eqsys

I am NOT promoting any service. I am making a point: that it is possible to make money with a SIMPLE system that makes money. That's all I am saying. Everyone else I have read here is suggesting that making money trading requires some sort of complicated set of rules that can't be coded, or is very difficult to code. I am saying this: don't think you have to have a PhD in math to make money. A simple breakout system with profit target can make money. The reason I mentioned my background and gave an example of one of my systems was to show that what I am saying is not theoretical. Anyone can say they can day trade - I say, show me your P/L. Anyone can say they have a system - I say, show me the results. Auto trading does NOT make one lazy. It's a way to survive. Try trading 5-10 accounts and many commodities in real time and tell me that's not overwhelming!! My conclusion after my trading career is that anyone can make money trading by focusing on simple, basic trading ideas - a simple price breakout, simple momentum indicators, moving averages, just basic trend following systems. I am not promoting anything. The only thing I am promoting is hope for the small trader that it is absolutely and completely possible to make money trading by doing simple, basic things. I have also made the point that I am not emotionally or personally able to day trade, which is why I use automated trading. If you, or someone else, is able to day trade and make money, great. We all have different personalities.

First of all, they are professional traders who are paid to come into an office and sit in front of a computer screen all day. They are not trading their own money. If they make money they get a percentage. I don't care if they are making 30 BILLION dollars per year - my question would be, what is their percent gain per year? If you start off with a billion dollars and make 3% in a year, you've made 30 million dollars. I would also like to know what is their drawdown, their percent of winning trades, and how many of them are alcoholics. Here, we are talking about trading our own money. When you lose your own money, it really, really hurts. Have you ever sat in front of a computer screen at your house and tried to trade all day long, day after day? It's one of the most difficult, nerve wrenching things I have ever done. While you are staring at the screen you have to go to the bathroom, you get hungry, the phone rings, the doorbell rings, people want to talk to you, you want to talk to them, etc. Oh, and you have to sleep at night. This is NOT in any way, shape or form, an easy thing to do. Try this day after day, week after week, month after month etc. and see how long you last before having a nervous breakdown. With automated trading ALL my effort goes into system testing and development - ALL. That's why my systems actually work. I let the computer do the actual trading. The computer makes trades while I am sleeping, on vacation or in the bathroom. It doesn't make mistakes, doesn't get scared, doesn't get greedy - never forgets my trading rules. It is 100% possible for a small trader to develop simple systems, make a good percentage gain on a month to month basis, and keep his or her sanity in the process. I maintain that basic, simple, easily programmable systems can make several percent per month, month after month, and over time make a lot of money for anyone willing to put in the time. You do the backtesting, the computer makes the trades. You don't have to have a PhD in math or physics to make money with basic, 1 or 2 variable systems. If you are able to make 2-5% per month on a consistent basis, over time you will make a huge amount of money without going insane staring at your computer and becoming a stranger to your family. Been there, done that..... FYI - I have been trading for 31 years, traded almost everything before home computers - futures, options, stocks, spreads, you name it, traded discretionary, automated, traded accounts for other people, my own accounts, and am now trading multiple accounts and providing systems for a commodity advisory service... PS - here's a screen shot I just captured off TradeStation showing the one year performance of the corn system I am providing to the commodity service. The shot is from the Strategy Performance Report and shows the annual results trading 1 corn futures contract (using continuous contract data). The system is a basic 1 variable breakout system with profit target.

I have been making excellent percent gains using automated trading and simple systems for many years. Last year I traded primarily stocks and options: Apple Computer, Netflix, Bidu, Amazon. This year I have been trading silver and gold futures. All stock and futures trading is automated. Options can NOT be automated per exchange rules.

