I have a trading system that has lost about 23% over the last five years. In that time, there were 166 trades, and 44 were profitable.
Do I have a good trading system?
I have a trading system that has made about 26% over the last five years. In that time, there were 121 trades, and 33 were profitable.
Do I have a good trading system?
I have a trading system that has made about 1500% over the last five years. In that time, there were 138 trades, and 41 were profitable.
Do I have a good trading system?
The results are quite different, but it's the same system: I'm buying on a move above the 20-day moving average and then selling and getting short on a move below the average.
The first set of results are for the S&P 500 Index (SPY); the second are for oil (USO); the third are for Apple stock (AAPL).
The win percentages are similar, but the difference in the amount taken out of each winning trade makes all the difference in the world.
We so often focus on setups and how to enter and exit when--just as important--is *what* we're trading.
A trading methodology should be built upon the instrument one is trading...one should not (in the manner of Procrustes) try to fit each market to a predetermined system. If you understand that, you'll save yourself much money and grief in the year ahead.
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4 comments:
what an excellent post. had never thought about it like that.
Very nice info! Thanks
Wow I would have never thought. Now my head's spinning with Why!!!
I would imagine some of the more successful trading system developers do develop their trend following systems to work across a variety of markets.
There are 2 competing schools of thought:
1. Market data is mostly random thus the objective is to capture the trend.
2. There are specific price anomalies or tendencies inherent to a given market.
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These trend following systems are probably not too smart, certainly not as smart as a trader specialized in one instrument. But they, the argument goes, make up for it by diversifying and finding the best trends. Such a system might be viewed as more robust or legitimate, as well.
Selection bias might, for example, favor the trend following systems that favored commodities. But if that selection bias can be forward looking then that would be a good thing.
A strategy that trades multiple instruments might be compared to a very poor trader but one that finds the best opportunities.
Of course, the system has to work in the first place.
http://tradestudies.blogspot.com/2009/10/what-kind-of-trader-are-you-trader.html
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