Wednesday, May 12, 2010
My View On Systematic Trading
I received an email from "Blurrturtle" that asked "What are your rules for system trading?"
When I first got this email, I was thinking whether this is a trick question. System's trading by definition is already trading with a set of rules. So naturally I was wondering if "Blurrturtle" wanted the set of rules in my trading system or just basic guideline on systematic trading. I believe he/she meant the second part.
Novice trader may be wondering, why are there so many rules to systematic trading? First you have a set of rules that govern what, where, when and how you trade, then you have another set of rules to make sure that you follow the previous set of rules! I'll try to explain why in my future postings.
Here's my simple set of rules for systematic traders:
1. Do proper back-testing and optimization. Make sure you know your systems performance well then ask yourself if you are comfortable with the max drawdown (usually it will happend sooner and bigger than you think) and how long it takes to recover? If not, don't trade the system or find another one.
2. Make sure you have sufficient startup capital (identified via your back-testing) before start trading.
3. Have in place a method to tell you that you should stop trading the system when it is no longer working.
4. Just strictly follow your system (without fighting with yourself and the market) until 3 happens. This is usually the hardest part.
I hope that answers the question posted by "Blurrturtle". Cheers & Happy trading.
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with these systems, i am sure yourself is trading. how is your result? making good return?
ReplyDeleteHi anonymous, remember that system is just a tool that gives you guidance as well as conviction. You don't need one if you are a good discretionary trader. And usually system trader's return has nothing to should about compared to good discretionary traders!
ReplyDeleteGood is a relative word. Everyone has different number for it. All I can say is that thank god, so far all my clients' return is still within the systems' performance parameters! :)
excellent...
ReplyDeleteforgive me for been bold on this, i am just another ordinary trader trying to make extra income.
next question,
what is the range of return on your clients' trading? just give me the high and low percentage of the return out of all your clients using different systems.
put it in time period of 6 months, 1 years, and 3 years.
Actually since I am not asking for account opening nor am I a trading coach (I am actually teaching programming on systems), I don't need to show or prove anything, however, for the sake of sharing info:
ReplyDeleteSo far the worst DD(closed) is 3% and best return is about 10% over 1 year. You just have to double that for 6 months.
None of my clients had follow over 3 years yet.
If the system hasn't broken (constantly being tested using MC SIM), the expected annual return should average about 20% with SD of 10%, max dd (closed) should be 20%, max dd(open) should be 30%. Hope that answers your questions. Cheers & happy trading!
i have been following your blog and quite impressed with what you have done.
ReplyDeletebut if these are the returns over the year, i am kind of disappointed.
one of my friends traded with a very much simple strategy, and managed to make a return of 45 percent/year. and this is constant throughout the last 5 years. (don't ask me about the strategy he used)
oh well, like you said, you teach programming on system.
like other trainers said too, if you can't make money, it is your problem not my system or program.
actually it is good enough if the return is not in minus.
ReplyDeletehowever, the way you put it is a bit irresponsible. no body ask you to prove anything and i don't think Anonymous is keen to open account with you nor looking for your coaches. he/she is asking a simple question to whether system trade can produce good result.
i believe you try to separate yourself from other trainers out there who claimed that their students made 50% return, 100% return, RM5,000 within a week, etc.
but regardless, the ultimate is still making money. what's the point to spend time developing a fancy and sophisticated system if it can produce result.
since you are a licensed dealer with your own client base, what's wrong to share the outcomes of your clients using your system.
10% return/year with the time and effort is a bit pathetic in my opinion.
Alex & cpotrader, the result I mentioned earlier was vanilla without position sizing, with position sizing, depending on how aggressive you want it to be, you can achieve much higher return.
ReplyDeletecpotrader, I think you over analyze things already, I only provide the facts abt systematic trading and the truth, what is the point of separate this and that, remember the focus is to be constructive. I was very reluctant to start the training in the beginning(even now until I get quite a lot of request as I think anyone can do it on their own if they have passion and interest. There is nothing so special.
In my opinion, the most important thing in trading is to be humble and has a "nothing to prove" attitude, otherwise one will receive his/her humble pie eventually. Thanks for your comments. Cheers & happy trading!
Oh, there is one more thing that I forgot to mentioned, the rate of return alone has no meaning unless you look at the risk at the same time and the amount of startup capital to generate that return.
ReplyDeleteI could have easily acieve 20% or 50% return if I start with half or one fifth times lower capital but the side effect is the drawdown and Standard deviation of return would have increase a lot as well. Remember that high return usaully come with higher risk as well.
Even if you have found a way to lower the max dd and SD of returns, don't be fooled by them, look at what happened to LTCM in 1998, vacuum machine broke down. Cheers & happy trading.
thanks for your reply
ReplyDeletei believe it is fair for me to ask questions before i decide to pay or not to pay for the courses.
anyway, your system is not for me.
good luck and all the best with your "humble and nothing to prove" attitude.
keep us updated on your trading result.
Hi anonymous, there's one thing I want to clarify. I don't sell systems, so there is no my systems or your systems is better, I only teach people the fundamental programmings in MS Excel & back-testing methods needed for them to find their own system that matches their personal risk appetite and to constantly monitoring for systems breakdown in order to know when and how to stop trading a broken.
ReplyDeleteIn fact, the courses doesn't suit everyone, only poeple who are interested to learn to do it themselves on systems development in MS Excel and quantitative method of systems trading are the focus.
If you are the usual one that is only looking for high return alone or a secret system, then I can say you have made the right choice for not attending, I don't have a high return with super low risk system. Thanks. Cheers & happy trading!
my broker introduced me to your blog.
ReplyDeleteyour stuffs are very interesting and in fact quite number of my friends are looking for this kind of training.
i will visit your blog for upcoming seminars, please keep me updated here.
my broker introduced me to your blog.
ReplyDeleteyour stuffs are very interesting and in fact quite number of my friends are looking for this kind of training.
i will visit your blog for upcoming seminars, please keep me updated here.
Thanks low. Will do. Hmm...the same comment appear in another article, hope you realise that the comments won't appear immediately after you write them. Cheers & happy trading!
ReplyDeletebare in mind that the max DD is only 3%, if he uses extra leverage say 10x, his best return will be more than 100% with a DD of 30%, besides, if u can make more than 30% p.a. consistently, u'll be better than George Soros
ReplyDeleteFinally, some who really knows what he/she is talking!
ReplyDeleteHan (sorry if I have got your name wrong), I am very interested to learn from you anything relating to quant trading, thanks
ReplyDelete