Better System Trader

You may have noticed over the past few weeks of 'Thursday Trading Thoughts' that we’ve been following a theme. In episode 113 we heard about a test Kevin Davey calls the ‘Monkey test’, which can be used to measure the effectiveness of entries and exits. Then in episode 114 we reviewed a technique that Dave Bergstrom shared to measure the decay of a trading edge so that we can determine when an edge has gone, and not overstay our welcome at the party. In this weeks trading thought we’re going to discuss the process of combining edges, filters, conditions into a trading system. A common practice when building trading strategies is to combine indicators or filters to see how that particular combination impacts performance, however this practice can be overused or abused, leading to curvefit strategies that don’t perform so well in live trading. In today’s episode we're going to hear one solution for this problem, from our guest Art Collins, who is going to tell us the process he uses to combine edges while red

Glad you could join us today for our chat about intelligent systems that maintain themselves. Sounds good doesn’t it? Well actually, that’s not all we’re going to discuss today, we’ve got so much more than that. Our guest for this episode is David Stendahl, from Signal Trading Group. David is a CTA with more than 20 years of experience designing and trading systems, and not only is he an international speaker and the author of 4 books but he also co-created the backtester in Tradestation many years ago. In this episode he’s got a lot to share with us, here are just some of the points we cover: How to build intelligence into trading strategies so they dynamically adjust and maintain themselves over time, The key to portfolio construction and the major factors to consider for effective diversification, Why it can be better NOT to specialise in a particular market, The main drivers behind strategies that have lasted more than 10 years in the markets, How to assess if a strategy suits your personality.

Last week we reviewed a technique Kevin Davey shared to measure the effectiveness of entries and exits using something he calls ‘the monkey test’. This week we’re going to look at entries and exits from a slightly different angle: How can we measure a trading edge after we’ve entered a trade, Is it possible to identify when that edge has disappeared so we can consider exiting the trade rather than overstaying our welcome? In this episode we’re going to review a technique that Dave Bergstrom uses to measure the decay of a trading edge. We pick up the conversation talking about validating trading strategies for robustness, take a listen!

Today, we’re going to have a quick chat about the effectiveness of entries, and a simple technique you can use to determine how good an entry or exit really is. I’ve been working on some breakout strategies lately and I’ve noticed in some of them that the entry really isn’t that important at all… That is, I can be pretty loose with the entry values and get similar results… So there are other components to the strategy that are actually driving the performance. Now, this got me thinking about measuring the effectiveness of entries and exits, so today I want to share a technique that Kevin Davey calls the “monkey test”. And no, you don’t need actual monkeys for this! Let’s hear how Kevin uses the monkey test to check how good his entries and exits really are.

Glad you could join us today where we get to chat with Stefano Serafini – the current leader of the World Cup Championship of Futures Trading®* I met Stefano in New York at a trading masterclass a few years back and he’s been doing some great things with his trading. As I mentioned, he’s the current leader of the World Cup Championship of Futures Trading®* Sometimes in these trading competitions you see traders rocket to the top of the leaderboard really quickly, but they usually disappear just as quick. Anyone who’s been watching the competition this year would have noticed that Stefano has been pretty consistent so far, so we’re going to discuss his trading approach, especially around intraday trading strategies and portfolio construction. In our chat you will learn: How to use filtering on higher timeframes to produce higher quality intraday trades, How ‘time windows’ can improve trading results and what to look for, How to combine multiple strategies into a portfolio and then manage it to keep the portfo

As systematic and algorithmic traders, we have a number of tools and processes we can use to test and validate trading strategies. For example, in-sample/out-of-sample testing, walk forward analysis, cluster analysis and a bunch more. (And don’t forget all the fancy named techniques that have been lumped in with Machine Learning that are sometimes just rebadged techniques that have been around for ages already!) Anyway, one of the tools that we have at our disposal is Monte Carlo analysis. When you’re using a tool it can be good to understand how it works... What are it’s strengths? What are it’s weakness? Today I’m going to share with you a little bit of audio from Dave Walton of Statistrade, explaining the benefits of Money Carlo analysis, and also a few of the weakness or false assumptions around Monte Carlo analysis that we really need to be aware of if we want to manage Monte Carlo effectively. Let’s take a listen to what Dave has for us.

