Author Archive
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Black Box Chronicles: a Conversation with Optimization
Milk Trader, Milk Trader | September 18th, 2009 at 8:14 am
I'm having the most pleasant conversation with Optimization over a couple of espressos and biscotti when this hideous creature walks into the room. The she-devil says she has to talk with Optimization in private, so I muddle over to the counter to get two more espressos. But I'm listening carefully.
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Upcoming Classes, Objects, Properties and Methods
Milk Trader, Milk Trader | September 15th, 2009 at 8:27 am Maybe I'm doing a little too much programming lately, but I've decided to lay out my plans for system development into classes and objects. This is more than just creating a super-duper trading system that uses data mining as its justification for massive, unheard-of returns. And it's more than just creating a 'system.'
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Optimizing the Bumblebee
Milk Trader, Milk Trader | September 8th, 2009 at 8:13 am The purpose of optimization is not to find the optimal parameters. Yes, that's not a typo. The main purpose of optimization is to validate backtest results. You'll remember it was the backtest's job to validate a trading idea. Well, now backtesting is on the hot seat and optimization is the judge and jury. Optimization will validate that backtest results are not simply the product of chance, and that the system stands a chance of making money in the future. It will do this by creating a profile sketch of the system. I know, sketches are not the first thing you'd associate with spreadsheets. But in our world, it's what we have to work with.
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Black Box Chronicles – Getting Lost
Milk Trader, Milk Trader | August 28th, 2009 at 1:13 pm I'm trapped inside a black box. I know, I was warned not to come here in the first place, told my best option was to keep it simple: trade the probabilities, let your winners run and limit your losses. It started as a simple glance, really. Then a gaze and then I took the first step into the black box. Now, I don't know how to get out. Don't be alarmed, I'm comfortable here. The people (creatures, really) are pretty nice so far. But I need to leave here at some point because from everyone I've spoken to, you can't trade while you're in the black box. That seems patently absurd to me since the black box is system trading, and 'trading' is part of system trading. Right now though, I'm not in the mood to argue. There's some pretty cool stuff in here and interesting creatures roaming about that I've got to bring out.
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Closed SPX and RUT Iron Condors for August
Milk Trader, Milk Trader | August 19th, 2009 at 12:25 pm Yes, I've filed for a divorce with high-probability trading, but there is the matter of leftover trades that must be dealt with. These are the last Iron Condors I'll be doing for a while. The next one I do will be hatched under the roof of systems trading. You'll see that I didn't do what I said I was going to do with both these trades, and my assumptions about what the market was going to do for the next six weeks was completely wrong. I changed my mind as the market conditions changed, and in the mean time I endured the rather unpleasant emotions of dread, loathing, fear, resignation, hope, more dread and so on.
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Backtesting the Bumblebee (Part Two)
Milk Trader, Milk Trader | August 18th, 2009 at 9:29 am I only broke this up into two separate blogs because if you endured the first part, you may be interested in the second part. But you also may have had enough. I know polite readers will finish what they've started, so I wanted to give them a logical stopping point. In this part we will continue our exploration of how Bumblebee performs on historical data. So far, we got decent results from a 10-year test window in one market. Now, we continue down the rabbit hole.
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Backtesting the Bumblebee (Part One)
Milk Trader, Milk Trader | August 16th, 2009 at 8:45 pm After one has formulated a trading idea, coded it and tested that the code does what it's supposed to do, it's time to put the notion to a test based on historical data. Don't be scared and quit biting your nails. This is good for you. Backtesting is the arbiter of the trading idea. You can't make the swim team unless you can first swim across the length of the pool. You cannot trade a system that has not shown it would have actually made money in the past. I'm assuming you are a trader whose objective it is to make money in the markets, and if you're a different sort of trader, you may not want to keep reading. By the way, I pass no judgment on you if you choose to trade for reasons other than to make money. For the profit-minded sort, it will not require too much persuasion to convince you that we only want to trade systems that have shown potential for making money. Backtesting will show that a system either has the potential to be a traded with real money or is nothing more than whimsical fantasy. If you suspect your trading idea is whimsical fantasy, then you may choose to keep it somewhere safe, because this is going to get a little rough.
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Trading shibboleths are acid on the brain
Milk Trader, Milk Trader | August 6th, 2009 at 9:34 am It's virtually impossible to have a meaningful discussion about trading with someone who's contribution is proudly limited to spewing trading shibboleths. Their account never suffers a loser because of their faithfulness to petty phrases such as 'the trend is your friend' or 'trade what you see, not what you feel' or 'keep your losers small and let your winners run.' Shibboleths are popular phrases that have become devoid of meaning. Those who repeat them are revealing themselves for who they are.
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I've filed for a divorce
Milk Trader, Milk Trader | August 4th, 2009 at 12:09 pm I think, and hope, that we can still be friends, but my days of being married to high-probability discretionary trading are over. This separation is amicable and mutually agreed upon. We had a good run, but things ran into trouble last year when the market gave us something we've never seen before. Our relationship has never been the same since. The screaming, the accusations ... oh, it got ugly. I thought maybe we could work it out this year, but this latest 3-week rally has put a permanent end to our relationship.
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You don't need to follow trading rules
Milk Trader, Milk Trader | August 3rd, 2009 at 8:36 am We've all heard the proselytizers of trade planning bemoan lesser traders that they need to follow their trade rules. Yet, emotional traders still dominate the retail trading landscape. After hearing about how bad they are for acting as they do, they flagellate themselves for allowing emotion to enter into their trading decisions and re-dedicate themselves to discipline trading without emotions. But who are we to judge why and how someone else trades with their money
