Close To Quitting Trading? This One's For You
Hello, everyone, and welcome to another episode of Line Your Own Pockets. This is an interesting one because I don't know what we're talking about today. Dave came to me and said I had a really interesting note from a user and that we kind of talked back and forth and thought it'd probably be better if I went into this one completely blind. So I guess you're gonna, you know, tell us fill us in a little bit and you're gonna read the question that you got and we'll we'll go from there.
Dave:Yeah. So this, I got this email from a guy named Sridhar. He's on my mailing list. I don't work with this guy, but he emails me occasionally. And he got I got this really good email that I think is gonna like, it's a pretty specific situation, but I think a lot of traders will resonate with this.
Dave:It's a pretty long email, so I'm gonna read the whole thing, which I think is gonna be worth doing. So let me just go ahead and start reading. Hi, Dave. I'm struggling at the moment, and you're the person whose judgment I trust most on this. Some context on where I've gotten to.
Dave:I'm a former discretionary only swing trader. I've now fully automated my swing book and started creating intraday strategies. I think my process is strong now. In less than two months, I've found up to eight intraday strategies, each with greater than 1.5 profit factor, each researched to a lock back test, using Polygon and Python. Everything is versioned in git from the specs and research logs, every change to the live code.
Dave:The live engine is carefully engineered. It runs eight of those strategies automatically on Interactive Brokers with a paper trading test suite that places real orders against Trader Workstation before he touches order code. The results don't match the effort. The book is down $16,800 net of commissions since mid July, and I've been read on twenty two of thirty five training days. I've gone through every fill against the backtest, counting each strategy only from the day it went live.
Dave:And here's what he found. The backtest itself has been roughly flat. Over each strategy's live period, the strategies netted under 1% on the backtest book. The last three weeks were slightly negative. Most of the backtest gains was one day while I was on vacation that I missed.
Dave:Second thing, execution mostly matches the backtest on trades where live and backtest agree, fills, tracked within a few basis points. The execution bugs I found early on are all now fixed and none have recurred. And he lists some things there, which I won't go into. Next bullet point. I missed a couple big winners on the gap and dump names.
Dave:The back test fills at the opening print and a market order had too much slippage. To fix this, I added a smart chase limit. Basically, modified his, his entry there with a little to allow a little bit of slippage. On the names that drop straight away, it never fills. When the back test is flat, Those few trades are the difference between flat and down.
Dave:Next bullet point.
Michael:First, just gonna interrupt. This is awesome. First of all, right? This isn't like someone who's like, I'm losing money and blah blah blah. Like, you know, maybe and and, you know, we'll all save opinions until it's done.
Michael:But this is definitely somebody who has thought a lot of things through and has is is trying. It's not just please give me the strategy to make me billions of dollars. Right? So yeah.
Dave:Yeah. So alright. Next bullet. This is an important one. Listen up.
Dave:I've made it worse with discretionary trades slash revenge trades. Over the same period, I lost another 10,000 on 61 click trades, manual trades. Mhmm. 8.5 thousand of it on just a single trade. I've since removed my click trading from Trader Workstation, but it's hard to admit just how much of the damage was self inflicted.
Dave:Alright. That's the last bullet point, and he sums up here. My goal for September and he sent me this a couple weeks ago, my goal for September is simply to collect more data to see where my live system deviates from the backtest and keep plugging the gaps as I go. I hope things can turn around, but honestly, honestly, I'm losing spirit a bit. My process and the engineering are strong, and I'm still losing money.
Dave:I'd really value your perspective on this, Dave. And he asked a couple questions, but but I'll let's let's leave it there. Give me your, like, give me your first impression here, Michael.
Michael:Well, yeah, the first question, yeah, definitely has thought through a lot and has is doing the amount of work I think that is is required. Right? It is not not skipping anything or or, you know, messing up anything. So my initial thought was this guy just kinda needs more time is is, you know, and I'll I'll I'm still thinking about it more, but I'm like, you are doing everything mostly correct. So it doesn't seem to be a you suck at trading, there's no hope, you know, leave it alone.
Michael:You know, the whole stuff about going back into discretionary trading and and revenge trading stuff, I still do it sometimes. Not not nearly to the degree that I used to, but I I talk about, you know, I've got my discretionary account that I do and that keeps me that keeps me from messing with the real account. But everything was done, know, you're tracking your fills, you're you're reconciling your your back test versus your fills, you're you're finding bugs and squashing them along the way and and all of that. So to me, the the main thing that I read there is not somebody who is really failing at anything, but somebody who is just on a process and just really hasn't reached the goal of of what they want to see from that process Yeah. Yet.
