eqsys

Just trying to help. My background: UCLA, CAL, statistics, forecasting, computer programming, trading (32 years). Just, perhaps, in some of my unsolicited advice to you, there might be something useful from someone who actually makes money trading in real time.

Steve, "unnessary"? They are necessary FOR YOU!!! Isn't the idea of all of this effort for YOU to make money? The whole point of backtesting and finding out the potential profit/loss is to tell you if you should actually place the trades. I wasn't suggesting that you are intending to sell the system, but if you haven't or can't backtest the system, or don't track the theoretical P/L on a daily basis, how do you know if all this work is worth the effort? How might the system compare with other, basic, simple systems you have worked on. When I come up with a new system idea (and I have been doing this since the days before computers using hand drawn charts) the first thing I do is go back at least a year and look at the buys and sells to see if I have something that is potentially profitable. Then, I calculate a profit/loss ratio(s). Then, I compare this with other systems I have come up with to see if the new one is worth the effort. This is, essentially, a "survival of the fittest" approach - a genetic model of discarding the poorer system ideas and keeping the best ideas. I am not trying to give you a hard time, but we are now on 27 pages of this thread and I am just asking if you have any statistical idea of how good this system is compared with other similar systems you may have come up with. Based on my own system testing, the ES does not produce results comparable to the NQ. So, what I am suggesting is that you test your system on other things that might produce better results for you than the ES. I notice that many traders get locked into one type of contract - the ES for example, and then attempt to come up with a system to trade it, rather than to come up with a logical, basic system then test it on everything to see what works best with that system. Just some ideas for you.. My best..

To: Steve46 Steve, I have been following this thread for its entire length. Your system is very interesting and potentially very profitable. Congrats on all the hard work. Now, to the REALLY hard questions. 1) Have you backtested this system for more than a year? 2) If you have the backtest results, how much has the system made trading 1 contract and what was the highest drawdown that has occurred (intraday, not closed trade) over the past year? 3) Once you have these numbers you have a ratio of reward/risk that can be quantified and compared with other systems, including buy and hold. If you don't have or can't backtest this, do you at least compute the theoretical gain/loss every day trading 1 contract? If you have confidence in this system, are you actually trading it in real time with your own money NOW? If you are actually trading it, are you making money? Can you prove that you are making money? I don't mean to be difficult, but I have been at this for a very, very long time trading the real markets with real money - so, these are the questions I ask myself every day... My best, eqsys

Nothing wrong with any of this..I absolutely agree.....except with respect to the idea of stopping trading....stopping and then what? How do you fix it. What I meant by stopping trading was to stop trading that particular system on that particular entity. If the losses begin to pile up and the max drawdown is exceeded, then it means that something is not working right - the system backtest was likely unrepresentative of current and future conditions, or the macro environment that is effecting the entity has changed. After 20% drawdown I re-evaluate and recalculate my systems, and try to figure out some system modification that would have prevented me from losing the 20% - in other words, I try to learn from the loss, rather than to keep trading that system. Often, at that point, the system "comes back", or, it may start working again some months later. Here's a real time example. Last spring I was trading silver. It ran up to 50 then collapsed. My system took me out in the low 40's after that silver fell into the low 30's and just chopped around. My system stopped making money, and the dollar moves were too large to keep trading. So, that was it for silver. Then, I started trading gold futures. Same thing happened - they ran to above 1900 then collapsed. One day gold moved 100 basis points! I got out of that. I began to work on a modified system, and eventually came up with a "fix" for my previous system that kept the gains, but reduced the losses. I have let that system run for many months now on the GC without placing any trades - just monitoring the system performance - and it seems to be handling the recent movement very well. So, I am ready to get back to trading the GC again. I hope this clarifies what I meant by stopping trading when the losses pile up. The markets always present opportunities. There is nothing wrong with taking a break once in a while to go into cash, get some sleep, and re-evaluate what you are doing.

All of these systems look promising ON PAPER, and may work in real time trading under some favorable market conditions. However, one has to be able to code and backtest a system to know the profitability and risk of drawdown over long periods of time, otherwise one is simply getting set up for a huge "out of sample" (or, black swan) loss. What I do in my own trading is backtest all systems with Tradestation, then I look at the highest drawdown over the past couple of years, then assume that this drawdown can and will occur at any time in my real time trading, then I make sure that when this happens that I will not have a loss greater than 20% of my account balance at the worst. Under 10% is preferable, but 20% will absolutely stop me from trading the system immediately. Once I know the potential max drawdown (and future drawdown WILL be higher under some unexpected circumstance) and I know the potential gains, based on what the system has gained in recent years, then, and only then, will I be in a position to know if the system or technique is a good one to trade, and how it compares with other systems and other trading entities - different futures, stocks, options, etc. A simple ratio of average monthly dollar gain divided by max drawdown is a starting point for comparing various systems. There are many ways to lose money trading and eventually wipe yourself out. Not knowing the historical drawdown is right at the top of my list, along with fear, greed, and over enthusiasm. When I first started trading I wiped out several times before coming to my senses. Without a clear knowledge of potential losses any trader is risking losing all of his or her money - and, based on statistics, most do.