I trade with automated trading and simple systems that I have coded myself and thoroughly backtest in TradeStation. Before TS I wrote my own code. When I say "simple" I mean generally 2 optimizable variables, and not more than 3. The advantage of coded systems and backtesting is that you can have some idea of the long term profitability of the system, and the amount of drawdown that can occur. Hence, you are able to have a money management system that keeps you from having large equity drops that might wipe you out, or cause you to make some ridiculous emotional trading mistakes. Also, the markets trade almost 24 hours per day. I can't watch the screen while I'm sleeping or trying to live my life. I test systems, then trade my best ones automatically. I have traded the discretionary way - I call this "seat of your pants" (SOP) trading, and it didn't work for me. Too many distractions, too many emotional decisions. After the market has a big drop are you 1) going to be watching the screen at the time, 2) have the courage to buy in at that point, 3) know the mathematically optimized point to buy in? I can't do it, but I'm sure there are people who can - best of luck to them. We know the statistics on "day trading" - almost all day traders eventually wipe out.

Drawdown doesn't seem too bad in a backtest, or with simulated trading, but when it's actually YOUR money on the line, and you experience drawdown in real time, it's a whole "new ball game". So, I spend a lot of time looking at the losses in my system backtests - not only the trade by trade losses, but the daily equity drawdowns. Early in my trading life I spent most of my time working on systems that would make money. Now, I not only look at how much a system made over a given length of time, but how much did it lose - trade by trade, day by day. I look at the ratio between the gains and the accumulated losses. The best system would be one that made money every day. As this is clearly impossible, I want my systems to have the lowest possible total accumulated daily losses. In other words, I want as much consistency over time as possible.

Yes, absolutely true. Trading is NOT an easy way to make money. It takes a lot of study, work, trial and error, learning from losses, emotional ups and downs, etc.

Excellent... I call this the "decision delay dilemma". By the time you, or your system, is "sure" that the trend has reversed, you've missed a significant part of it. Of course, you could always trade what I call an "anti-trend" system and try to sell highs and buy lows, and this technique does work, until it doesn't work - then it can really lose a lot of money on a breakout against you. Back to basics: maximize gains, minimize losses, control leverage, keep it simple

My system development testing looks for maximum gain, minimum drawdown, and consistency over time and various market conditions. A "smooth ride" is never entirely possible, but I don't want to get thrown out of the vehicle on the journey.

Mr. Toad's wild ride eventually got to the destination as well, but not without some serious flying around and dodging obstacles along the way. Some people love roller coasters and screaming...I prefer a smooth ride.

I think of trading as a journey -- the destination is profit, the vehicle is your system or method, and the drawdown, either trade to trade, or your daily balance, represents the bumps in the road. The larger the drawdown, and the frequency and size of down days, the more difficult it is to take the trip. If the bumps are too big, you'll pull over and stop the vehicle, or you'll reduce the speed (position size) or you'll just keep moving forward but feel sick from the jostling around. I always look at the drawdown of any system, not only trade by trade, but also the daily losses. It's possible to have a system that has 100% winning trades, and yet has a lot of drawdown during the holding period of the trades - a simple buy and hold comes to mind. The problem I have with buy and hold is that I can't take the drawdown. So, my goal in system development is to maximize gain and minimize drawdown, and I position size by looking at drawdown. I want to make sure that when that drawdown happens again that I will be able to handle it financially and emotionally.

On one level we ARE in "compete control" of our trades. However, I have found that on a "gut" level we may not be. I have been in situations where my brain said "hold, do nothing" and my hand just clicked on the "sell" button and I was out of my position. This is really a question for philosophers or psychologists. Is the brain in control or does the brain just do what the emotions tell it to do? If one keeps position size low enough, the emotions won't kick in and one can stay "indifferent". The position size that creates fear varies from person to person. Some people are more risk tolerant than other. One never knows what the appropriate level of leverage is until, one day, the "fear factor" kicks in.

You MUST have some realistic idea of the risk, in dollar terms, of your expected worst case drawdown, then determine what this would mean to you. For most beginning traders this calculation prevents them from trading most futures contracts. I take a very conservative approach and allocate about 10x the backtested max drawdown to trade 1 contract. My expectation is that this drawdown will happen again and when it does I don't want to be down more than 10% or so. Drawdown always hurts, but I want to be able to sleep at night and not allow fear to cause me to make some stupid trading mistake. Most novice traders focus on the potential gains, but forget to prepare for the losses.

