Thoughts on profitable trading systems

jebus89 · Mon, 15 Jan 2018 08:24:56 +0000

Hey all, this is going to be a long one, and its aimed for all the newbies out there. I wanted to make a post that I would have loved to read when i was starting this journey. In case you havnt seen me posting here, im still learning and still trying to create profitable systems. Im in no position to say “this is how it is” or something similar, however i thought i’d share some of my knowledge so far. Let me start this by saying a couple of things, starting with some backstory. I got interested in trading and stocks 4-5 years ago. Been trying to trade stocks by myself, drawing in charts etc. And to be honest, that was (barely) profitable for me, but the biggest thing, that ruined all my bad trades, was myself. Somehow, i managed to fuck myself over and over again with bad stop losses, bad entries etc. I realized that what i was doing wasn’t too shabby, but ME as a trader is shit. I dont have the mental strength to pull off trading by hand. So i figured “i need to remove myself from the trading-equation” and i started reading about automated trading which eventually led me here. No more sleepless nights, no more “hoping” that the marked would go my way.. I work in IT and im very lucky to have a lot of time @ work to study automated trading. Sometimes i work with my systems and in general automated trading for 10-16 hours pr day, depending on how busy it is at work and home, and i have been doing this for over 3-4 months now. I guess im kinda hooked hehe. I’ve listened to all the (over 150) episodes of “better systems trader” where legends and pro’s are invited to share knowledge and the “how to’s” of the market. This has given me a lot of inspo and helped me grit through some hard times. You wont get a profitable system in your hands by listening to it, but it will tell you a lot about what NOT to do and how to do what you want to do! A post in this forum that also helped me alot, and im sorry but i cant remember who said it, some swede i think, who said: “It took me about 50 hours until i created my first profitable system, and its a system i still use today”. I thought to myself, “okay, if he could do it in 50 hours, so can i!”.. I dont know how many hours it took me to create my first profitable system, but i would guess about 70-100 hours of studying and trying and failing.. My first system was a trend-following system for 10min timeframe on wall st (dow j). That system has been in demo for 3~ months and is currently 1400$ in profit with about 50% winrate, for now at least looking like backtest results (trading 1* 2$ contracts). I took that system and tinkered with it. its now customized and running live for 30 minute timeframe in wall st + dax and it has been profitable since day 1 so far. When i say profitable i dont mean that i have quit my daytime job… It makes 100$ here, looses 35$ there, wins 22$ there, looses 60$ here…. All in all its profitable and the risk is not too much at all. Basicly im not going to go broke by running the system for a full year. Even if the system would hit a bear marked, it should survive and even might collect a tiny profit. (based on backtest through a couple of financial crises.) And this brings me to point #2. Ive seen many people have been asking/talking about these things in this forum but it cannot be said enough: To all of you asking “ARE THERE PEOPLE ACTUALLY MAKING MONEY DOING THIS??” Yup, yes, indeed. Is it easy? no. Will it take a serious amount of time? Yes. Do you need to be interested in this topic to keep up the stamina that it demands? Yes, if your passion is something else then just stay away. You wont get rich from reading this forum 1 h a day alone. Can i copy a profitable system directly from this forum? I would recommend that you dont do it. At least have it in demo for a month or 2.. Will i make alot of money in year 1? Probably no, and by that i mean im 95% sure you wont make “a lot” of money. But will you be profitable? Well if your not stupid, play ur cards right, have patience and study hard, then yes, you will probably be profitable. Expecations: One of my first questions on this forum was something like “If you have a profitable system, why not just rock 100 contracts and become a millionaire over night” well, i realize now that this is not how shit work. You NEED to have your risk of ruin basically less than 1%… You have to think about stuff like “If i have had 1000€ as biggest drawdown the last 10 years, i need to make sure that i can loose 1500€” Just because max DD in backtest is 1000 does not mean you cant go over that, and it doesnt mean its not a profitable system. Just because it has 5 loss in a row in the backtest, does not mean it wont loose 10 in a row during the next month, but still it might be a profitable system! Backtest should give you an indication of what to expect, but you will never see the exact same numbers. You might never see a 600€ drawdown! You might see a 6000€ drawdown and a busted system.. People expect too much from automated trading / trading in general. People think they can quit their jobs in 1 year and trade from a sandy beach all day long. And i thought this myself when i was new to trading!! My biggest dream was to wake up and having earned money while sleeping. It doesn’t get better then that, right?? Well it doesnt work like that, it does take time, it does take dedication and it does require some level of passion. If you do not have passion then it will get boring real fast.. Lastly i want to add the following tips: You cannot predict the market, so never try to. Never say “im going to pause the system now because i think tomorrow is going to be good/bad <- If you know how the market is tomorrow then why are you not a billionaire? Because you dont know.. So dont think that you might know.. you dont.. Dont try to re-invent the wheel!! Meaning, you as a single person, probably cant find that “hidden combination” using the same standard indicators that everyone else uses. Let me beat this point into your head: There are people (not just giant FIRMS) but single, solo trading people that use machine learning like this: “Test absolutely everything using these 10 indicators.” and the machine will try every combination possible. As a single person in PRT with no machine learning at that level, you cannot try EVERY possible combination, in fact PRT does not even have multiframe trading (you cant call a daily RSI in your 1h system..) Meaning your probably not going to get success throwing 10 indicators in a system, optimizing every variable and getting 90% winning trades.. From listening to the podcast thers alot of talk about pros running systems with less then 50% winrate even. Momentum/trend following systems, long only, in stock indicies will only make money when the market is going up, and your going to get false signals a lot. But if you take EVERY trend going up, and trying to reduce false signals, and implement money management, a lot can be done! 🙂 You dont need the 80% winrate and 10 in gains. There is no 1 holy grail system. Try to create many systems, doing different things! Running 10 systems with 50% winrate is much better imo then 1 system that has 90% winrate. Because the 90% winrate is probably going to fail, but if you have 10, then 2 might fail, 1 might do VERY good, and the rest might be profitable.. Make the systems as easy as possible. Everyones dream is that smooth 45 degrees EQ curve, but thats not happening. What you need to do is trying to get that curve profitable and robust in the long run, but zooming in will show you that the curve is full of dips and bad trades etc. It might not be profitable for a whole 3 months even! but the system it self might be profitable in the next 10 years… I’d like to wrap up this post with one of my favorite quotes from the podcast, and im paraphrasing here: “I actually dont believe that profitable systems “stop working”. If you make a robust momentum system, you might see periods, maybe even a whole year, where the system doesnt make you any money, but then over the next 2 years it might be your most profitable system. If you make a system that profits from every trend, but loose money on every false signal, you just need to make sure that the good trends are more profitable then the false signals in the long run.” This was really an eye-opener for me. Basicly its telling you not to try to chase 90% winrate and every trade is a good trade, but rather that its okay to loose, its okay to see bad periods. everyone gets them.. But just make sure that statistically, say over the past 10 years, all your good trades are better then all the false signals you loose money on between the good trades. Edit: About sharing codes in this forum, i dont think people are going to share their most profitable system, because it takes alot of hard work to get there! But i think people, myself included are more then willing to share good ideas that people might continue working on or people might give you some insight, or inpso to do something different or use a bit of your code. Sharing is caring.