Last year I tested all of my best technical systems on all of the various futures contracts. The CL and QM did not test particularly well compared with many others. My conclusion was that one has to have a combination of great technical skills and fundamental knowledge of the oil market in order to be successful trading it. I do not and will not trade either contract because I get much better results with other things. My goal as a trader is to make a profit, so I look for things to trade that backtest well. As the oil market doesn't test well for me I won't trade it. If you want to make money I recommend trading Apple Computer from the long side - the momentum is strongly on your side with Apple and it tests extremely well with any system I throw at it.

The slippage for the QM is about $10-25 per market order per contract - fairly standard for this size futures contract. If you have backtested trading strategies for QM and know your profit/drawdown ratios - in other words, your reward/risk potential, and you can afford to lose money when you get big drawdown, then go ahead and trade. But, if you haven't done your homework, and don't know how much your strategies will lose during the tough times, then you will surely be sorry you ever thought about doing this. If you want to trade oil why not trade the oil ETFs? They are a lot safer and easier to trade. Trading the various oil futures contract are for the serious traders with years of experience. Just some advice from the school of "hard knocks"... Best of luck to you..

The VIX based ETFs have a lot of leverage, as do the various 2x and 3x ETFs. The futures do have a tax advantage, especially at tax reporting time, as you don't have to itemize your trades to the IRS. However, the slippage and commission drag on your net can be significant. This is why I went back to trading stock and ETF products. If you want leverage you can get all the leverage you want with stock options. I do NOT recommend much leverage for novice traders. It is almost always the reason they wipe out. I have also found that the NQ produces better results in backtesting and real time trading than does the ES.

Suby... I use TradeStation. I am able to thoroughly backtest any trading idea on stocks, options, futures, or Forex. As an active trader I pay about $1 per stock or options trade, and $2.40 round turn for futures. Most brokerages charge a LOT more than this, and between the commissions and slippage, it's very difficult to be profitable, no matter what you trade or how you trade. I trade both "manually" and with automatic execution turned on. With automatic execution the computer places the trades for me based on the formulas and strategies I have come up with. Options can't be "auto" traded per exchange rules. I want to be perfectly clear about this - making money by trading is NOT easy. You have to come up with systems, thoroughly backtest them, employ money management, and have the emotional discipline to stay on track - you have to keep the fear and greed under control. I do not recommend it as a way to earn a living unless it's something you absolutely love to do.

I have extensive experience trading both the volatility ETFs and various EMini futures. The slippage in dollars on the futures is VERY significant for market orders. The slippage for the VXX is only .01, but for various futures contracts it can range anywhere from $5 to $20!!! The VXX is leveraged approximately 4:1 vs the SPY so that should give you all the leverage you need. Leverage is a wonderful thing when it's working for you and a terrible thing when it's against you. If you don't get the slippage calculations correct, all your SIM and backtesting is useless. Best of luck trading REAL money in real time in the real markets...

SunTrader is correct. I have been trading and testing systems for about 32 years, and my conclusion is that it's possible to expect 2-3% per month gains using mechanical trading systems over long periods of time through bull and bear markets with the best trading systems. This percentage may seem low to "newbies" but it's realistic. However, and this is a BIG however, a mechanical, or technical trader can and will go through long periods of time (many months) with no profits and frustrating drawdown. Then, the profits return. What's going on is that all markets go through phases - trending phases and chopping phases. A trader usually makes money during the trending phases. If a market is going up it's fairly easy to make money trading from the long side. If a market is trending down, it's possible to make money trading from the short side. When markets stop trending, it's likely that any trading method will lose money. So, a great deal of the success or failure of any system or method depends on the market environment. And, when a market begins to trend, successful traders will be able to identify what is moving with the trend, and go along for the ride. I am often asked what to buy, and I respond by saying buy what's going up, not what you think should go up. Then, I am asked when to sell, and I respond by saying that you sell when your holdings stop going up. This may, at first, seem simplistic and even ridiculous, but it works. Most traders and investors take the opposite approach - they buy because they believe something should go up because of X, Y and Z. In other words, they think they are smarter than the market, than everyone else in the world who knows anything at all about the stock or commodity they are trading. And, some traders/investors ARE smarter and DO have inside information, and are able to figure out the "big picture". The results of the average mutual fund or hedge fund debunk this "we are smarter" approach. The majority of funds either track or underperform the S&P. Countless studies have shown this to be true. So, this is a very difficult game for even the best and brightest. Trading/investing is one of the most difficult and frustrating ways to make money. I know a couple of people who spent thousands of dollars taking courses recently on how to make money trading, and of course, they lost money. For anyone who thinks they are going to get rich quickly and easily trading, I say best of luck to you, but be very, very careful and trade very small amounts of money until you are absolutely sure you know what you're doing and can take the periods of drawdown and frustration.