Dave:Yeah. So I think, you know, my take is similar to yours where this is a pretty advanced trader. This is not a newbie. But I could see some mistakes that I encourage people not to make. My guess is that the listeners here, they're probably I bet probably every listener is gonna be able to resonate with some part of this.
Dave:You know? I think we all can.
Michael:And first, it's interesting. You you say advanced trader. Right? And and he's said, I'm I'm not profitable yet. And that's why when we did that, those two podcasts recently on the mistakes beginning traders and advanced traders, We never said advanced trader necessarily hugely profitable because I would agree.
Michael:I would put that into the he this isn't a beginner at this point even though he hasn't reached profitability because he's doing the things that make a a trader a trader with, again, the reconciliation back and the, you know, the idea generation. Now, I will say one thing that was interesting is his whole and I'm sure they'll get to some of the things that you heard as well, but I think it's a everything I I heard there was like a giant impatience thing a little bit, which is probably not what he wants to hear. But like 13 strategies, it's like, okay, start with one, you know. You know, and then some of these these things, it does feel but I I a 100% agree that he has pushed past the thing that most traders, would quantify as beginning traders, where they're not doing these things that are are hugely important to to do.
Dave:Yeah. Just to clarify, he's mentioned before, he is a profitable discretionary trader. So he's adding automated stuff.
Michael:Adding or replacing? Because that might be important
Dave:He's adding. He's adding. Which I think is the right approach. Like, don't don't, you know, kill the golden goose. Like, keep doing what you're doing and and and have the automated stuff be completely additional.
Dave:I think it's a great idea. Alright. So let me go through some of the things that I that that I'm I spotted when I read this. So he's backtesting with Python and Polygon. And so my my assumption is he's using Claude to come up with a back tester, which I think is a terrible idea.
Dave:I understand why people do it. I get it. Claude's very powerful. It's great at programming. Having it create a back tester for you is not a good idea.
Dave:And that I've heard this. I've seen this from lots of people, but also I've seen a growing number of traders recognize that this is an issue and are switching to Amibroker or away from Python and Claude. The problem is Claude is it turns into this cheerleader. It's gonna tell you, oh, yeah. We can create a a back tester.
Dave:No problem. Let's do it. Right? Yeah. And there's just so much that goes into a back tester.
Dave:And it's just you're gonna it's gonna be a lot of trouble that you can avoid just by using a back tester that's been around for thirty years. It's the
Michael:it's the build versus buy debate. Right? Where you you always have in in any business where, you know, I guess for people, I guess, have worked at business, you say, okay, we need this thing in our business. And especially software businesses, there's always that first question. Okay.
Michael:Do we build something or do we just buy something off the shelf? And part of that analysis is, okay, what's the cost of the thing? And like most of these back testers, a couple $100, you know, and and you have a back tester. So that to me squashes that build versus buy debate instantly. You know, if if Ami broker was $5 a year, you're okay.
Michael:Well, maybe think of maybe maybe that's a moment where you go, okay, let's think of it a little bit hard. But couple $100, I even I don't even remember how much I'm paying for Amibroker every year because I I it's such non number when it comes down much as paid. You should just do it then. And same with data. Like, he said, he's using Polygon, which is good.
Michael:But the amount of people I've seen that tried to use Claude to pull in the data from open source websites automatically, it's the same thing. It's like, okay, for Norgate, I spend a thousand bucks a year and I think for I spend another thousand for IQ feed. Like that's if you're at all going to be successful trading, this gentleman says he's done what $26,000 since he's kind of launched this thing. So a couple $100 for Amity broker and $2,000, let's say, a year for data. You're talking $2,500 a year for everything, and that's gonna save you any 10% of your losses if they're attributed to your back test or in data, then you would have saved that going over it.
Michael:Right? So it's to me, it's these things are so cheap that it should just be a no brainer. Just just buy it.
Dave:Yeah. Right? So so one analogy I've come up with recently for this is, let's say you somebody sends you a spreadsheet, an Excel spreadsheet, and instead of just going to buy an Excel so you could open this document, you say, Hey, I'm going to get Claude to create Excel for me so I don't have to pay for it. That, you know, that would be a terrible decision. Nobody would ever do that.
Dave:But that's what you're doing when you create a back tester with Claude, when these other perfectly good ones exist that have been around for thirty years and have, you know, gone through the headache of creating these, gone fix the bugs, still being developed and improved to this day.
