TechQuant - Stream of Consciousness

TechQuant

Well-known member
264 52
Not sure if this is going to work as I'm going to be trading first THEN posting the trade I've just made. If I'm sticking a few on then there will be potentially an appreciable number of minutes between the data I'm reporting to you and the time I report it on here. I've got no axe to grind nor anything to prove so if anyone feels any of my calls are outlandish or unlikely, feel free to say so as a heads-up to others and then leave it at that. I'm not a fan of handbags at dawn so you'll get no push back from me. All my calls are for informational purposes only and a record of what I'm actually doing on my trading platform.

At TQ's request, this is a duplicate of the original trade thread in which all the trades have been deleted to leave TQ's 'Stream of Consciousness' thoughts about the markets and trading.

Subscribers who wish to view and comment on TQ's trades may do so on the original thread: TechQuant - Forex Trading
timsk.
 
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TechQuant

Well-known member
264 52
- stream of consciousness stuff as it occurs to me -

If I had to pick a one liner to encapsulate my trading style it would be:-

The emphasis is on not losing rather than winning

I'd rather take a bit of profit and lock-in a no-lose situation on the remainder than swing the entire line and 'hope' for a better target later on.
 

counter_violent

Legendary member
11,266 3,005
Hello. I'm an ex-quant who exited the global institutional space to play the game in my own way on a retail basis. The perks aren't anywhere near as good (non-existent in fact), but I do get the freedom to choose how and what and when I want to make a play. There’s very little quant in what I do today, it’s more common-sense than anything else. I’m sure luck plays a part but there’s no way to qualitatively assess this aspect so I just leave it alone and hope whatever it is, if it is, carries on.

I focus primarily, almost exclusively, on the forex markets and stick with the majors. I trade the shorter timeframes (sub-hourly) and am normally in & out the same day. I won’t bore you with my performance data as this is the internet and everyone’s a winner. But suffice to say I now pull more profit off the table than I was getting as salary and bonus with the firm.

I’ll start a thread with some live calls so you can play along or throw bricks or whatever happens here and we’ll take it from there.

Hi Quant,

Could you expand on the bit highlighted ?
 

TechQuant

Well-known member
264 52
Hi Quant,

Could you expand on the bit highlighted ?

The labyrinth complexities and absurdly unintuitive relationships which can be found to exist between apparently unconnected financial derivatives and their real-world counter-parts (and counterparties!) is an appropriate model for a global financial institution to not only consider, but to fully exploit just in order to maintain let alone gain competitive position. As a now independent retail trader, not only do I not have the need for the acres of server farms, support research team (back office Quants et al) and associated infrastructure neither do I have (nor need) the cerebral capacity to accommodate it, but most importantly I don’t have sufficient financial wherewithal to spread a hedge in any meaningful way that would justify the outlay on acquiring such information, tools, methods and applications.

Now I just look at the shape of the price. Common-sense.
 

TechQuant

Well-known member
264 52
Friday March 27th

Bit more Background & Detail

One thing I do not have on any screen is the P&L. Pips +/- or £+/- nothing at all. I'll check my performance at the end of the week. There is much to learn from Behavioural Finance and one of the major points that resonated with me was the asymmetric nature of good news/bad news. The former counts for a lot less than the latter. You need to focus on your methods and deploy them without any bias from what's gone before. Neither elation nor depression should flavour your next trade. They should all be plain vanilla.
 

TechQuant

Well-known member
264 52
- stream of consciousness stuff as it occurs to me -

One that crops up a lot:-

Risk/Reward - The Eternal Dance of Shiva

You can spend a lot of time deciding which side of the spectrum you want to be on. And a hundred times that amount again changing it, time and time again. Sometimes your charts will suggest being timid is costing you - other times that patience and waiting for complete confirmation is best. There is no right answer. What determines the position on that spectrum you should trade is the one that inherently represents the most comfort for you - at any given time - in your development as a trader. I've bounced along the spectrum a few times before having the realisation that your risk/reward profile is a function of the trader you currently are which is a function of the person you currently are and has no empirical relationship with your skill as a trader.

Based on my personal performance data over a reasonable period of time I can find no statistically significant bias in adopting any given position on the spectrum. What does cost you money is not being comfortable with a position on that spectrum at any given time. When times feel tough and choppy, pull the stops in tight and grab some profits quick. If they feel loose and easy, get in early and let them run. The reality is largely irrelevant - it's what you think is going on that should govern your mindset. Doesn't matter if the markets are running or chopping, if your internal state runs counter to reality you will have greater success trading your internal construct of reality than the absolute reality. Counter intuitive until you get that's why most don't get it and don't use it.
 
