#075: 3 IMPORTANT TRADING TIPS AND TRICKS
Download FREE resources to boost your trading
SOTR images-05-Emini min.png
SOTR images-06-STU min.png
SOTR images-08-TMI.png
SOTR images-07-SFB min.png
SOTR images-02 v4.png
SOTR images-09-v3.png
SOTR images-03-MSA min.png
SOTR images-01-v3.png
SOTR images-10-Checklist.png
SOTR images-04-Adaptrade builder min.png
Automated trading strategies that work!

© 2015-2018 SystemsOnTheRoad.com. All Rights Reserved  | Contact | About Me | Privacy Policy

  • LinkedIn Social Icon
  • Twitter Social Icon
  • Instagram Social Icon

DISCLAIMER:  Futures trading systems and commodity trading bear a high degree of risk. People can and do lose money.
Hypothetical results have many inherent limitations. Past performance does not guarantee future results. 

 

ACTUAL RESULTS SHOULD BE VIEWED WITH CAUTION, BECAUSE PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

OUR NEW PLACE

I'm a paragraph. Click here to add your own text and edit me. Let your users get to know you.

#075: 3 IMPORTANT TRADING TIPS AND TRICKS

In today’s article I would like to wrap up all the important things I have learned in trading in the last decade. So let’s get to it!

 

1. Risk management and positive RRR

 

We started to work on our private fund and our application TradingDirector with our team three years ago. At the beginning, we asked ourselves one fundamental question: "How can we shift risk management to a really high and sophisticated level?" Please take notice of the fact that our first steps towards working on our own fund weren't about which broker to use, what server to have, or what strategies we should use. All these questions wouldn’t be significant unless we understood that the base for successful trading is mainly a high-quality risk and portfolio management.

 

The edge in the market doesn't last forever. Strategies fail in time (even though some may work for years), markets change faster than they ever did before, and drawdowns were, are, and always will be present. Therefore, the question is - what is the best way to deal with that? These are all aspects that need to be resolved on a risk-management level and not on the level of brokers, servers, and strategies.

 

From my point of view, the most important thing is to create a concept of how to look at money management as a whole. Our elemental approach is based on the philosophy that each strategy in a portfolio is like a single employee in a large firm. And the point of managing such a firm isn't based on the fact that each employee should receive the same part of the firm's resources (same percentage of capital), but each employee should have dynamically allocated resources based on how they are doing; how effective they are, and how they are contributing to the firm as a whole. Therefore, our risk management is based on a very dynamic real-time evaluation of actual effectivity of all the "employees". That means, not only from a point of view of their singular effectivity, but also from the viewpoint of their functionality as a whole. Based on such evaluation, different resources are allocated dynamically to each "employee" in time.

 

Simultaneously, it is important to take into account all the firm’s resources as a whole (we can look at it as a cash flow) and such resources are also globally increased or decreased based on how the firm is doing as a whole.

 

In such a model of management, it is important to consider many different aspects, from analysing the quality of each trade, the distribution of the latest ones, as well as of all existing trades through different analysis of equity, volatility, and current quality of markets. The model is therefore very dynamic and literally it can change every minute the distribution of resources to each "employee" and also the whole firm. Naturally, I won't give out any more details about this subject.

 

The point for which I am writing this is very simple: It is really important to have a clear idea of how to manage the capital. You don't need sophisticated models if you don't plan to manage big money, but if you are a small “ordinary” trader you have to know what percentage of the capital you risk per trade. If such risk makes sense from the point of the Monte Carlo analysis (and maximum possible Monte Carlo drawdown) and also to have a specific plan on when and how to increase or decrease the amount of contracts, and how to deal with strategies and patterns that currently have a bad period (such strategies shouldn't receive the same resources as those that are doing well).

 

I strongly suggest to trade with positive RRR. From my personal experience - it is easy to find a beautiful, smooth equity with negative or RRR 1:1, but later on commissions and slippage come in and cards radically change in your disadvantage.

 

Also, I suggest a book, “Definite to Position Sizing”, which I used to get inspiration for my fund.

 

2. Regular maintenance and adaptation

 

From the experience I have gained over last few years - whatever edge in the market you have, whatever approach and trading path you have, your edge will need occasional changes, updates, and maintenance (even if you trade discretionary).

 

Some changes are changes in stop-loss and exits (better adaptation to new volatility); sometimes it is regular optimization; sometimes small changes in a fundamental idea of the edge. Occasionally, some of this work will be done by auto-adaptive requirements and algorithms on your behalf. But even so, some different levels of regular maintenance will be needed.

 

A definite edge that you could trade without any changes constantly doesn't exist. Markets are changing too quickly and therefore it is necessary to make adequate changes in parallel. Occasionally, it is necessary to change the composition of the portfolio; occasionally to change a market or timeframe, or to change the amount of positions thanks to the ever-changing volatility. These are all things that come with experience and are very important.

 

If you would look at this from a different angle - it is like in any other profession in life. Whatever you do, new trends, new tools, new requirements are constantly coming in and we need to learn to adapt. If we don't, we can't become successful in anything in this dynamic world (not even in trading).