"Very interesting discussion between Maelstrom and Eqsys. 2 opposite way of trading. I am a newbie interested in both..." I believe you are referencing two different styles of trading. The first is often called "discretionary trading" or as I call it "seat of your pants" trading, and the other is system trading. Most traders do the former. I used to do it, but it was not profitable for me. I found it to be emotionally draining, and only occasionally profitable. Stats show that almost all "day traders" fail to make a profit over time. Either their emotions or some market event wipes them out. Profitable trading is much more difficult than it initially appears. You look at almost any chart of any stock or commodity and you can instantly see the waves - how hard can it be to buy the dips and sell the tops? Well, turns out, very hard to do on a consistent basis. So, what I do is this: I get up every morning, study the market, look at the charts, and try to come up with new ideas that I can code into TradeStation. I then backtest the ideas to see if they work - improve what I am doing. It's similar to "natural selection". You keep experimenting - disgard what doesn't work and keep what does. Eventually your systems, methods, "learn" - they get better through this process. Also, you find out what works for YOU - in other words, some techniques do work, but they are not suitable for your style of living, your personality, your risk tolerance. For example, I had been trading silver futures this spring and doing well as silver was surging upward. However, a few months ago the moves became huge and silver spiked to near $50, then plunged into the low 30's - just a huge move in dollar terms. The minute by minute moves, in dollar terms, became too large for me to handle emotionally, so I stopped trading for a while and came up with a system that traded very small moves - in quickly, out quickly. This reduced the volatility and after much testing I started trading again. Personality plays a big role in what you can trade and how you trade. Some people just can't and won't trade with a system, preferring to day trade on their own wits. Others, and I am included in this, have found that this doesn't work for them. I'm sure there are day traders that are profiitable, but I believe it's very difficult to achieve success this way because of human emotion and fallibility. I prefer to have all of my work coded into systems that auto trade for me. Futures and stocks can be auto traded, but not options. The exchanges will not allow this. By the way, the best trade I ever made and the worst trade were made exactly the same way - seat of the pants. In the late 1980's I built up a 35k account to 225k in short order trading Eurodollar futures, then lost 135k in a few days on a surprise hike in interest rates by the Fed. About a decade later, using the same technique, I did the same trading AOL but was able to hold the gain - when AOL peaked out around 160 I got scared - as I was holding 4000 shares, so I sold it all over a couple of days - couldn't take the pressure. Turns out that was the exact top (spring of 1999). I am much more conservative these days - just can't take huge intraday moves, so I am under leveraged - very conservative. My suggestion is that you try both methods and see which one works for you. If your trading account is small, and you don't mind losing much of that amount, then go ahead. Try simulated trading for a while. However, you'll find that trading "play money" is NOT the same as real money.

I don't think it's possible for anyone to "detach yourself from the money". When my accounts were smaller I didn't mind experiencing 20-30% drawdown, but now I always know my max backtested intra-day drawdown and make sure if that happens again I will be down net overall less than 10%. The max drawdown may only happen once every year or two, but half that amount can and does happen frequently - just look at your daily equity runs. If you aren't backtesting your strategies over at least one year of data, and don't know the max intra-day drawdown that happened over that test period, so will absolutely run into a series of bad trades that will cause you to do something "stupid" - like selling out at the bottom, doubling down, making the wrong trade by mistake, bailing on your system just when it's about to get profitable again, etc. The list of mistakes is endless... What I sense, by reading posts from novice traders, is they think this is easier than it actually is. The problem with trading is in the drawdown - whether it be the losing trades, or the down days, or the maddening wild market swings that make absolutely no sense.

I am completely aware of programming languages - I know several and have been writing code since the mid-70's. What I AM saying is that it is possible to make all the money you'll ever need with simple code - TradeStation EasyLanguage works just fine in this regard. EasyLanguage is not complicated - it reminds of me of BASIC with Pascal like structures. I only use a tiny subset of it and my systems work just fine - I have never had an idea that I couldn't easily code in EasyLanguage. I have seen some EasyLanguage code that it absolutely amazing - systems that have dozens of lines of beautiful code - however, these systems don't make any more money than my clear, simple, basic systems. TradeStation comes pre-packaged with many systems, and there are virtually unlimited numbers of systems being sold and rented all the time - and again, I have not seen any that can make more than 3-7% per month, compound, over any length of time in out of sample testing. 3% per month compound is 42.6% per year, and 7% comes to 125.2% per year. All you have to achieve to make 100% per year is 5.9% per month compound. What I am trying to say is to "keep it simple" so you can understand and trust your system. You don't need to have a PhD in programming to come up with a profitable and workable system.