Michael:Well, and I think some of the people are worried about, well, yeah, but I just want to be able to interface with Claude, and that's why I'm having it build a back tester. Well, I have not opened myself either RealTest or AmiBroker in probably three months now. And it's so you need to understand that these things can all be operated through CLI and they can be Claude can just do that. So if cost is your your issue for doing it, don't worry about it. If the fact that you don't want to be the one, you know, learning about the the scripting language and how to use the software and whatever, you don't have to do that either.
Michael:So there's really no thing of just you you install it one time on your computer and you point clawed to a bunch of documentation for it to learn how to use it, and then you never have to open the application yourself ever again. So, yeah. I just there's no reason in that I can think of that unless you have one of those two problems that that are easily solved. I I there's just no reason to to do your own.
Dave:So this reminds me of a really good thought exercise that I learned in the book Quit by Annie Duke. Alright. So she talks about Google and the there was a program they have for many years called Moonshots. They were, you know, really big audacious goals to like create really, you know, cool stuff that, you know, would have a low hit rate, but could have dramatic impact on the company and the world. There was a guy that ran it.
Dave:I don't remember his name, but he had this analogy. So he saw this mistake in what people did when they tried to tackle a problem. And it's the thought exercise is, let's say that you if you could train a monkey to juggle, and you could make money if that monkey was juggling on top of a pedestal, how would you go about solving that problem? How would you go about figuring out that problem and training a monkey to juggle and then make money when people watch the monkey doing this. Kind of a silly thought exercise, but here's what most people do.
Dave:Most people start with the pedestal. They create a nice pedestal that's, you know, super cool and and, relatively easy to make, but that misses the point. The hard part of this problem is training the monkey to juggle. Right? It's completely irrelevant what the pedestal is.
Dave:The hard part is training the monkey to juggle. That's the hard part. And when you start on something else, like it doesn't even matter what you any sort of momentum or progress you get to get to the hard part. Right? That's what people are doing when they create a back tester with Claude.
Dave:They're starting with the pedestal, but that's not the hard part. The hard part is the strategies. The hard part is coming up with the strategies that make money. So getting your back tester going and clawed is not really it's it's like creating the pedestal in that in that thought in in the thought exercise. It's just
Michael:Mhmm.
Dave:It's not the thing to start with.
Michael:Well, and again, it's just the easiest. Yeah. You list out your problems and you're like, okay, I need to skip Starbucks twice a year and I pay for the back tester. So, you know, let's just do that and make coffee at home for a couple times and then just buy the back test. You will be used more in Claude credits almost certainly building the back tester than it will cost you to buy the buy the back tester.
Michael:So yes, just buy the back tester, have Claude operate it. Know, I think back way back when we were almost starting this podcast, I talked about how it took Claude ages to learn Amni Broker. When I bought the new computer, I just transferred over the files and it took Claude five seconds to learn to use Amibroker. These things are getting better all the time. So, you know, if you're listening to this and like even a month from now, it's probably knows how to do it perfectly.
Michael:And yeah, it just you will use more in credits. 100%. And that's how I can have people ask like how, you know, how aren't you spending millions and millions in credits? Well, what I'm doing a lot of is it's operating other softwares, so you actually save yourself a ton of money in the long run. I say, hey, I'm going to bed now.
Michael:You can use RealTest and Amity broker all night for this list of things that I want you to do. But it's it's basically opening it up, creating a little script to run, and then it goes to sleep until it's done, and then it it does it again and again. So the amount of credits that I'm using are really tiny because it's not Claude doing the work. It's just Claude setting off a process and then updating to see when the process is done and then setting off another process. So yeah, I yeah, you will save money and you will save time and you will be able to more accurately trust your results if you do it if you do it this way.
Michael:So just, again, no reason not to.
Dave:Yeah. A 100% agree. Alright. Let's go on to some other things that he pointed out here. One thing that surprised me a bit, because I know this guy's, you know, he's successful, discretionarily trading.
Dave:My So sense is his he and you alluded to it earlier. He's too much in a in a hurry. Right? He needs to let some time go by. So to come to me like this, like, he's losing spirit.
Dave:Like, he's at the end of his rope, he's saying, that tells me you're not really quite calibrated your your expectations, and it's too soon to be quitting here. If you find it like what I've said before, if you find yourself in a hurry in any context in trading, you're probably doing something wrong. You need to there's just lots of different ways I would have approached this completely differently. And part of it is the mindset he's in. He's lost $16,000 he's lost more than that now.