T Today I want to share with you one of my favourite Seinfeld episodes ever. It’s the episode where George Costanza realises that all of the decisions and actions he’s taken throughout his life have been the wrong ones. So he decides to do everything the opposite. He’s in the diner with Jerry and Elaine and he sees an attractive woman sitting up at the counter who seems to be interested in what he’s doing, glancing over at him. Instead of sitting back and doing nothing about it he does the opposite... He approaches the lady, announces that he’s a short, bald, unemployed man who still lives with his parents, and... She immediately goes out with him! Later on, he gets an interview for a job with the New York Yankees and during the interview he gets an opportunity to meet the owner. Instead of sucking up to the owner, he does the opposite and tells him how much the team sucks, how he’s done a poor job managing it, making stupid decisions etc, and... The owner immediately hires him! Every time George does the opp

The markets are in a constant state of adaptation. Conditions change. Strategies fall in and out of sync with the market, causing periods of good and poor performance. So what can we do to improve consistency by making our systems adapt better to changes in market conditions? Our guest for this episode, Brian Miller, is from Optimized Trading, and in our chat he shares with us: Why implementing adaptability into strategy design is so important and some techniques you can use to create adaptive systems today, Why market classification needs to be considered and the types of approaches you can use to classify the market, How to pursue a multi-model structure that adjusts dynamically to changing market conditions, Plus much more. Note: This is the 1st part of 2 recordings, look out for the 2nd part coming soon!

Over the last few months you may have noticed an increase in the number of articles being published on the internet using Market Breadth to predict which way the stock markets could go next. In fact, I saw one just recently that said the US stock market is set for a parabolic move. Now, as systematic traders I'm sure most of us are not really interested in predicting those types of things... However Market Breadth measures can provide us with additional insights into the underlying conditions in the market that aren’t so obvious looking at a price chart. So today I want to share with you some Market Breadth knowledge from Greg Morris, who oversaw the management of over 5.5 billion dollars. Take a few minutes now to hear from Greg about Market Breadth and what it can reveal about the underlying conditions in the markets.

"I think most traders use canned indicators like a stochastic or RSI or MACD, with a fixed length without thinking much about them." - John Ehlers They take the default length, or one that performed well in a backtest, or even one that has been recommended by someone else, and they start trading with it. They may have a good run for a while... And then it falls apart for no explainable reason... The basic problem is that market conditions change, but indicators are fixed and don't adjust to changes in market activity. So how can we make our indicators more adaptive to market conditions? Take a listen as John Ehlers explains a technique we can use to build indicators that adapt to market conditions and also shares a simple trick to check if our indicators are in-tune with the markets or not.

I have to admit… I’m a bit of a sceptic. However, I’ve had so many people recommend meditation to me in the past. Successful people. People I have a lot of respect for. In fact, some of the previous podcast guests, some big names, have shared with me how powerful meditation has been for them, both personally and for their trading. But it’s not just traders, many successful business people swear by it too. So, what’s all the fuss about? I’m always on the lookout for anything extra that can give us an edge in the markets, so could meditation be something us traders can harness to our benefit? Or is it all just some weird mumbo jumbo sham? Well it’s time to find out, so in this episode I speak to Adam Grimes about meditation and trading, including: What is meditation, and does it actually work? What are the benefits and drawbacks of meditation and can it help traders become better? How to get started and what to expect. This is only a short episode, so even if you’re a sceptic like me and think this may have n

Today I want to share an optimization insight from Perry Kaufman. I was reading an article on a trading website and the author was making some assumptions based on the optimization results which may not have been entirely accurate. I think alot of traders can get caught up making this same assumption... I know I definitely have... And it's good to be reminded of these types of things so we don't make the same mistakes. Listen to Perry explaining what this assumption is, the danger in making it and how to overcome it.

A few years back I was on a holiday with friends at Hamilton Island in the Whitsundays. We were cruising around the island in a golf buggy when a friend suggests we go to the shooting range. I'd never even touched a gun before but while we were there I decided to shoot a .44 Magnum... 'the most powerful handgun in the world' according to Dirty Harry! Take a listen to hear what happens next and how it applies to trading.