I have noticed on the TradeStation forums that there are a great many serious programmers who are coming up with complicated code and complicated systems. I used to write complicated systems, but I have come to the conclusion that simple, logical systems work much better over the long haul. Basic system development is about the following: The data is smoothed to eliminate the "noise" A trend is discovered An entry signal is generated The trend ends or reverses An exit signal is generated That's really the heart of it...you trade your best system, you try to diversity, you keep attempting to improve the system as you notice things on a daily basis. You test on out of sample data. I can do all of this easily with a minimum amount of code in TS. There are some brilliant people with backgrounds in math and programming who love to develop systems with dozens of lines of code attempting to cover every contingency. Good luck to them. My systems are simple, logical, and I make money - what else is there? Yes, yes, I know - everyone wants to make 100% per month and catch every wave and wiggle in the market and get rich RIGHT NOW. If you can make 3-7% per month compound, you will eventually have all the money you need.

I guess nobody here uses TradeStation - I do. With TS I can backtest and program anything. With TS I get the data and indicators included. With TS I can set my strategies to auto execute for hands free trading. You don't have to reinvent the wheel. If you want to make money you need to concentrate on developing some workable, basic, simple systems that make money in real time and out of sample testing. Stop trying to reinvent the wheel - it's already been invented. If you want to drive across the country you don't have to make a car in your garage first - just buy a car and concentrate on the route. I used to program my own systems but TS and Ninja already have a programming language and can route your orders. You are completely wasting your brains and your time trying to do something that's already been done - stop the madness....

When the market "sorts it all out" you don't want to be the one it sorts out of your money and sanity. I've been trading a long time and the balances are big enough so that I don't want to lose more than 10% of net account valuation during periods of unusual drawdown. When the balances were smaller I didn't much mind losing 20-30%, but when the numbers get bigger that percentage really hurts. It's not play money. I have traded almost everything and gone through some huge and horrible market swings. In the "good old days" I was, in retrospect, reckless - overleveraged and traded without stops. I was able to make some sizeable gains quickly - but I found that the balances collapsed even faster. So, I have learned to be more careful. I have learned to NOT be greedy. A lot of novice futures traders want to make a lot of money very fast. And, many are able to do that for a while, but after years of system testing, I have a fairly good idea of what's theoretically possible - and I do believe one can make 3-7% per month on a fairly consistent basis - not every month, but most months, using logical, trend following systems and careful money management. I do want to point out that study after study shows that almost 100% of novice futures traders wipe out, as do most stock market day traders. I blame over-leverage and lack of system trading for this grim statistic. So, my current rule is to allow 10x my backtested max intraday drawdown to trade 1 contract. There are plenty of mini contracts that will allow a novice to get their "feet wet" and develop a system, and yet not get wiped out. At the end of every trading day I calculate my 1 week, 4 week and 52 week change in equity for all accounts. I want to know if what I am doing is really working or if I need to change strategies. My goal is to make steady gains, not to get some thrill by trading. Trading can become gambling, and can become a wild ride with huge ups and downs. Every trader has to look at themselves and ask why are they trading? My goal isn't to have fun or get my blood pressure soaring, it's to make consistent, steady profit, to be able to sleep at night, to have a fairly good idea of how much I will lose in a bad streak of drawdown - in other words, I don't want to become a statistic.

RE: worst loss - of course we can't know the absolute, final worst possible loss, but we can backtest and know the worst loss that has occurred during the backtest period. I allow about 10x that amount to trade one contract and this prevents me from getting wiped out or making some stupid mistake.