Dave:You could learn all the lessons that you need to learn about these strategies for way less than that. So I encourage people to paper trade and then live trade with really small amounts, specifically so you don't find yourself in this position where you're losing spirit. You could learn he's paid a lot of tuition here for no real good reason. Like, you could go live and learn everything you need to learn through this whole process without losing spirit, without getting your hopes up and dashed and you're ready to quit, with a better plan for going live with with strategies.
Michael:Yeah. And then I was gonna say the same thing is he should be trading one tenth the size. His his commissions should be like a thousand bucks as opposed to, you know, 16,000. It was 1,600. You'd be way less upset because you know, obviously, he has the capital required that hopefully 16,000 isn't like, you know, he's lost half his money.
Michael:That's that's the other thing that kinda worried me is when he talked in dollars and not necessarily percentage. I don't really care how many dollars you're up or down. If if that was 1% of your capital, great. You're still should probably be trading less because you're probably trading a big enough position size that one tenth of the size would still give you some idea of what your fills would feel like and and things like that. You know, that percentage amount, I think, is very important if that was 50% of your your account, then that's yes.
Michael:I I get your feelings. If it was 10% of your account, I I still kind of get your feelings. But, yeah, I think that's that's step one is you should be learning every single lesson. I think he's probably beyond the paper trading step from the things he talked about where he's dealing with execution problems, but just trade them very small. Start with one share per position.
Michael:That's always a great place to start. You just put in, I want to buy one or sell one real share. Yeah. You'll get eaten up with commissions and blah blah. Who cares?
Michael:But you'll you'll get whether or not if you couldn't get filled on the one share, you're not gonna get filled on the 100 shares, you're not gonna get filled in thousand shares. Right? So it's it's a good place to kind of get started, and then your your learning curve is way smaller, and only once your fills are matching the fills of the back test, which you could set the back test to say it's one share per position, then you can start to kind of crank them up from there. Now that's a bit of a a hindsight thing because because you already did it. But if you're still doing it, please stop and just go to that lower amount until you have all of the bugs sorted.
Michael:And then, it should be just like everything else, you're doing a good job systematizing. You should be systematizing your size up. It should be, you know, one share to test fills, and then maybe you're risking $10 a trade, and when that makes sense, it goes to $20 a trade. When that makes sense, it goes to fifth. Right?
Michael:There should be a you shouldn't have to think about it. There should be a systematized approach for when and how to size up. And hopefully, that 16,000 isn't a massive amount of percentage of your your portfolio, you'll be able to recover that pretty quickly once Yeah. Things are going
Dave:And the best traders, it's not really about the money, right? As ironic as that sounds. They can create a mindset for themselves to have it really matter when they're making the $1, you know, the one share of positions, right? Can play this mind game where that real like, you want to be the best you can be at that size, and you can create a mindset for yourself to do that. Even if your other discretionary stuff, you're trading really big, you know, you've got a big account, big you're splashes there, but you want to create a mindset for yourself where you're trying to be have this process be good.
Dave:It's not about making money at this point. It's about having your process be as good as possible and doing this as well as you can. Then you can worry about scaling up. And I love your approach about, you know, what you said there about programmatically sizing up and down. That's a great idea.
Dave:You can backtest that. It's that's a that's a high level thing because, you know, of course, you have to have the strategies to be able to to do that, but it's it's totally I I I love that approach. And, you you could do a lot with small positions. I mean, really what you're doing is and this is one thing I love about trading. You know, what other domain in the world can you get immediate feedback from the best traders in the world?
Dave:And that's what you do when you go from paper trading to live. You're getting real time feedback from the best traders in the world. And you don't have to you don't have to call and tell anybody you're doing it. You could just start trading and get that feedback immediately. So it's a love trading for that.
Michael:Well, and also the could be a good use of prop firms. I was thinking when he was talking as well, these challenge firms where essentially they put you in a paper trading environment, but if you end up passing, they give you x amount of dollars for real money. If you're finding I find those are sometimes good for motivation. If you find you're lacking a bit of motivation, you could say, well, if my systems are good enough to pass this account, I'll get, you know, $200,000 or something like that to trade. But yeah, you should be able to do it in your brain because you just add zeros.
Michael:Like, this is the other benefit of of this kind of career is that, you know, if you're good with the one chair, it'll be really easy to be good with a 100 shares. You know, you'll come into problems, but you'll be able to probably solve them and be good with a thousand shares. Like, there is upward limits of liquidity that you'll kind of bump ahead, but that's not your problem right now. Right? That Yeah.
