any business in any market. Trading conditions are sometimes tough no matter what industry your business operates in. There are very few businesses that are able to make money every single month, but good management and sound principles ensures a profit over the medium to long-term.

As traders, that is the best we can hope for.


Thanks

Damian

 

[Priceman]

I have my indicators on the charts but use discretion. ATM my head does get in the way of a very good mechanical system that would give me enough per week should I let it do it's stuff. I am getting to the point now thought that I can see (you know like Keanu in the Matrix ) where things could turn so get out in case, or if things don't go the way the indicators show it should go.

Depends on you as always and just how much do you want from the market. Do you constantly need the 100 pip moves or will 10 suffice? If you can control your emotions (different thread me thinks) and use discretion with a mechanical system then that should give the fruits.

Everyone wants something different from the markets and expects something different to happen, which is what makes the market.

 

[TWI]

There really should be little diffrence, systems just impose discipline on what should be developed from how you trade as a descretionary trader. I do not like systems that tradein ways that do not make sense to me when I look back through the trades no matter how the back test looks.
It is not right to conclude that mechanical systems cannot make serious money in the market. Many billion+ HF's run their money exclusively through systems. I make consistent returns using fully automated systems but I have found that in order to maintain a decent curve you do need to diversify through a number of proucts, time frames and risk systems. As far as I am concerned there is no other way so effective at making money in the markets.

 

[jacinto]

There really should be little diffrence, systems just impose discipline on what should be developed from how you trade as a descretionary trader. I do not like systems that tradein ways that do not make sense to me when I look back through the trades no matter how the back test looks.
It is not right to conclude that mechanical systems cannot make serious money in the market. Many billion+ HF's run their money exclusively through systems. I make consistent returns using fully automated systems but I have found that in order to maintain a decent curve you do need to diversify through a number of proucts, time frames and risk systems. As far as I am concerned there is no other way so effective at making money in the markets.

I think you are very very right.

1) Mechanical methods are based on rules. If a setup arises, and the method is good (statistically), it will follow the rules, and on average win.
2) Discretionary trading........i.e. naked trading in my case, will also win if it is based on rules, and when the setup arises, the rules are followed, and there are the wins too.

None is the Holy Grail, and both are based on a simple principle. If the setup arises, follow the rules. You will win, on avererage, and that is what it is supposed to do.

Which is better, that is a different matter. Mechanical has the advantage of taking emotion of entry out of the equation. Issue really is exit. Mechanical methods seldom give the optimum exit, and Naked Trading does have an advantage there. So, both have their good and their bad things. Excellent would be if somebody can be able to combine both.

J