My systems are MUCH smarter than I am. They include the best ideas I have ever come up with. They don't forget. They don't make stupid mistakes. Through trial and error I have eliminated thousands of ideas that either don't work or don't work well, and included ideas that do work, and some work quite well. The systems have no emotions, they don't forget the rules, they don't get greedy or scared, and that's what I mean by smarter than me. They are a collection of my best ideas. They work for me day and night, waking or sleeping, at home or away. The systems can backtest, in 5 minutes, more theoretical trades than I can ever hope to test. In the "good old days", when I used to test ideas by hand with graph paper (before PCs), it took days to test a year of buys and sells. Now I can do that in a few minutes. I have been coming up with system ideas and testing them for decades, and I can't remember all the rules. The systems never forget.

Some thoughts on backtesting: I have been backtesting systems for 31 years. In the "old days" I had to enter the data by hand from the newspaper. I used to plot each data point on graph paper. Eventually I purchased a PC and wrote my own programs to test. In the early 90's I purchased System Writer (first version of TradeStation) to test, and have been using TS ever since. About multiple data feeds: TS only has one data feed. I realize there are many data providers out there. I have enough on my plate with writing and testing systems to have to worry about the various data feeds. I just have to assume that my TS data feed is adequate. I don't use highs and lows, only closing prices, so this minimizes most odd spikes in the data due to bad data points. I have learned a LOT about backtesting over the years. The main thing is that a backtest is only the optimized result of a series of buy/sell rules over a particular set of data. If the set of data changes, the results will change. If the system works in a bull market it might not work in a bear market and vice versa. If a system works with gold it might not work with the dollar index, etc. The worst "sin" of backtesting, in my opinion, is overcomplicating the systems - too many variables. I have found that the more variables, the better will be the backtest results, and the worst will be the forward (or real time) results. This is because of "curve fitting". So, my system development rules are: 1) the system must be logical and based on an obvious, observable pattern 2) the system must be simple, and have no more than three variables, preferably 2 and ideally 1 3) the system must work for everything, in all types of markets (not easy) - doesn't have to work great, but must still generally work 4) system profit over a one year period must be 4-5x max intraday drawdown to be tradeable 5) system profit must exceed buy and hold result over the same time period - this avoids simple error of thinking you have a winning system, when in reality you are just going long in a bull market or short in a bear market and it's really the market that's carrying you and not your system A backtest will tell you what didn't work in the past and might work in the future. Finally, I look for CONSISTENTCY. I want to see the daily, weekly and monthly results over a long period of time. The ideal system would make money every day - never have a losing day. This is impossible, but it is possible to have 10-11 out of 12 months show a profit in a backtest. This tells me that the system works in different market environments. Also, I always trade my best system. Any new system that I come up with is only a potential system, until I can show that it outperforms my current best system in different time periods, then I monitor it in real time, then I might make it my best system and trade it.

Trade with a system Trade your best system Actually trade the system - it's smarter than you Absolutely know the worst loss that might happen with the system and be prepared by the following: DON'T OVERLEVERAGE

Here's the rule: Basic pattern day trader rule summary: ------------------------------------------------------------------------------------------------------------------------------ An NASD & SEC rule that applies to anyone who buys and sells a particular security in the same trading day (day trades), and does this four or more times in any five consecutive business day period. A pattern day trader is subject to special rules. The main rule is that in order to engage in pattern day trading you must maintain an equity balance of at least $25,000 in a margin account. ------------------------------------------------------------------------------------------------------------------------------- So, once you are classified as a PTD you can only sell stocks to close positions once your account drops below 25k. You must deposit additional funds in the account to bring it to 25k or above to buy stocks again. Here's how this can hurt you: if the market is falling and you get stopped out on a dip, and your account falls to below 25k, you can't then rebuy back in until you deposit additional funds. Isn't that helpful of the government? They want you to be safe and cuddly and don't want you to buy those nasty stocks. This rule was put in place in 2001, in response to all the day trading that became a craze in the late 90's and early 2000's.