 

The good thing is that it isn't as bad as it may look. Simply put, it is important to trade and gain experience, to reconcile that we will never be perfect and occasionally we will make mistakes - to learn from them. The more as we trade, the simpler it will be to make a decision about occasional changes to be able to adapt. Not always will our decisions be correct, but that's how it is in life (if we are reasonably diversified, the occasional wrong decisions will be balanced by series of good decisions. In our fund we are dealing with volatility a lot and on many different levels; from regular optimizations of systems to proprietary auto-adaptive algorithms and indicators, up to concepts working with adaptability on the level of the whole portfolio.

 

The necessity to know how to adapt is an elemental part of survival in life. This is actually great news because it means that in our genes there is everything necessary for us to adapt. We just need to learn how to use it.

 

3. Learning is a never-ending process

 

The previous paragraph leads to the last important point which I need to discuss here - learning is a never-ending process. Trading is a lifestyle, it is a life path. If you have chosen trading, and I mean really chosen, then it probably will be with you for the rest of your life. And that means that there will always be something to learn, there will always be something new. And this is something that makes the path of a trader even more exciting.

 

To be honest, I have a feeling that I still don't know much even after more than 10 years in trading. Yes, I have noticeably moved forward. In our fund, with our team, we are realizing and discovering some really incredible things. Even though I have a feeling I don't know much about trading. Maybe today I know more about risk management than why markets move the way they do. Maybe today I am capable of developing a larger trading and risk management concept than before, but that doesn't mean that I have found more certainty in the markets. Trading is still a path without certainties. That’s why it is trading, that's why it is a speculation. But what is certain these days - it isn't even a civil servant position anymore.

 

I have a feeling there is always something to learn. Every day we are amazed by new findings that need new, creative thoughts and ideas to be able to implement them in the right way. Even after 10 years I still read trading books; I learn from other traders and I am finding out newer and newer things.

 

In trading there is always something to improve.

 

And that's how it’s probably always going to be for traders. This is a reason why you need to enjoy trading, why you need to be passionate about it in order to be successful for the long run.

 

On the other hand, I have to say that you will learn a lot, not only about trading, but also about yourself and life. I am actually surprised myself of what I have learned about myself and life thanks to trading.

 

Try to approach trading also with an open mind and not only from a logic point of view. That would be a mistake as trading needs logic, heart and creativity.

 

Happy trading!

 

Tomas

 

 

 

Please reload

Author: Tom Nesnidal (more about me
Join 15 000+
LinkedIn Followers
Join 5 000+
Twitter Followers
Get Social With Tom
  • Black LinkedIn Icon
  • Black Twitter Icon
  • Black Instagram Icon
  • Black RSS Icon
What others are saying

"Tomas is one of the most creative traders I know. He is able to generate unique trading ideas and elegant solutions to system development challenges."

Andrew Swanscott, BetterSystemTrader.com

"Tomas has been a professional trader for more than a decade and I have had the privilege of monitoring his accounts in action since 2006. His systems are performing as some of the best I have ever monitored and executed. I have been in the trading industry since 2002 and worked with many developers from all over the world. Tomas is definitely the one to consider."

Martin Lembak,

Systems Trading Expert,

MFRM, CAIA 

"Tomas is a professional trader, who for the last 10 years has specialized in developing trading systems. We have been tracking his trading systems for about 5 years and they generally show very robust, stable and above average performance. Striker is pleased to work with someone like him - a real professional with enthusiasm and deep knowledge of trading."

William Galwas, President Of Striker Securities, Inc 

"Personal consultation with Tom helped me to re-evaluate the complexity of my robustness testing and optimization processes. Plus, it has helped me with a specific plan on how to take things forward. It has given me some great ideas on how to avoid overfitting and make my testing more robust and provided tips on low hanging fruit in terms of the best markets to trade for intraday/short-term breakouts."

Craig Peters,

semi-advanced trader,

United Kingdom 

"Tom's approach to Automated Trading Strategies design, tests of robustness and portfolio diversification is really unique. He has been a professional trader for many years and the depth of his understanding of Breakout strategies and Market Internals is hard to find elsewhere."

Antonin Fisher,

Hedge Fund Manager,

Czech Republic 

"Tom´s systems and trading approach do really work and can bring good, stable and reasonable returns. I can highly recommend him as a teacher."

David Hruby,

Trader, Czech Republic 

"Tomas is truly an inspiring mentor and great trader with a positive life attitude. He has got very deep understanding of markets, breakout strategies, robustness testing procedures, and Market Internals."

Jan Lesanovsky,

Client, United Kingdom 

"As an experienced trader, I used Tomas´s consultation to get more clarity on best-practise robustness testing procedures, risk management, and portfolio management. He was quickly able to help me refine my current trading and system development approaches, and pointed me to really practical measures that I could implement immediately. I found Tomas to be not only extremely knowledgeable but very helpful and a great teacher. This has given me more confidence in developing robust strategies that work, and I would recommend his mentoring as extremely valuable for any systems trader."

Trevor West,

advanced trader, Australia 

The author of this trading blog has been featured on: