A reader, Z.S has a question on WFA. His question and my response follows: I struggling with WFO similarly to you in your article: https://beyondbacktesting.com/2017/02/09/wfa-failure-scenario/ Despite the fact WFO should bring verification to the development process it rather yields more uncertainty. Simply changing WFO insample and outsample periods or fitness functions the outsample changes wildly, … Continue reading Question From a Reader on WFA
Backtesting has many inherent limitations. The chief among them is that backtesting can only eliminate systems that did not work in the past. In fact, it cannot even do that fully. It can only eliminate a specific form of proposition which is based on the form of "Doing X was profitable in the past and … Continue reading Market Cognition: The Solution To The No Solution Problem
For the new and beginning developer, one problem you might encounter is not having enough capital to run more then a few systems. This can lead one not to work on their system development as much as they could. It is my belief that all market movements are the result of market cognition. Market cognition … Continue reading Market Cognition and Super System
This blog is dedicated to exploring the concept and ideas of graybox trading. Some traders are excellent at reading and predicting markets. These traders make use of primarily two specific skills that help explain much of their abilities: implicit learning or pattern recognition and market cognition which can be summarized as either (1) understanding how … Continue reading Better Systems, Better Discretionary Trading
There are some suspect arguments regarding why Bitcoin must rally or must not rally that I'd thought I'd address below: Argument: Bitcoin must rally because the supply is limited. Counter: The problem with this argument is that it is known and has been known since inception that the supply is limited. Markets are forward looking. … Continue reading Bitcoin skyrocketing because of limited supply?
I wanted to share some observations I've made regarding when discretionary input can help or hurt the performance of a systematic strategy and in specifically what ways it is likely to do so. First, fear based decision making is most-likely to hurt the performance of your systems. A typical fear based decision is when something … Continue reading Productive vs Non Productive Discretionary
One problem with traditional backtesting is that it relies on the presupposition that there are repeating predictive patterns in the market. In fact, most trading methodologies rely on this assumption. And yet, we know the disclaimer that past performance is not indicative of future results. And, yet backtesting largely assumes that the future will be … Continue reading Simulation: Beyond Backtesting
Beginners are taught the importance of developing a trading plan. The problem with a trading plan is that most trading plans will read like a wish-list. They are not likely to be based on facts or empirical evidence. Example of a well-intentioned but poor trading plan: My plan is to trade the ES using tape … Continue reading Beyond a Trading Plan
I wanted to share what I see as working in my own trading when I use discretion and what is not working. What tends to be working Predicting/forecasting direction primarily on smallest time frames for a few points at most. Predicting and picking good points where the market is likely to turn on a medium … Continue reading What should be discretionary vs systematic?
It is difficult to imagine a singular rules-based trading system that can accurately capture what expert level discretionary traders do because the expert trader is primarily forward thinking and speculating. Yet, even the expert discretionary trader faces two significant problems. The first problem is that even if one achieves a high accuracy in speculation, it … Continue reading Coin flips and graybox thoughts