One of Tom's favorite proverbs was "it's good to have a system even if it's a bad system". I made some very rare profits the last two days with the theory that the Boston situation was a cover up of Mideast activity and was able to profit from a few news announcements and reactions thereto with that theory but the theory was wrong and I was wrong and (one is seeing the Mikado tonight). At least having a system prevents you from being oscillated out by stops or excessive vig or ephemeral things unrelated to the theory which are wrong too, I think. 





Speak your mind

4 Comments so far

  1. Ralph Di Fiore on April 19, 2013 10:55 am

    Greetings from Toronto Victor! Just read your magnum opus, Education of a Speculator for the umpteenth time and of course the section on Tom Wiswell is a gem. While not Wiswell, I believe it was Lasker who said, “when you see a good move, look again until you find a better one”. As you note in Ed of Spec in reference to Bacon’s book, I always go back to your book for fresh new ideas. Read your post of a while back in which you lamented your sins of trading losses. The market mistress is a cruel madam as you point out rather well in your book. I just want you to know that I consider Ed of a Spec a masterpiece in the field of speculation and that regardless of your current state, the book is replete with valuable wisdom anyone can use to profit in the markets. I suspect you deviated from the wisdom found therein to produce losses but it takes nothing away from the gem nature of your work in Ed of a Spec. Keep your chin up Victore and thanks for this wonderful blog.

  2. Ed on April 19, 2013 12:41 pm

    That is a very wise point. Operating without a system means being driven by the same emotions that motivate the crowd to contribute more than they should. The real evidence for this in my opinion is the money weighted return problem that most all funds, even index funds, suffer from.

  3. O.T. on April 20, 2013 5:02 am

    I second that. Niederhoffer is a hero to me, but that needs to be said in a meaningful way, because the positive impact he’s had on people is real, and it’s significant (in my case).

    In response to his post, My first algorithm (actually a large set of algorithms, like any system) on some “theory” (delusions of grandeur) was…irrelevant: Finally (after months) getting something onto the screen, I dialed the parameters so tight that .90+ of trades supposedly would been profitable. The result: over 3 thousand “trades” of data showed the algos to be total losers. Long stretches of little wins, and seemingly random large losses. A true break-even was in .60+ range of trades being “in the money”, but still would never be worth it. After selecting parameters with the maximum total return, I thought about you describing markets as being wonderfully efficient at keeping people in the mediocrity-zone, because .40 to .50 of trades being correct would have optimized the alleged market beating returns. The whole thing was rotted with obvious hindsight bias by that point. However, it was quite pleasing to see what you said right before my eyes. An offer to make a deal with the Mistress such that one would suffer more frequently than pleased. In return one can possess the belief that some of those large down days may turn around just enough of the time that my nearly uncapped, now almost fully time dependent loss taking would succumb to my less frequent, price dependent capped gains. I would have been more comfortable with that system than none at all. At least then there some kind of description of reality (losing more than winning), and it could be falsified after a short time.

  4. douglas roberts dimick on April 22, 2013 4:00 am

    Systematics of Systems

    Two aspects of program trading systematic architecture are noteworthy a la V’s observation on good and bad systems.

    First, as has been discussed here at daspec, distinguishing between open and closed systems may govern how one constructs a trading system, be it based on the particulars of a science or the generalities of a theory. For instance, see how closed systems operate within human immune operations.

    A primary concern for traders thus would be how open/closed functions impact financial modeling of price action relative to input-output-state correlations of market situations (or patterns). As most trading systems are linear in construction, eventually, we face the limitations and deceptions (or false confidence) that a system operator may mistake for functionality. How could we indentify and measure such indicated divergences?

    A second issue is highlighted with V commenting that “a system prevents you from being…” Regardless of one’s corresponding strategy, the order-execution functionality (and efficiency) of a trading system is dependent upon it’s usability.

    Why does the algo-quant bandwagon address this issue with validation through statistical independence based on probability theory? Consider the extensive examination here at daspec of random walk.

    I am reminded of a mathematical instruction…

    “Upper-level classification distinguishes between Euclidean and projective spaces, since the distance between two points is defined in Euclidean spaces but undefined in projective spaces and related to “typical characterization” (or “typification”).”

    Could it be true within any given electronic market exchange?



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