You Missed a Trade - Now What?
Alright, everyone. Welcome to another episode of Line Your Own Pockets. This one we're gonna go on, I don't know, Dave's archives, I guess, of some of the articles that he wrote. And we were actually talking in the green room about this exact event just happened to me a couple moments ago. So this it's we planned it in advance, but of course, the market gods made it relevant for today.
Michael:So why don't you tell the people we're gonna go over today, Dave?
Dave:Yeah. So one of the very first articles I wrote on my website is an article called You Missed a Trade, Now What? So it's a pretty common scenario that I remember going through many times, and I never really had a good way to think about it. But as time went on, I started thinking about it more. So the question is, you miss a trade.
Dave:Okay. Yeah, that happens a lot. But the real question is, what happens when it comes back and gives you another entry, another chance to enter? What do you do? What should you do in that situation?
Dave:I remember struggling with this for a long time, and then finally it dawned on me the right way to think about it. So when this happens to you, Michael, what do you, what's your default thing to do?
Michael:Well, first just to reiterate, right? So you a, you got a limit order out for stock at $10, right? And you miss it for whatever reason, low liquidity, or the order gets sent later, for whatever reason. And then it moves up a bit, and then you're saying it comes back down to $10. Do you leave it out?
Michael:Well, for me personally, because the way I just trade is I have orders that exist for a period of time. So like all of my orders for the day will exist for day trades. They just stay out there all day because of just the way that I trade, and same for my swing trades. They just all exist out there for a week, and then at the end of the week they disappear. So if it's baked into the system, I think it becomes simpler.
Michael:If it's something that you're attempting to kind of more nitpick with, that's where I think a lot of the question comes in. Because instantly, I kind of thought two schools of thought is one is, you may have missed the move, and it's probably good to yank the order because it's to bounce at that $10 level, right? It came down to $10 and you're trying to buy it there. But the other one is if your plan was to buy it at $10 you should probably just buy it at $10 regardless of when it happens.
Dave:Yeah. Yeah. So that's sort of the default thing that I think most people should do. You've done a lot of work to create a strategy. You've got a plan.
Dave:Just because you missed the original entry, if you would still be in the trade had you got filled on the original entry, Then when it comes back to your entry giving you another chance to get in at roughly the same price, you should get in. By definition, you should because you would have been had you gotten that original fill.
Michael:Right.
Dave:But the problem is it's very hard to do that and make that decision in that moment because a whole bunch of information has been presented to you that you didn't have before. But also the other thing to think about is you're guaranteed to get all the losers if you do this. The ones that are going to go hit your stop. Yep. You're guaranteed to get, right?
Dave:You're going to get all those, but you're still going to have missed some of the winners that don't come back and give you this chance to enter. So it's a very tricky thing. And most people say, oh, well, sure, I'd get in. Well, what if the stock went way up and then comes back? What if it's right before the end of the day when your time stop would be?
Dave:Do you still get in then? Like, how long do you leave it out there? So there's a lot to think about here. It's more than just, okay, yeah, if I would have been in at the beginning, then I'm gonna get in now. There's more to think about.
Michael:Well, is this something that you, you tag or if not, might actually be a good tag. I'm just thinking in your journal after, if you go through and you created some sort of tag to say, missed first entry or entered late or entered on whatever second chance there was, it could be something that over time, and it's annoying that it would take time, but over time you could build a, you know, some sort of dataset that says, okay, these are the ones I can now grab all of the trades that moved some amount in in my direction that I had missed and then kind of come back, and I could I could tag those and then eventually, again, would take time, but eventually over time, I could look in and actually mathematically pull that output and see if it's something that that really affects what it is that I'm looking at.
Dave:Yeah. So I think that's the right way to start thinking about it. But just like the easiest default answer, the simplest thing to think about is, okay, if the stock if I would if I had gotten the original entry, then yes, you should and you're and you would still be in the stock. Then yeah, you should take the trade when it comes back and gives you a second opportunity. That's easy.
Dave:You don't have to think about it. The second branch here that we're talking about is what you could do potentially to improve that situation by doing something that's data driven. Because like we said, you have a whole bunch of new information now about the trade that you didn't know before your original entry. In theory, should some, you should be able to use that to get a lot more insight into whether this thing is going to work or not.
Michael:Well, and I think, one thing I just wanted to highlight that you said is that you kind of said if you should still be in the trade, and I think that's important to kind of highlight it, you know, if I think we both kind of agree that this is is a bit moot, if it would have hit some exit condition it came back down, like, say you wanted to buy it at ten, but then you're going to sell it at twelve. And like say it goes from ten to twelve, and then it comes back to your entry. In that scenario, I think we can both agree. It's like, okay, you probably don't want it then, because it's, you know, it's now no longer, it would have been a completed exited trade and you would have been out of it. So then you wouldn't have won it.
Michael:So that's one thing that I just wanted to highlight and say, hey, if the trade would have ended due to a trailing stop or a profit target or whatever it is, then I think in those scenarios, you definitely want out at that point.
Dave:Right. I think so. What if it goes like, let's say you have a target order. Let's say it goes up one cent shy of the target order. It doesn't it wouldn't have filled, and now it's coming back.
Dave:And let's say it's coming back at the end of the day, like, I don't know, an hour before your timed exit would have been from the original entry.
Michael:It's it's funny that the devil is always in the details like this, right? Where you can you can find, and at some point, if you are truly going to be a systematic trader, you have to find all of these kind of edge cases. And it's funny, the more I get into systematic trading, the more it reminds me of, like, all the debate stuff that I did in in high school and a little bit in university where, you know, part of the point of debate is trying to suss out, like the edges of people's arguments to try to find out kind of actually where the middle lies by going to those edges first. That when you said that it just brought me back to debate class where, yeah, there's always a like a scenario that can kind of flip flop throughout. And really at the end of the day, has to come with because you can obviously attach how long an order exists to the order when you send it out.
Michael:You know, I think the real question we're trying to figure out is what setting to use there. And now that I try to think about actually, you know, including that into a backtest, it seems incredibly complicated. I think the question too is, is it worth, would it be worth spending that time to see exactly how long that order should remain?
Dave:Yeah, well, depends on how much time you have, but I think as we'll get into here, there are huge implications, if you can answer this question well. And I think you were on the right track when you were talking about tagging the trades. But when you tag the trades, there has to be a trade to begin with. So you need to be keeping track of the ones you miss. So for that reason, I think it's better to add some stuff into your back test to sort of quantify some of these ideas.
Dave:So, because, know, when it really, when it boils, when it comes down to it, the entry, whether you get a fill on the entry order or not is somewhat arbitrary. So, I mean, there's gonna be some randomness there. Like the fact that you got a fill today on this order, but didn't get a fill yesterday on order X, defining that is going to be tricky because it's somewhat arbitrary, but also you're probably going to be changing your size over time. So it's going to be this very dynamic thing. So that's why I think it's easier just to look at the backtest in general, look at everything and then see.
Dave:So that way you're encompassing all the signals, everything that could have come through the system, whether or not you happen to get a fill or happen to get the entry fill. So yeah, it comes back to back testing, I think. It does get more complicated pretty quickly. So that's why I emphasize the simple approach is probably the default here. But when you think through the ramifications of understanding the behavior after you get in a trade and whether that's predictive or not, then all of a sudden that opens up a lot of different possibilities that could really improve your system a lot.
Michael:Well, and not only improve the system, one thing that I just thought, you know, while you were talking there is I could see a world in which you start tagging these because, again, you're only going to tag the ones you're right, you're only going to tag the ones that have gone, you know, they moved from 10 quickly and you miss the trade, then they come back and they hit 10. And I just kind of envisioned a world in which, because you're getting, like you mentioned, all the ones that come back to 10 and then just go and you know, stop you out at nine or whatever. I could almost see a world where there's some sort of inverse strategy that gets created by doing that and saying, okay, if the ones that, you know, if they, you're almost talking about finding like an optimal hold time in that scenario, right? If they come back to your entry after X period of time, maybe they turn out to be crap. So not only could you help answer this question by doing some sort of tagging, I think that there's additional strategies or additional questions that open up just by saying, yeah, if, you know, the stock comes back down at this period of time, there's maybe more likelihood that it's a failed trade or something like that.
Michael:So by doing this tagging and by doing this journaling, again, it just opens up like with everything, right? It opens up, answers some questions and then creates a whole bunch of other ones at the same time.
Dave:Yeah. And I always go back to, you create a back test, you add a whole bunch of columns to it to figure out what's predictive, when you should be taking the trade, when you should be skipping the trade. All that is prior to the entry. Well, during the trade, there's a whole lot of information that is being presented to you that you can make decisions on. You obviously can't know about that before the trade, but there's just a lot of things you could do based on that information.
Dave:For example, the more you look into the information that happens after the trade, the more you can make decisions like when does it make sense to move my stop to break even? Because that's really, it's almost a very similar scenario. You enter a stock, it goes in your direction. And then a lot of people's tendency is to move your stop to breakeven. Well, now it's come back.
Dave:And we're talking about getting back in if we missed it originally, where a common scenario is you're moving your stop to breakeven. So that's the completely opposite thing. So the more you learn about it, the more you could actually maybe figure out a scenario where moving the stop to breakeven makes sense. So the more you, the better you get at this, the more, the more of these really nagging, annoying situations you can actually have a plan for. And that's why this is so hard because usually when you're in this situation, it doesn't happen a ton.
Dave:So when it does happen, it's like you're in this huge unknown because it feels like you should have more information than you're prepared for.
Michael:Right.
Dave:Just feels like you should have a plan here and you don't really, and it's really this big unknown.
Michael:Well, and this one's particularly frustrating because in, like, 100% of the time, if you miss the trade, at some point it was a good trade. Right? It doesn't mean it ends the day or ends the the period of time in a good trade. Like, if you if you didn't get filled, it's it's always a good trade. So it becomes really hard kind of psychologically because if you're trying to buy the stock and it continued to go down, you would have by definition gotten filled.
Michael:So it plays a little bit harder on the psyche than a lot of things. You know, even people, right, if you're using stop limits or something to chase breakouts and things like that, it would be the same thing. If you didn't get filled, that means that stock really broke out and really moved from your price. So because you're battling something that is always, and I think it's even kind of harder sometimes psychologically to have a mistrade that would have made a bunch of money than having even a losing trade, it really should kind of underpin the need to kind of solve this question. Because even if it's not costing you a lot financially, it's a large mental burden.
Michael:And again, we were talking joking in the green room when Dave reminded me what the topic was that it looked like on the chart anyway, that I should have potentially gotten a fill on this stock for a day trade, it's up like 10%. So it's like, you know, that's obviously going to be more annoying than, you know, I took my little little hit that you take on a stop loss and you move on, you look at that trade and your brain just immediately goes to the dollar amount that you would have captured if you got that fill. So you really got to figure it out at some point. Or what I think would happen eventually, everyone would fall into that kind of FOMO trap where you're ended up taking the trade, especially newer traders that are still working on their plan. I see this so often, wanted the stock at 10, and it doesn't get to ten, or they miss a fill at ten, and then they're buying it at twelve when they really should be should be exiting the position.
Michael:They're just kinda chasing in because they're they think their idea was fantastic. They just kinda missed the price.
Dave:Yeah. Well, one of the most frustrating things about systematic trading is exactly what you said. You're not going to miss the losers. You're going to get all the losing trades, right? You're never going to miss those.
Dave:It's just the winning trades you're going to miss or some of the winning trades you're going to miss. And of course, that's what makes the strategy good, right? So you can't be missing too many of those or it's a big problem. You're right. It's extremely frustrating, way more frustrating than just getting some losing trades.
Dave:It's missing a winning trade. That's a whole different level of frustration. So, yeah, It's what makes the strategy tick. It's important to think about. A lot of traders, I think their tendency is to focus on the losing trades and maybe figuring out a way to make the or stop get rid of some of the losing trades.
Dave:Well, that is one approach, but really the better approach is to make sure you're not missing the winners. Figure out what to do in the winning trades, because that's really what's going to make your strategy tick.