This topic has 21 replies, 7 voices, and was last updated 4 years ago by jebus89.

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04/19/2020 at 7:51 PM #126938

Vonasi

jebus89 wrote:

I got systems in Dow j, SP500, NQ, DAX and its all just basicly 4 different charts of the same thing.. if 1 drops 10%, you can bet your ass they are all dropping 10%…

It would be great to get some systems running on commodities as I feel there is less correlation there. What the hell difference does the price of timber make if you are trading lean hogs? So far I have found commodities the hardest to get a system working on because they are either doing nothing or doing something and there seems to be no rhyme nor reason to where they will go next. I think they are a read the news and act on the news kind of thing to trade and perhaps don’t suit the fixed logic of algo trading.

Vonasi
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04/19/2020 at 9:34 PM #126956

jebus89

You and me both @Vonasi.. i dont have a system that looks good in any comodity and i dont really understand why. I think i need to devote more time to try and understand how the moves happen there..

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04/19/2020 at 9:46 PM #126957

Vonasi

jebus89 wrote:

I think i need to devote more time to try and understand how the moves happen there..

They move because of supply and demand but it is not price driven supply and demand but more product supply and demand. No strategy can know that it is a bad year to grow wheat because the only data it has to base decisions on is price. It has no idea how much wheat is being grown this year or whether next week a big storm will flood fields and destroy crops.

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04/19/2020 at 9:49 PM #126958

Vonasi

I’m beginning to like forex where I used to think it was a casino but now I believe it to be far more supply and demand driven. Unfortunately every currency is linked to every other currency and all ultimately linked to the USD, GBP and EUR so heavily correlated.

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04/20/2020 at 2:40 PM #127089

deletedaccount100622

Great post and well said. I think that some people will share the best system that they have at the time, some threads are developed with newer version based on community feedback but in my experience you are best off taking library and forum posted signals and using them for system components ie entries, money management, exits. With a bit of work most systems can be improved by someone with more time and experience along with fitting it to your needs. It may be that you would rather make mess money with one safer trade per month than a version that would trade once per week with a higher overall result but more volatility for example.

As you discuss there is also the portfolio building element consider, shared systems need to be reviewed by the potential user and placed into a portfolio that fits their needs. It may be that a framework/understanding of those skills is more valuable than handing over a bunch of strategies that work and leaving the user to just set them all running.

On commodities I have found that often it is easier to trade proxies ie AUD/USD for metals largely reflecting demand for iron ore in China or USD/CAD for oil. Lean hogs seem to be more of a seasonal thing to me but I have got some initial good results from a new system I have in the works on Coffee. I do like coffee as when it moves it really moves but the USD does influence the price a lot and with not trading 24 hours a day there are some gapping issues.

deletedaccount100622
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05/12/2020 at 9:11 PM #131393

Pring00

Hello @Jebus89, what a lovely post. I’ve been trading manually for a few years now and it’s been decent but recently I’ve gotten more interest in trading systems. Do you have any suggestions where a good place would be to start learning? Thanks a bunch!

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05/14/2020 at 7:36 PM #131701

jebus89

Pring00 wrote:

Hello @jebus89, what a lovely post. I’ve been trading manually for a few years now and it’s been decent but recently I’ve gotten more interest in trading systems. Do you have any suggestions where a good place would be to start learning? Thanks a bunch!

It kind of depends on what youre trying to do. Theres so many different ways to trade and create systems and different styles of systems. If your trading manually today profitable, i would start with trying to define your rules and create a system out of it.

Other than that i would start by listening to Better system trader and Chat with traders, as well as looking up books on subjects that interest you. If your a momentum trader, find some good books with good reviews, not some 10 page PDF “book” for 5$. Seek out some of the big names in trading, they usually have written a bunch of books.

When you find your “style” of trading, its alot easier to start digging deep into the subject and ways of trading that suits you.

jebus89
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