Indicators often form a large part of trading systems, however there are a number of issues caused by indicators that can result in under-performing trading strategies, like: they're reactive, instead of predictive, they have alot of lag, which means they're slow to respond to the markets, and they can often give you a signal too late so you’ve already missed some of the move or even a large part of the move! Today we talk to John Ehlers who is going to share with us a brand new indicator he's developed that overcomes alot of these issues. This new indicator: Minimises lag, Is very responsive to the market, and Gives a fast indication of turning points. Plus at the end of the chat we share how you can get a FREE copy of this new indicator to try it out for yourself.

I'm currently in Sydney for a week doing some work, and I'm staying in one of the hotels near circular quay, overlooking Sydney Harbour. I won't share name of the hotel because it's a well-known name, and it's actually a really nice hotel... However I had an experience with them when I was checking in that I wanted to share because I think it has some nice parallels to trading strategies. Take a listen!

Most trading strategies are built to find repeatable patterns in the market and then attempt to exploit any future occurrences of the pattern to make a profit. There are lots of different ways to find patterns, and in this episode Brent Penfold talks about patterns in price action. Brent is a full time trader, author, educator and licensed Futures Advisor, and in our chat you will learn: Why it can be better to focus primarily on price instead of a collection of indicators, How to identify patterns in price action, The dangers of trading stocks and why Futures are a superior trading instrument for active traders, How a ‘universal dataset’ can lessen the risk of datamining, How to blend individual systems into a portfolio to produce smooth equity curves. PLUS, we announce the lucky winner of the Better System Trader ‘Super-package’ giveaway, worth almost $20,000!

Jack Schwager returns to answer all your trading questions. Jack is a well known expert in the industry, working for some of wall streets leading firms and is also one of the founders of FundSeeder. Plus, he's the author of the best-selling series of 'Market Wizards' books, which I'm sure most traders on this earth have read! In this 2nd part of our chat with Jack, he answers all of the trading questions you submitted (well most of them anyway, unfortunately we didn't have all day to talk!) Plus, to celebrate the milestone 100th episode, we've got a huge giveaway worth almost $20,000 -  and one lucky trader is going to win it. Listen for more details and information on how to enter.

When I was learning to snowboard, I still remember the first time I got off the lift chair, strapped myself in the board and looked down the mountain. It was really overwhelming and I wondered how I was actually going to get down there without any injuries! My instructor was very comforting telling us ‘Not to focus on the bottom of the mountain’, because even though that’s the destination, to get there we were actually going to zig-zag down the mountain. So we needed to focus on the next turn and how we were going to execute that. We were told to look where we wanted to go, so if you want to go left then look left, your shoulder/hips will turn, your body weight will shift on the board and that will steer the board. And as you’re moving across the mountain you obviously want to look for hazards, look for where you want to turn and focus on shifting your body weight to steer the board around the corner It was all about the process. By focusing on the process, the outcome would eventually come. That is you'd wor

It can be really interesting and exciting to research the markets and test different ideas but at some stage we need to decide if the strategy is ready for live trading. Some traders can get stuck endlessly researching… Trying to find that perfect system… Which comes at a cost. How do we avoid getting bogged down in research? How do we know when a trading strategy is actually ready for trading? Let’s listen to Kris Longmore from Robot Wealth explain his approach to determining when a trading strategy is ready for live trading.

Jack Schwager needs no introduction. He's a well known expert in the industry, working for some of wall streets leading firms. Plus he's the author of the best-selling series of 'Market Wizards' books, which I'm sure most traders on this planet have read! In this chat with Jack we discuss Optimization Myths, referencing some interesting results of a study that analyses the effectiveness of optimization... The results may not be what you expect... And could have a huge impact on the way we test and trade strategies. There are plenty of other nuggets of info too, including: The relationship between the best performing past and future parameter sets, Why optimization adds very little to the power of a trading strategy and where to focus instead, and How to properly assess trading results to determine if it’s your strategy or the market that’s actually any good.