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TechQuant

Well-known member
264 52
Not that I feel any need to provide proof for the above (nor could I - that's for everyone to establish subjectively), but from my Quant days I know what goes on - why do you think moves start out of nowhere and reversals occur for no obvious reason? Why some pullbacks are just pullbacks and others are reversals? Forget supply & demand. That operates only weakly and over longer timeframes than are of interest to intraday traders.

You can be right for all the right fundamental and technical reasons and still end up with a loss on a trade - can't you?

It is all down to management of the trade. Each and every trade. When to get in and when to get out. I'm not saying it's random, there are probabilities and edges and biases and it pays to recongise and analyse them all. But at the end of the day (or week) the only thing that matters is how you - the trader - have conducted yourself.

We have the capacity to make a silk purse out of a sow's ear - and a sow's ear out of a silk purse. It's not what you're dealt, but how you play it.
 

TechQuant

Well-known member
264 52
Taking a pair at random - gbp/chf - the pair that I last looked at when I closed my screens on Friday night so the first thing I see tonight. Up or down?

If is closes above 4305 (on the m15) I'm tempted to believe I should prep a buy, if it closes below 4288, a sell. All other factors considered I'm probably more disposed to a buy than a sell. It's a decision. One I'll make tonight? Probably not as the spreads are rich and I'm about to hit the sack - I hope.

But others will have quite different views. They'll be biased to the downside and won't even consider buying. They're locked into a viewpoint. Recent history suggests there has been greater ease of movement up than down. Friday was a nice causal saunter - until that sharp reversal down to where Friday opened at the close. Doesn't matter matter whether you could have foreseen or predicted that or not - it is where it is now. How do you feel about gbp/chf?

I'm going to suggest now that having decided how you 'feel' about gbp/chf is less important than how you feel about how you would handle an already open trade in gbp/chf and what you would be doing about managing it. Bought or Sold, you're in gbp/chf at Friday's close level - what do you do?
 

TechQuant

Well-known member
264 52
- stream of consciousness stuff as it occurs to me -

How to unwittingly deceive yourself into believing you're doing better than you really are:-

Gaussian Distribution of Returns with the Exclusion of Outliers

There are two primary ways in which traders can provide themselves with particularly inaccurate performance data. The first and most common is to use the data from different trading systems as if it were one. Different trading systems can be those running in parallel, or more often, those which morph sometimes quite drastically from one to another. Every time you tweak your system and especially when you make a major revision to it, you need to start your performance analysis anew.

The second way is to use all your results data without excluding outlier data. I assume most traders will be using a fixed risk per trade be that absolute of percentage. This limits your downside to a known and fixed and maximum for each and every trade. Which means there can never be any negative outliers. No single trade can ever lose you more than your risk which is (we are assuming) fixed. The majority of your trades will fall within a Gaussian curve around the breakeven point. Your losing trades will take anywhere from all to none of your risk. The exact profile of the left hand side of the bell (left – negative to right - positive) will be trader and trading system specific of course.

The right hand side of the bell will rarely be symmetrical with the left but will assume a similar nature from head to tail. Typically (for most) the majority of profitable trades will be for less than the amount risked. But, and this is the problem, there will be outliers along that right hand edge which are your runaway , home-run, outright winners providing several times your risk in profits. It is these that you should be excluding from your standard performance analysis calculations. Any winners beyond your standard risk size should be excluded. The danger of including them is that you are likely to end up with a system which looks like it has a positive bias and expectancy, but which in reality requires outlier events to make it so. The basic Gaussian bell delimited by standard risk each side of the breakeven point is all that should ever be used.

Your day-to-day expectancy based on your bread & butter trades providing up to standard risk as profit should be predicated on a positive skew within that curve. That is, you should be enjoying a net positive income from all those trades within the standard risk envelope. The outliers are gravy. If you include them you could well (and are very likely to be) assessing your performance at a higher level than is statistically valid and at a level where you could run into a wall and wonder why when it was all going so well.
 
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TechQuant

Well-known member
264 52
I appreciate the above is purely my take which itself is a result of a Quant’s journey where a statistical edge to make money trumps any sense of personal or intellectual pride in ‘beating the markets’, but as I’ve seen not too many beat the market, even pros, long term, I’m cool with that. My comfort comes from grinding away in a statistically sensible way, earning a small profit in general and being in the market when the outliers occur which make the whole enterprise extremely worthwhile. Equally, I appreciate this trading profile is not the profile most retail traders have, or perhaps more correctly , would even aspire to have. The emphasis out in Traderland seems to be more gung ho and attempt to hit home runs on each trade. Good luck with that.
 

