Thoughts from trading strategy development

One of my regular trading related work is constantly researching and creating trading strategies for my trading tool box. It is an interesting job. The programming, testing, and debugging are  painful and sometimes, mind wrecking :-). But, it is still considered as mechanical effort, since we have the strategy, rules, the work is just translating it into codes.

The most interesting and tricky part that I have found is the process of developing the strategy.
There are always similar questions like,
“Why did the strategy did not catch this sell off?”
“Is the criteria too strict and missing out opportunities?”
“What should I do to avoid this loss due to choppy condition?”

So on….

Seriously, there is no absolute answer for these questions. The end result of trying to answer them will be nothing but curve fitting.

If there is one thing we must learn before developing a trading strategy is to accept the non-perfectness of it. Face it, no strategy or system is perfect. One should never try to “fine tune” or expect his system/strategy to fit all market conditions. You will have losses. You will have draw down. You might not agree with me, but that’s true. I hope this statement is hard enough to make you quit trading or at least quit developing your own system. 😆

The key point is to first understand the nature of your strategy. Be it a trend following, a range bound top/bottom picking or contrarian strategies, whatever. Understand it, accept the fact that losses will be there. There will be situation that your strategy does not work. And , also, the strategy should be developed in line with your own personality, ok, I am not going into it, but you got the point.

A simple rule I am using when developing a strategy or a system is to have positive expectancy with acceptable accuracy (winning rate). OK, I hear some people shouting about accuracy is not important as long as we have good positive expectancy. Well, it depends. Weak hearted small traders, are you really able to take the 70% failure of your system though you know it is having a positive expectancy in long run? You might be killed mentally. For more about this topic, read about my old post here .

Alright, that’s all . Just another piece of my random rant. I am going back to fix my program bug now….

And , yeah, once you’ve done, start live trading with extremely small position. You will be surprised. 🙂

About Gav

A Father, Husband, Trader, and Blogger. A serious coffee addict. Started trading since 2005, trades Futures and FX.

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Comments

  1. Might I ask what software you use for building out strategies?

  2. Might I ask what software you use for building out strategies?

  3. Yo steve,
    For my currency trading, I am working on Metatrader right now, and start looking into Ninja Trader soon.

  4. Yo steve,
    For my currency trading, I am working on Metatrader right now, and start looking into Ninja Trader soon.

  5. Gav:

    Yeah, I’ve tooled around with metatrader, looks like I’ll be getting into that forex voodoo

  6. Gav:

    Yeah, I’ve tooled around with metatrader, looks like I’ll be getting into that forex voodoo

  7. A really good post Gav. I follow a similar process but the thing that really makes a difference (for me at least) is constantly reminding myself the most important part of any strategy is in managing your money. When I finally ‘got this’ I became a little less analytical and critical of the strategies I was developing

  8. A really good post Gav. I follow a similar process but the thing that really makes a difference (for me at least) is constantly reminding myself the most important part of any strategy is in managing your money. When I finally ‘got this’ I became a little less analytical and critical of the strategies I was developing

  9. coming up with new trading strategies is exciting but it can lead to overload.

  10. Thanks Gav for sharing this part of the article. Your strategy development for trading seems to be good but i will go for Forex. But thanks for sharing the article. It might be helpful for many peoples in this criteria. Nice post Liked it.