Dumb Trading Strategies that didn't work

Hoggums

Senior member
2,175 877
There's been a number of threads recently about people giving up/struggling so I though I would post all of my dumb ideas I had in the early days on how to make money - purely for entertainment purposes, but if someone can learn from them all the better.

One thing that is common to every strategy was that the losses were unlimited.

Dumb idea 1 - statistical analysis.

I figured that the market behaved in predictable ways, and if event A happens in Japan and event A happens again in UK then event A would happen in the US. So I built this huge spreadsheet looking at whether a market had moved up/down morning/afternoon, stayed in a range etc and went over historical data and worked out the probabilities of the next event. E.g. Dow falls in the pm, Nikkei down overnight - therefore high probability that FTSE will fall.

I'd put the info in the spreadsheet and if the probability of the event was > 60% I'd put a trade on. NO STOP, with the plan to close the trade at the end of the trading session.

Predictably a disaster after an OK start.

Dumb idea 2 - Trading using indicators

This was my worst foray into trading, I built a computer program which would go through a range of indicators and tweak all the parameters until they gave the best results possible over the past 2 years EOD data. I would then take the best indicators and weight them according to their success to give an overall buy/sell indicator which I would trade. And to keep up with changing market conditions I would re-run this optimisation every month.

Of course backtesting made me a multi-millionaire because I was so over optimised. So I traded the signals - no stops because they were continuous signals either buy or sell.

I couldn't have started this at a worse time either - late October 2005 when a bull run until May took the markets. By Xmas I had tripled my account (effectively with one trade) and thought this was the business so I piled more money in and traded a few more instruments. By April I'd made thousands. Then the crash happened and my lagging indicators kept saying BUY and I lost the lot in a week.

I closed the system down when I'd reduced my original capital by 30%. I was lucky!

Battered and bruised I then decided to look at why it had failed - and ran a backtest on unseen data - and it was a disaster. Every time it lost the whole account and it didn't matter how I tweaked the optimisation or whether I optimised or not.

Dumb idea 3 - Ladders

Having tried to "guess" the market direction with discretionary trades I decided to stop trading and try a new strat where it didn't matter too much whether the market went up/down. I traded this on demo only (thank god!).

I was to trade the FTSE and knowing that the FTSE always goes up over time I would place a BUY order on every 100 point mark up/down with a 100 point take profits order - and NO STOP. Every time a take profits was triggered the order would be put back on. The idea is that as long as the market moves I'd be making profit never realising a loss.

I figured all I needed was enough capital to withstand a 2000 point fall in the FTSE and I'd be fine - which worked out at 22K for £1 per point bets.

Fortunately after being heavily negative for a few weeks on demo I came to my senses and abandoned it.

It would have surely gone bust this year.

Dumb idea 4 - selling naked options

This was a strategy I had to trade live as no demo system did options. Fortunately I didn't commit a lot of capital to it.

It was as simple as can be - sell deep out of the money options in the hope that they never go in the money. I would do this regularly at set intervals.

Fell apart when there was a big currency and index move and my options went into the money and I had to sell for huge losses.

Dumb idea 5 - trading both ways and averaging out losses

At this stage I still hadn't accepted the idea that I needed to have any skill at predicting the market direction instead I could make money provided the market moved and came up with my dumbest system of all.

I would trade both ways and when one side went a certain amount into profit I would take the profit and re-enter the position and I would enter a second position on the other side. I would then cancel out the two trades on the losing side if one of them came into profit (realising a small profit at that time) and enter a single position there. Repeat on both sides ad-infinitum. It worked because as the market trended lower your overall position became more long and as it rose it became more short.

The system worked well until I ran out of margin after another big market move. I managed to treble my realised profits - unfortunately my unrealised losses were always heavy and I was actually only in (real) profit for about 3 weeks.

Had I had enough capital and margin I could have kept this system going indefinitely to a profitable conclusion. But the notion of realised profits in this system was a complete myth - there was no exit point to the system.


If I think of any other dumb ideas I'll let you know.
 
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johnlvs2run

Member
87 8
My original mistaken strategy, beginning October 31st, was as follows.
1) Pick stocks that had a wide 52 week range, at least 5 to 6x difference, and that were at the low point of that range.
Mistake: Not considering their trend and that they were headed downward even more.
2) Find stocks that were relatively volatile, so they were as likely to go up as downward, and that the volatility was consistent.
3) Sell the stocks only when they were at a high point, and do not sell them when they were negative,
but to wait until they were positive at a high again, then sell them
. This last point was the crux of the plan.
QFE dumb idea.

The strategy started out wonderfully, as I was getting great gains from the stocks that were sold. Nevermind the ones that were negative, I'd just wait for them to go up and then sell them too! Maybe one or two wouldn't go up, but that would be okay as the rest would make up for them.

By November 14th, the negative stocks were continuing downward, and not going up. :eek: Well there was no point to selling them then, as they'd not made any gains, yet, just had to wait a bit longer! By November 16th I was getting fed up with them, my strategy was not working to plan, and there were getting to be way too many stocks in the negative! Instead of showing "potential" they weren't showing any potential at all. :( I sold them, and over the last 3 weeks they've still not moved up!