Michael:So you got you got a long way to go to get there. So all you gotta do is you gotta look at what your gross making or losing and just add zeros to it, and that's totally doable. And that's where you live until you're very sure that all of your your issues are more or less solved when it comes to execution. I would say the the goal to passing that for you is to have a period of time, say a week or so, where within reason most trades are matching what the back test is at the end of the day. Right?
Michael:So your back test says you should have got one share filled at this price, and you got one share filled at at roughly that price give or take. And once you do that for a week, you go, okay. Well, now I'm allowed to go from one share to risking $10. And then you have a again, like I said, a programmatic way to kind of increase that and to step up from there.
Dave:Yeah. Alright. So let's continue as if like, there's an expression I play a lot of poker. There's an expression when you do hand reviews with other people, like, as played. So it's sort of like, well, I wouldn't have taken this approach at this point, but as played, like, okay, since you've done this, let's let's continue on and address some of the things that happened further in the process.
Dave:So I think probably the very first thing I noticed about when I read this is he's got eight strategies. Yeah. And they're all flat now. That's what seems like a red flag to me because it's it would be impossible with a well calibrated, well thought out process to come up with eight strategies that are all performing equally poorly through this period. Yep.
Dave:So my next question is, okay, which one of these is performing the best? And the fact that he's he never mentions anything about particular strategies. He's thinking about this in a block, which I do not like. I do not like that. I know some people will take this approach where they're coming up with strategies and they're like, well, this one's not quite good enough, but if I add these four, they're not correlated.
Dave:They'll sort of, you know, cancel each other out. The the drawdowns will cancel each other out. And as a unit, they'll be better. Mhmm. I do not like that approach because like any particular I I think of all my strategies as standing on their own.
Dave:If that was the only strategy I had to trade, I would be happy with that. Any given one. Right. I don't look at it as okay. If I got to look at this, you know, this block of strategies, and then that's, I'm thinking about it as, as one unit.
Dave:I think about each one as a unit itself. It has to be good enough to trade on its own. I think about sizing per strategy. I'm not sizing my whole account and all the strategies. Each one has to prove itself and like, it's it needs to measure up and prove itself over time for me to give more capital to it to trade.
Michael:Yeah. I won't start that fight with you, but I I do look at it a little bit differently. But what I will say is he said that each of his strategies has a 1.5 profit factor, and that should be good enough to go live with. And, again, depending on the equity curve, we we just did a whole rant about how there's or, you know, gonna do a rant about how there's a whole bunch of different ways to to mark these things. But let's just say 1.5 product profit factor and a pretty good equity curve should be good enough to go live with.
Michael:But I do agree that eight strategies is is a bit nuts when you don't have one when you have one down. And I will agree too that if they are all down at the same time, even though I'm one that I look at a basket of strategies because I I'm okay with, you know, the correlation being different and different things. You're likely just trading some variation of the same the same deal because it's definitely a root issue. It's either really unlucky math, which could happen, or there is some sort of root issue in which all eight strategies went into drawdown at the exact same moment. You know, if you said that, yes, I'm in drawdown and five of the eight strategies are in drawdown and three of them are doing okay to hold me up.
Michael:Then I'm like, okay, well, that just could be just random luck. Now that all eight suck at the very same time, that I look at and I say, okay, there's something different happening, likely happening there. So yeah, I would do, I would pick the one, maybe two, maybe one long or one short or something like that. The best ones, the ones that you were the most confident in, the ones that have the best equity curve, the ones and put you're not destroying them, you can use them later, but shelve them for now and get those two really hammered down with, you know, starting with the one chair and and all that kind of fun stuff. And when those are starting to make you a couple bucks, great.
Michael:Well, now you can start to stack on one strategy at a time. Because if you throw them all back in, it's you're you're just balancing too many plates, you know, when when they're all come come tracking down. It's just it's so so hard to do that much. Do you start with a couple? And once those are good and those make sense to you, start to add on slowly after that.
Dave:Yeah, totally agree. Yeah, it's just very unlikely that this would happen like this. It says, you know, the the other thing I think about this is, if that's the case, like, sort of the if you step back and think about it, he's gone live. All of a sudden, the strategies are flat. Yep.
Dave:You're there's something about his process that isn't right. Right? You step back and think about when you optimize a strategy, you want to make sense is he's he's not thinking deeply enough about the rules he's applying to the strategy. And I could tell that just because he's ready to give up after thirty five trading days. Right?
Dave:So you haven't thought deeply enough about the rules you apply to a strategy to create the version that you wanna go live with if, at this point, you're ready to give up. Because as you create the strategy, this is the person that you should have in mind. Like, how do I give myself confidence when he's in this situation right now? How do I give that future person, you're in a drawdown, you're trying to decide whether to keep trading the strategy, how can I think more deeply about the strategy I'm coming up with so that I can have more confidence in it, so that I don't give up after thirty five days?
Michael:Well, and I just from the pure math point of view, you're you're suffering from a massive correlational correlation problem. Right? If they're all going at the same time, you know, the and and as we're recording this, Pockets hasn't been doing anything for months, you could say. Just assuming he's these are the swing trading ones. He said both swing trading and day trading, but, you know, the markets, we're not in an incredibly volatile time that would make every kind of swing trading strategy potentially correlate in some way.
Michael:You are probably expressing the same behavioral thesis or or whatever it is that you want to call it just over and over and over again. May very maybe slightly. And you know, you he mentioned kind of the the gap and crap, so that's definitely a day trade system that you you might be doing it from the day trading side of things too. Or every everyone has some sort of flaw. It could just even be executional.
Michael:Right? It could be maybe all these 1.5 profit factors as soon as you implement real world ideas, they all go to one profit factor and and you have a problem there as well. So there's there's definitely something a a root cause that is is happening that I think you have to sort out first. And the beauty of it is you probably sort it out by looking at the one strategy like we talked about. If it's existent in all of them, it's probably existent in one of them.
Michael:So, you know, pick the one that just makes the most sense to you that you like, okay, this is something that I understand. This is this is a phenomenon that I definitely believe I am doing a good job of expressing trade, you know, some sort of behavioral phenomenon. And then just just start from there and start to kind of expand that out over time.
Dave:Yeah. Yeah. I like that. So the other question I would have for him is, okay, what does this flat period look like in the backtest compared to other flat periods for each specific strategy? Nothing about that in this email, but my sense is, like, you would get like, anytime you anytime you can zoom out and look at the big picture for a particular strategy, that's gonna help you.
Dave:Like, you're gonna get some confidence from doing that. My sense is if you zoomed out with a back test, this period would probably look pretty average compared to other flat periods in the back test, is my guess. If it's not, then that's more information you can take and apply to your process and understand more. The other thing that I suggest to people for this exact situation, he's, you know, at its wits he's at its wits' end. He feels like giving up, and you can understand why.
Dave:But for each strategy I come up with, I come up with sort of a a final version that I'm gonna go live with, and then I go I do one more optimization in the cruncher to come up with like a version two that I keep in my back pocket. Right? I don't go live with it, but I save it for this exact situation where, okay, it's not really going as well as I thought it was gonna go. Instead of starting from scratch, I've got this version two that I can sort of pivot to where I'm not I don't feel like I'm at a dead end. I don't feel like I'm ready to give up.
Dave:And I've got this other version that I've already thought about ahead of time, and that puts you in a really good mindset for kinda planning for the situation. Sort of like, you know, you always have to have a plan before you enter the trade. It's kind of the same situation. Like, what am I gonna do if this thing doesn't do as well as I hoped after thirty five days?
Michael:Yeah. And really, I just I can't hammer the how it so he says, and and you've mentioned that he is a profitable discretionary swing trader too. Right? Is always remember how long that took you. Probably didn't happen overnight.
Michael:It probably took a long period of time to be consistently profitable doing that. And you should expect no different in the systematic side of things. So think about everything that you had to go through and everything that you had to learn about liquidity and technical analysis and and then, you know, news events or however it is that you do your your trading, you have to do the same stuff here. So he's talking about move that he moved his discretionary trading over. That makes me think that you've probably tried to replicate some of your your setups that you were trading before over there.
Michael:That's another thing to to reconcile back. Like, that's the thing that made me think about that is Dave was what Dave was essentially talking about was a way to reconcile, you know, he's running two strategies, running his main strategy, and then you got this one in the background. I'm sure you're always kinda checking up on it to make sure it's it's holding up in that that end of thing and should be the same thing. It should be, you know, go through the trades and say from your discretionary setup, would you have taken these trades? That's another way to look at it as well.
Michael:But it all just comes back to me that, you know, from my initial reaction too was just you're trading way too many systems to start with before you've kind of hammered out all the nitty gritty details. You are yeah. Way too many systems. You're you're trying to balance way too much, and I think your expectations are are you're too fast. And but, you know, the just not to be Debbie Downer.
Michael:All the positive stuff is what we said earlier in which you're approaching this correctly. You are, you know, reconciling everything. You're you're squashing bugs. You're going through it. I just when I heard of that, I it kinda sounded like someone who was just like getting over the hump.
Michael:Yeah. You just feel like he's Yeah. Like he's almost there. Like, you just need to I would just pair everything back and just keep going that way because it just felt like you're just you were you were close and this is someone who came in completely blind. I I knew nothing about what was happening here.
Michael:I expected maybe more of an email of, you know, I I give me your strategy and I'll make millions of dollars with it. But. Yeah. Yeah. It just I that would be my thing.
Michael:It's just you're doing too much. If you are doing well, swing trading, and this is a really good environment for swing trading, just continue to do that, and then your goal is now not I'm going to move everything over and become fully systematic. It's I'm gonna get one. I'm gonna get one strategy, something that I'm not doing now currently, something that I maybe couldn't do discretionarily myself, and I'm gonna get that past the finish line. And that will completely reset your mood and your your way of thinking of Yeah.
Michael:Of all of this. And then, okay, then the second one and then the third one and the fourth one, you just like went full full bore right away, which is yeah. It's just it's far too much. Yeah. Too much too fast.
Dave:And, you know, we all know we've heard about the, you know, the how what high percentage of traders end up quitting or, you know, don't ever be successful. This is exactly why. You're a lot of them get in this situation and give up. Right? This is exactly what you have to push through.
Dave:And you were talking about, you know, he's almost over the hump. You can kind of see, you can see that. The other thing that I noticed is he mentioned that the one tray, you know, the one day that the strategies performed well, he was on vacation. Right?
Michael:That's just bullshit luck.
Dave:That's that's luck. But also, you know, I've gone through periods where I'll reconcile with the back test, and they'll sometimes there'll be kind of an unexplainable difference or sometimes really what seem like trivial changes like, hey. You went on vacation one day, can make the, like, can make it so that you don't measure up with a back test. And there could be a big gap there from what seems like a trivial thing. And that could be execution.
Dave:It could be going on vacation. It could be missing just one or two winners. It makes an outsized difference when you do the comparison. So it can weigh heavily in your mind, and you'll see that over time. So just keep in mind that sometimes these small differences can make a big difference.
Dave:It doesn't mean that it's time to give up. Mhmm.
Michael:Well, go go back to Debbie Downer times. This won't be the only time if it feels like this. Right? This will be Yeah. Now hope, you know, hopefully, you've gotten yourself in a situation by the next time everything sucks that it's not all eight strategies at once.
Michael:Maybe it's it's a handful that that suck, but it's going to this is it. This is the game. So the game as someone who was a discretionary trader and made the move myself, the game used to be more you'd more beat yourself up when trading results weren't good because you, you know, figured there was something you had to fix in your brain or or something like that. And in some ways that was easier, then there's an external thing that you have to fix. And that might just be part of the problem as well where, you know, especially if you were successful or are successful discretionary trading, you're like, well, why don't I just spend my time doing that?
Michael:But just know that eventually, right, it it will be worth it. But this is now your new problem is that you have these kind of things that exist in the wild and are out there trading, and you are more of a a caretaker of those things as opposed to someone actively doing it. So you have to switch your brain to, okay, my job is just to tend to these things and sometimes they're gonna go awry. And that's okay. That's part of the game.
Michael:And I'm not going to be upset when that happens. I'm going to just know that that's just part of it and and to go through. Now, again, hopefully, by the time this happens, you have some amount of systems that are successful and everything at that time. So it's not as bad as it is right now, but just know that this is this is the game at at this point when you're Yeah. When you're systematic trading.
Dave:Yeah. So let's let's dig into, to probably finish up here, let's dig into some very specific things about these orders that I think he could change to make a big difference in his strategy. So, all right. So he mentioned one of these is getting in on the open. He also mentioned that he was he recognized he was missing some big winners, or there was some slippage there.
Dave:I think he said I believe he said he was using a market order right on the open to get in to some of these. And then he switched to a limit order to try to limit the slippage, but then it turns out he was missing some trades. Well, this screams to me that he should be using on open orders instead of waiting for the market to open and entering a live market order. I mean, I've had strategies where literally it wouldn't work if you did that, And I changed it to an all open order and the strategy worked. Getting that opening print is so important for a lot of these strategies, I suspect.
Dave:So that's gonna be what I suggest. I mean, there there's a lot there that may not be obvious to him.
Michael:Yeah. There are ways and this blows some people mind when when you say it, but there are ways to essentially remove slippage from the equation period. Right? And it's it's things like that. It's market on open orders.