TechQuant

Well-known member
264 52
Two of the most interesting differences between Quant and retail are that I suddenly care about direction of price and I also now care about time. I want it to ‘go’ in a specific direction and I’d prefer it to do it for quite some time. Back then it was all about locking in miniscule profits on absurdly large positions which existed in many cases for considerably less than one second. When you have the ability to effectively front run large orders which the SEC helpfully assisted us in doing by a swathe of ill-considered regs such a requiring as mandatory a best price fill regardless of size, then it’s very easy to make money by fishing with small orders to test and then head off to the other exchanges to pump and dump before the rest of the order gets there. It was all about speed and code and proximity (it still is of course). As a retail trader you’re out in the cold. You have to invent new ways to look at the same data and decide if you’ve got an edge. You normally find you don’t. Part of the trick, a large part, is not using too much capital to find the answer.
 

Forexmospherian

Legendary member
39,928 3,301
Two of the most interesting differences between Quant and retail are that I suddenly care about direction of price and I also now care about time. .............................

Hi TQ

Love your stream (s) of consciousness

Over the last 5 years I have cared maybe more about time than even price - to the point that I have been using a "stopwatch" on and off during that period to intraday trade.

That's basically led to me being able to follow even the "waves within waves".

The time of the hour or of the session /day is not enough in isolation but lends itself to being another "edge" - to add to the ones you already develop via experience and study etc.

Look forward to more of your thoughts - although not so keen with the FX pairs you trade ( other than AU) as I prefer ones with lower spreads and more prone to a decent level of LP's manipulations ;-)

Good Trading


Regards


F
 

Fugazsy

Veteren member
3,661 677
Tech

Great stuff.

"Consciousness, in her freedom, brings about the attainment of (the true nature of) the universe"
 

TechQuant

Well-known member
264 52
The initiation of a trade is an act of creation. Some say the event itself establishes a tension which is not resolved until the trade is closed. Equally convincingly others will argue the state of tension exists only when they are not in a trade. The latter group should not be trading, they are gamblers and punters and you’ll not meet too many long term profitable traders in this group. I’m talking here of retail side. Professional traders are almost exclusively comprised on the latter, but the same holds true for them they there are few long term profitable traders in this group either. The only type who stand a change of long term profitability retail or professional are those that comprise the former group, the only caveat being as a professional trader you have to mask your relaxed approach to trades and trading by losing as little as possible through being constantly in the market and betting small on those trades you don’t want to, but must take. Bit like anteing up and then folding in a poker game. It’s not the hand your dealt but how you play it.

One of the few advantages a retail trader has is that he/she does not have to take a trade, or a given number of trades in period of time or churn a certain percentage of their capital or even make a profit from one month to the next! I don’t get why so many throw those advantages away. Maybe you have to know you have them in the first place before you can appreciate them and use them. Sitting out of the market is one of the most under-used trading techniques around. There are no books written on the subject.

Anyway, the act of creation brings with it a responsibility to manage the development of the position. Most humans cope with pain about 3 times less well than do pleasure. Pain is loss. Pain is fear of a small profit turning it a loss. Pain is fear of a large profit turning into a smaller profit. Pain is wanting more profit than you currently have and then watching is disappear and turn into a loss. Pleasure is not losing. Which suggests why the advice so often given to let your profits run and kill your losers quickly makes rational sense, but rarely gets processed at the subconscious (non-rational) level where your trading finger lives, the one that clicks the mouse button. One way to circumvent the problems inherent with being a human and a trader is to separate the two. The you that creates the trading system and the rules that govern it hands this over to the disinterested 3rd party trader monkey who executes using the system and its rules – and nothing else. If you don’t have a spare monkey to train up then you’ll have to find one within yourself. The more eventualities your system allows for and caters for the easier you make it for your monkey. Those who operate predominantly discretionary approaches to trading need a different sort of monkey. My approach to trading is predominantly discretionary and I’ll tell you about how I trained my chimp in another post.
 

TechQuant

Well-known member
264 52
I’ve been asked to put some meat on the bones of my trading methods. As my methods are (now) predominantly discretionary I thought at first blush that would be impossible, but it’s actually rather easy.

Imagine putting a large number of moving averages on your chart. A really large number each just one period longer than the last starting at say 25 right up to say around 250, these really are just for example. I haven’t done this and don’t plan to, but I imagine you’d end up with an indicator ‘cloud’ blotting out much of the price action. Perfect. That’s the ‘sitting out’ cloud.

When you get sight of the price outside this cloud, trade it.
 
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