I ended up down 6% of the beginning equity, was very lucky it didn't turn out to be more, and stopped trading in order to learn what had gone wrong and how to obtain a better strategy. I knew absolutely nothing about stops.
I finally added up the 20 trades a few days ago, of which 5 were gains and 15 were losses. The gains were larger trades and added up to 14% of total equity, whereas the losses came to 19% of equity. Had I placed even 20% hard stops, the overall would have ended up positive instead of 6% down.

Summary of overcoming mistakes (feel free to add to any of this).
1) Always set as tight of a stop as is feasible;
2) Get out of trade immediately when the position is negative;
3) Keep moving the stop upward as the position progresses;
4) Keep position size SMALL until my strategy is refined and consistent;
5) Trade only stocks with trends that are the same direction that I'm trading;
6) Trade only in the same direction of the market, or opposite if shorting;

Another mistake, which has nothing to do with my strategy, was trading with TDAmeritrade, as they substantially reduced the limit sell price on at least two trades, which should have been gains but turned out to be negatives because of them changing the prices. I don't know if they did the same thing to other trades before that and that's when I stopped trading with them. Since then it has proved difficult to find a good broker, as they all seem to have some scary complaints. At this point I'm tending to go with IB.
 

needabuck

Junior member
11 1
Another mistake, which has nothing to do with my strategy, was trading with TDAmeritrade, as they substantially reduced the limit sell price on at least two trades, which should have been gains but turned out to be negatives because of them changing the prices. I don't know if they did the same thing to other trades before that and that's when I stopped trading with them. Since then it has proved difficult to find a good broker, as they all seem to have some scary complaints. At this point I'm tending to go with IB.[/QUOTE]



I traded with TD Ameritrade since they were Datek back in the day. Last year I switched to thinkorswim as they were more of an options friendly broker, and I was hoping to put on some focus there. $5 commish and $1.50 on options with no other fees. You can email and request a better rate on the options if you do some volume. I think I may be at $1.25 per but I know peeps paying $1 per connie as well. No fees, great service, charts and videos. I've heard mixed bags from IB users. I nearly opened an account there, but felt it was a bit overwhelming.

I'm new to this forum, and am finding it interesting reading what peeps have tried. I think we all search for a "holy grail" which doesn't exist from what I'm told by every mentor I've ever had. Much like the fountain of Youth. Plastic surgery can only help someone for so long much like any system only works until everyone else jumps on... or so it seems.
 

johnlvs2run

Member
87 8
I traded with TD Ameritrade since they were Datek back in the day. Last year I switched to thinkorswim as they were more of an options friendly broker, and I was hoping to put on some focus there.
I was planning to go with thinkorswim, tried their demo for a couple of weeks and never figured out how to use it. I asked if they were an order desk and competed with customers, they said yes they are market makers but send all orders directly to the market. Then I found a link on their site where they show any customer how to watch the trades of any other customer, which is rather appalling. They definitely push options a lot. It was annoying they required me to fill out an application before trying their demo. I got a bad feeling from them and decided to go elsewhere.

IB's site is rather unfriendly, however I've tried their TWS demo and it's working fine with java in linux, much faster and more clear than the one from TOS. IB did not require me to sign up before trying their demo, and their cost per trade is much lower. The two times I've called, they answered the phone right away and were helpful.
 

sinimini

Active member
173 33
I doubt the average person who trys trading puts as much effort in as you have Hoggums. Just goes to show how steep the learning curve is in trading, and how easy it is to become disheartened.
Trial by error is a big part of life, let alone trading.
 

needabuck

Junior member
11 1
I think you may be right about their commish. A friend who fled ToS had looked at IB as well. I think the margin rates were better, as well as interest for cash in account. We were trading Iron Condors so everything was just cash in the account, and no sense in that $$ not to earn top dollar while resting for options to expire (in a sideways market) prolly a trading strategy I could write about in this thread as well LOL. I've heard/read, but can't confirm that I think IB charges for canceled trades as well. For me that would be a problem, as 1) I don't like to pay retail for much of anything and 2) I have a tendency to change my mind if I think I can get a better fill by waiting a few minutes etc... 3) I am human :) But naturally, if you are happy with something, you stick with it. If you like however, I'd be happy to give you a free tutorial of ToS. (no I'm not a paid endorsed celeb... just a jacka$$ behind a computer .
 
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johnlvs2run

Member
87 8
I've heard/read, but can't confirm that I think IB charges for canceled trades as well.
That would not be a good thing.

A tutorial of TOS might be helpful, though I'm kind of sold against them at this point.

Where did your friend end up going?
 

needabuck

Junior member
11 1
That would not be a good thing.

A tutorial of TOS might be helpful, though I'm kind of sold against them at this point.

Where did your friend end up going?
He is an international trader trading our markets, and lost about 60k in a week (a month or two ago when the ___ really started hitting the fan). He pulled out all his cash and is sitting on the sidelines reevaluating his trading strategies. PM me if you'd like to talk off board about a quick tutorial. I'm no genius nor expert, but I know a little bit about the platform, at least enough to be helpful or dangerous :)
 

0007

Senior member
2,158 518
Re Hoggums' starting post #1 - would have repped it but won't let me.

Some good original thinking there even if not entirely millionaire-making stuff as it turns out. But that's the point - you have to go there to find out. It's the kind of thinking and exploration that enables you to develope your own strategy and technique - which IMHO is the way forward.

Greatly enjoyed the post.
 
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