Michael:You will get whatever the opening print is. Now, if you're big enough, you're going to affect the opening print, but you will get what the opening print is. If you're using, you know, limit orders, well, you know, barring you not getting fit, you know, it hitting the price and you're not getting filled the the very rare time that that happens, you won't get slippage with a limit order. If you are exiting a lot of the positions I have, you can close your ears that day, but these swing trading positions, they if it closes below a certain price, my exit is tomorrow on open as opposed to trying so I have no stop loss orders. I have no market orders to get in at a position.
Michael:So I'm using limit orders for profit targets, and I'm using the next day's auction for exit. So when I run that back test, I am sure that slippage isn't a problem because there is not. Right? It's like every part of the equation. Now, will the system works work like that?
Michael:I don't know. That's up to you to test, but there are ways that you can dance around it. I think it goes back to that simplify everything. Right? The market on open order, think is a great idea to simplify.
Michael:You will get the opening price and as long as you're not big enough, you won't affect anything either. And just think about that. Is there ways that for now, even if it makes the strategy slightly worse, that you can avoid every single aspect that could cause a problem and could cause slippage? Great. We'll start there and then change one variable at a time to see if it increases results without messing up the slippage.
Michael:There are ways, yeah, to go through and and to think of a strategy in a way that creates no problems at all with with slippage.
Dave:Yeah. So one thing you could do here is look at time and sales. That's gonna be really helpful. Mhmm. I actually, I should mention, I have a tool that I'm releasing with the trade client that automatically will create tick charts with your entry, with your orders plotted on it, it's super helpful.
Dave:It's like basically a visualization of time and sales. You can see exactly when your order went in, at what price, and that's really valuable to be able to see, okay, what was the market doing? What and you it allows you to brainstorm, okay, what type of order could I have used here to either get this fill where I didn't get it, or get a better price than I got? And to really visualize that in a tick chart is really cool. And yeah, that's that's maybe by the time this airs, I'll have released that to some people that use the trade client, but that's really awesome to be able to do that.
Michael:Yeah. And it's at the end of the day, you know, I think the two main problems, the nitty gritty, I think, is is yours to to sort out. And hopefully, we gave you some suggestions there. But, you know, if if you're the person who asked the question, but if you're anyone who when Dave was reading that at the beginning, kinda saw yourself in it, you know what we would suggest. It's it's just it's do less.
Michael:It's, you know, it's to understand that this game is very much like a snowball y thing. I think it's the best way to word it is that, you know, you you're kinda nothing to start with, and then all of a sudden you look back and you're like, holy smokes, look how far I came. But that starts with the first strategy completely end to end, automated, sorted, reconciled on on a regular basis. You're getting all the fills within reasons that you think you should get and all that kind of stuff. And that's where you start.
Michael:And then slowly add on to that. And it looks like this person just basically just tried to jump ahead. And it's something that I actually see commonly way more with traders who have some amount of success than new traders. New traders seem to be okay starting very very slow and very small. Mhmm.
Michael:Traders who already have success somewhere else think that they can kinda skip the line. But it's it's so much of a different way of looking at trading that you just absolutely can't. You have to go on the same route that everyone else does. Maybe a little faster, but you can't skip. Right?
Dave:Yeah. Totally true. And even when you're trading really small but live and you and your your back test reconciliation like lines up perfectly. It's such an awesome feeling to have that happen because you unlock so much. All of a sudden you realize you can extrapolate and look at that back test and know, okay, I see how this is gonna perform.
Dave:I see how it's performed in the past. I see how it's performing now when I've compared the live trades. That's such a huge thing for your confidence going forward. I mean, it's just that just unlocks so much. To and it sounds like he's, like you said, sort of skipping over the steps required to really sink that in.
Michael:Mhmm. Yeah. And when you when you get there, hopefully get there. Right, Dave? Seems like you you communicate back and forth, Dave, periodically anyway, but right, Dave?
Michael:And and let us know how we did and in the comments and everything. Did you resonate with this kind of thing at all? Is there anything you took away from it? But, you know, we love the questions because it gives us these kind of starting points to have these really cool conversations. But as always, I'm Michael Nauss.
Dave:And I'm Dave Mabe. Talk to you next week on Line Your Own Pockets. And thank you, Sridhar, for submitting this question giving permission to, you know, spell out all the the dollar amounts and such. I think it really gave people a good insight into how they can improve too.
Michael:Yeah. Absolutely. Thanks a lot.
Creators and Guests