I agree that we likely have very different trading styles. I have found that I am completely unable to sit in front of a computer screen and day trade. In the late 90's I filled my home office with computers and a satellite data feed, then spent a couple of days attempting to scalp the S&P market. This was before automated trading. By the time I got a trading signal and called it into my broker I was too late - or filled poorly. Not only was I unable to make money, but I hated the experience. The first thing I found out was that I couldn't leave the room to go to the bathroom, then I couldn't go to the kitchen if I was hungry, or couldn't answer the phone or the doorbell, etc. After a couple of days of nerve wrecking madness, I shut down the operation. I concluded I couldn't live like that. Currently I use TradeStation to backtest my systems and trade with auto trading enabled. My systems trade day and night and I spend my time trying to improve them. Every day I try to come with new systems or improvements to current systems. I always trade my best system. I also try to figure out which systems work best with which trading vehicles - for example, one system might work great with GC or SI and not at all well with ES. Each market has its own "personality". I experiment with different bar lengths - from daily to 5 min bars. Bottom line - I am absolutely no good at "seat of the pants" day trading - can't stand it. I absolutely have to know the backtest results of any system that I trade - how much did it make, how much did it lose, what is the worst drawdown that might happen to me - and I have to make sure that if that does happen TODAY that I won't lose sleep over that loss. For me, day trading is an emotional roller coaster - and I have motion sickness. Happy trading!!!!

Last year during the "flash crash" the YM dropped 878 points in one hour. Really odd things happen all the time. Just this morning I saw the SF fall about $2200 in one hour, and the initial margin on that is $3375, no special margin for day trading. These wild swings are often called "black swan" events. You may or may not know about the idea, but when this happens to you it can wipe you out. If your account is 10k, and you fall into one of these unexpected potholes (or icy patches) then it's sad, but you can recover. It your account is 100k and this happens, the event takes on a whole new meaning. If you are living on trust fund money, who cares? But if that is money you earned the hard way - by working, then when you lose a years salary in an hour, it can set you up for a very bad headache. My point about drawdown is that it's an emotional event as well as a monetary event. When you experience drawdown you may 1) panic and sell out of your position at the exact wrong time, 2) be unable to eat or sleep, 3) stop trading just when you should be in the market, 4) ditch your system and start all over, etc..... It all looks easy on paper. Once you have real, spendable money (YOUR money) at risk in the market, equity drawdown takes on a whole new meaning. It's been my experience that when anyone talks about making 200% per month return, they are not realistic - have not traded their system long enough with real money, have not gone through bullish and bearish and choppy trading periods with their system, have not yet experienced max drawdown with their system, on so forth... I have studied the returns on countless systems that are advertised for sale, and tested tens of thousands of systems myself over several decades, so I think I have a fairly good idea of what's realistically possible, and at the same time, not get wiped out during some unusual event. So, forgive me if I am a bit skeptical of 200% per month returns. There is always the possibility that you have a method that can achieve this, and if you do, I wish you the very best - I hope to read about you in the financial press one day. I just think you should trade 1 contract over a multi month period, through the various ups and downs, to make absolutely sure that your system or method works in all types of market conditions. After you run your backtests, then trade in real time, you will have some idea of the possibility that your system will actually match theoretical results, and that you are able to trade it in real time with real money. Over the years I have come up with and traded many systems that just looked fantastic on paper. When I actually traded them in real time, however, I found that real results did not always match theoretical backtested results (which is why there is a disclaimer on all systems to that effect). Currently my minimum standard for trading any system is the following: over the past 12 months of backtest results, what is the net equity gain of the system vs the MAX intraday drawdown of that system. Is this greater than 500%? if so, it is a possible, tradeable system. And, by the way, if you believe you have a fantastic system or method and can really achieve the results you expect, and can do this over the long haul, then there is no harm to test this system with only 1 contract for a multi-month period, to make sure it works. And, if it really works, you have the rest of your life to trade it. It has been my experience that almost ALL traders, early in their trading life, become too enthusiastic and too confident in their system or method, and then become over leveraged, then get wiped out. Perhaps this will not happen to you. A very common reason for system failure is mistaking "brains for a bull market". In other words, the system works from the long side when the market is bullish, but fails in a bearish market or sideways market. If you try to go long in a bear market, the odds of making money are greatly reduced. So, you have to be sure that the results you are getting are really because of your system and not just that you are going long in a bull market, or short in a bear market. Best of luck to you.....