Hi Guys, hi from Andrea Unger. Today I would like to briefly discuss about trading systems.
Most often on web or forums and so on there are discussions about trading systems. Sometimes there are some codes, open source codes and what I noticed that is often the idea behind a trading system is something that imagines a machine, a hidden logic and something that only a computer or a machine or an algo can discover.
So it seems that trading systems are a very complex idea made true only because there is a machine discovering these setups or these hidden orders in the markets, and another common idea is that a trading system to be considered robust needs to perform well on every time-frame and every market.
I don’t have any of these systems, I don’t even believe something like this exists because I believe that there is nothing like that. Every market has a different behavior and every time-frame has a different behavior.
I’m not going against mandelbrot’s fractal theory, I’m just saying that noise on short time-frames has a strong impact. And this changes a lot when we build rules based on shorter time-frames.
That said, trading systems are not really that complicated and I can tell you that very simple ideas are those still working: end of month for rally or end of year rally? all these things work on the stocks market, but also other things.
Imagine you work on the DAX index. You can do it from CFDs or on the future as well and you enter long every Wednesday’s night at close of the market, you enter long, just some seconds before the close, and then you close the position the day after.. this thing, this thing produces money. It made money on a regular basis, maybe not enough money to cover the costs of trading or so. I’m not saying this is THE system, this is just an idea that works, but shows there is an edge because of the structure of the market. But this is a very simple idea.
You don’t really need computers to discover this. Or maybe you’ll need to read the markets, but the idea itself is simple if I’m explaining it to a kid he or she is able to replicate it very easily, so don’t be afraid of trading systems because they are not really something where you depend on the machine’s wisdom because there is no machine wisdom.
It’s your wisdom, your wisdom as a human being on top of the machine building the trading systems, and trading systems are a set of rules of common sense rules and ’till the common sense is at the basis of the rules that you put together, you’ve also the hope not to exceed in a number of rules and conditions so not to fall into the overfitting trap, which is obviously the enemy of every system developer.
So the message is don’t be afraid of trading systems. Don’t be afraid of machines because you, you are the developer, you are on top of it and you produce the trading systems.
The machines, the computer are tools that you can use and help you to speed up calculations to increase the number of tasks. But it’s you, your knowledge, your experience that is on top of it and that builds the ideas behind the trading system and normally they are very simple ideas because they are the ideas the work.
This is it for today, ciao from Andrea Unger see you next time.