It has been a while since I last posted as I had a well-earned break earlier this month. While I have been away my systems have performed fairly well....
For those who are not familiar with my work I run a number of proprietary systems (‘HF Systems’) which have formed the basis of my trading decisions for many years. I manage client funds according to the systems and offer a trading signals service for those wishing to follow their performance in real time. From time to time I try to pass on some of my experiences in the trading arena which may be of use to those wishing to break into (or stay in) that illusive ‘top 5%’ of traders who trade for a living.
My systems break down into three trading methodologies which I term ‘breakout’, ‘false breakout’ and ‘pattern recognition’. Over time (and sometimes the hard way) I have discovered that the best approach to trading is to systematically apply different trading methodologies to a range of asset classes over multiple timeframes. In the early days I started trading just one system in two or three markets and soon discovered that my exposure was a little too large relative to my equity and that the P & L swings were a bit too stomach-wrenching. Over time I expanded the number of systems and markets I traded, treating each of my systems as constituent parts of a portfolio where I would weight each component according to its historical performance metrics. I would often trade larger unit sizes for correspondingly higher levels of return on historical maximum drawdown or profit factor numbers which saw net profits improve significantly but at the cost of larger drawdowns than I was comfortable with. This led me to the opinion that while I knew I had a very good edge it was not as good as I thought and that I should take a closer look at the dislocation between hypothetical and actual performance. For some reason I would call “tails” every so often despite knowing I had a coin which was slightly biased to ‘heads’!
I recommend that trading systems be reviewed on a regular basis (time elapsed or number of closed out trades) as market conditions can and do change as winning systems may lose their edge over time. This can be due to larger crowd participation (most traders eventually lose) or to ‘curve fitting’ if the system creator has been a little too selective with input values and system logic. Whatever the reason for the loss of performance I think the best way to combat ‘system slippage’ is to allocate capital to each system on an equally-weighted basis according to the total maximum drawdown (% or cash amount) of all systems combined. This ‘agnostic’ approach to capital allocation is similar in principle to the way a system trader should treat each and every trade; as the flip of a coin which is ever so slightly biased to come up ‘heads’. The trick in trading is not to call “tails” too often!
To participate in a free trial of ‘HF Systems’ trading signals or to enquire about a managed account, please email me at email@example.com