There are systems that use stops, then there are systems that use rules to exit or enter trades. For example, with a stop system you are long something at 100 and have a trailing stop at, let's say, 90. My experience has been that this stop at 90 is highly likely to be hit on some brief selloff - and you are filled at some price BELOW 90. Then, frequently, the market reverses and you are sorry you placed the stop in the first place. The second approach is based on rules. For example, if X and Y and Z then sell. This still gets you out of a bad trade, but tends to avoid some whipsaws. I have found that this type of system produces better results than just using a raw stop. On backtesting: obviously a backtest is the best that can be achieved on a given set of data that was generated by a particular type of market condition - trending or non-trending. If you come up with a system based on a trending market, and the market stops trending, your system will lose money going forward, as the market no longer reflects the conditions that were in existence when you ran your backtest. Markets switch between trending and chopping all the time. On drawdown: it's the drawdown that gets you in the end. If you are trading a $10k account and have a worst trade of $2.5k and a drawdown of $4k, you might still be able to sleep at night. However, if you are trading a $100k account and have $40k drawdown, THAT might get your attention. When your software calculates a theoretical backtest result, it doesn't have any emotion during the periods of high drawdown. However, YOU, as a rational human being, are not a computer, and when you are trading real money, the drawdown takes on a whole different meaning. I have found, in real time trading, that your max drawdown will happen again, and often frequently - so don't assume that this is an "outlier" event. If you are not prepared, both financially and emotionally, for max drawdown, when it happens that will be end of your trading. Best of luck and trading...

to feng2088.... Here's how I calculate the profitability of my systems, and I will use the figures you gave in the thumbnails as examples. Your average monthly gain over the past 12 months was $685.19. Your max drawdown was $-2,167.22. I can't take more than a 10% drawdown, so I multiply the 2167.22 by 10 and that's how much I want in my account to trade 1 contract. So, 685.19/21672.20 = +3.2% per month. You may be comfortable with a 20-30% drawdown of your account equity, but I am not. And, when you are trading bigger accounts, 20-30% drawdown is a LOT of money. This is especially true when you are trading your own hard earned money. I evaluate all of my systems this way. In order to make 100% per year you need to make +5.9% per month compound. My goal in system testing is to make 100% per year in backtesting. I know that in real time trading I'll only make a portion of this. By the way, how many optimizable variables does your system have? I am only comfortable with systems that have 1 or 2 variables. More than that and I have found that the systems backtest really well, but fail in real time trading, because they are curve fit.

Yes, the min move is .25 of $50, or $12.50. In TS there is a box where you can put in Position Slippage. This is in $, not points or ticks. If you put .25 into the Position Slippage box you get 25 cents slippage. You have to put $12.50 into this box in order to get a correct calculation. I have traded live futures with both limit and market orders. My experience has been that limit orders work most of the time, but when a market really explodes, you don't get filled with a limit order. So, I eventually I went back to market orders. And, market orders = slippage, and that slippage can really add up. If you only have 1k in drawdown this is a really good system. Just trade it in real time with real money for a few months and see how it does. I have come up with exceptional systems like this but it turned out they didn't work in real time trading. There was usually a reason - I overlooked something, used alternative chart types that didn't work in real time, etc. Perhaps your system will really work. Best of luck to you...

It is extremely difficult to make money trading. About 30 years ago I decided that I wanted to become a full time trader and quit my "day job". Turns out, it's much, much more difficult to achieve that goal than I originally imagined. The problem with trading is that a trader goes through stretches when their methods or systems fail - it's called drawdown. If one is relying on the trading to pay the bills, this is very, very stressful. Most traders can't take the pressure, and stop trading at this point. They paper trade, or just take a vacation from the markets, until, at some later point, they believe they can make money again, then they may start up trading again, usually on a smaller scale. This is a rational thing to do. I have a couple of friends who spent a lot of money last year taking courses on how to trade, and they were off and running to get rich. Yipeeeee!! It didn't work. Back to the drawing boards. My best advice to you - don't quit your day job.