Michael:Oh, I could not agree with that one more. Think and I think that's just kind of the whole pain avoidance thing that we talk about all the time, right, is the human condition to try to avoid the painful thing, which is the loser, as opposed to I think what the better exercise is, not only making sure you're getting the winners, but getting as much as you can out of the winners, right? It's always the way, you see it all the time, especially with discretionary traders, where maybe they've got three positions on, and two are in profit and one's in loss, and then they add to the loser. And it's purely an emotional decision of I want that red number to turn green to make me feel better, as opposed to potentially coming up with some sort of system to add to trades that are working and kind of doing what you expect. And yeah, it becomes the, you have to fight that inclination to I'm going to do the thing that is usually the wrong thing to do, which is trying to cut losers out as opposed to, okay, what do my winning trades really look like?
Michael:And how can I get better? And that's what I love about like a lot of journaling software is like I use TraderView has what the maximum, like the maximum profit you would have in any trade, right? It always keeps that number and it says, right, your maximum favorable excursions says you could have made this in your trade, and that to me is a number that's more interesting to focus on. Because you know, the losers, you got a stop loss, you know, they're not interesting, right? You take your trade, take your stop loss, you kind of move on.
Michael:But if you can figure out the winners and either go bigger in them, like like Bella was talking about, or find a way to squeeze a little bit more out of that, I think that's way more beneficial area in the long run to spend your time on.
Dave:Yeah. Well, let's talk about exactly how to approach this and actually get some data in your backtest where you can make some decisions based on this. Sure. Now think about your trading signal for your strategy. So that's a very finite specific situation that you've concocted to create a strategy from.
Dave:Well, once you get in the, into a trade, there's again, infinitely many things to capture if you wanted to, to quantify. Right. So I think the important thing is watch your trades. And when you get into this situation and you're not really sure what to do, make a note of that and go back and include it in your back test. And here's how to do it.
Dave:So let's say the stock goes some percentage of the way toward a target, or maybe you don't have a target, like some distance into the profitable territory and then comes back. So you see that and you're like, gosh, what should I do? I'm not really sure. Is it going too far? Should I be getting in here now?
Dave:Or should I have moved my stop up at this point and I should be getting out where I have to be in? So you've got this one scenario now. Include that in your back test, like figure out, okay, which are the ones like it needs to have go a certain amount, capture that in your back test and sort of quantify that and see what would have happened. So the way I would do it is in your columns, most of the columns we've talked about up until now are pre trade. So the things you can know about before you enter the trade.
Dave:What we're talking about here is post entry columns. So it's important to keep these separate in your backtest because you cannot use these to optimize on. And you've seen this. Even just the close of the bar that you enter on, if you include that, you're going to find something that looks so awesome in your strategy and you're good and you run into the cruncher and it shows up as the most important thing. You're like, Okay, I've got the answer here.
Michael:The hope is that you identify because, yeah, I've made that mistake before and I'm like, holy smokes, just hacked the matrix here. Yeah. I'm gonna be I'm gonna be a trillionaire in no time. And then, yeah, it's funny that still as somebody who knows better, there's still that split second of holy crap. And then you're like, then it comes up.
Michael:Okay, there's something, there's something wrong. There's something broken. Yeah. You still kind of like get yourself excited for just the briefest of moments there.
Dave:Yeah. And sometimes it's even worse. Sometimes it's not even brief because, you can capture a data point that's just a little bit into the future. It actually looks plausible. When you look at the report in The Cruncher, you're like, Okay, yeah, this looks pretty good.
Dave:And it's not so good that it can't be real. And that's what's really hard to track down because it's probably gonna be a couple weeks or a month of trading the system before you finally figure out, Okay, I'm looking at something that I can't know about at the entry time.
Michael:And that's more
Dave:of like crushing.
Michael:When you wake up from a a really cool dream, like you're a billionaire or like you got superpowers or something, you wake up and it takes the brain a little bit to go, nope. You know, you didn't win the lottery like you were dreaming. And yeah, it's almost, it's like the whole psychological experiment they do where you give someone $20 and then you take it away and they're more mad than they were to begin with, even though, you know, net financially, they're the exact same. It's kind of the same as if you kind of fool yourself into thinking that you really figured something out. And then you realize, regardless of the amount of time after, but you realize that you haven't, you are more bummed than when you started, even though you're still you just have to pull that column out and test it again.
Michael:But yeah, so definitely be careful there for sure.
Dave:Yeah. So a lot of back testing platforms make this possible. I don't think any of them make it very easy. There is one platform that SMB uses, this platform called Kite. They make this really simple because there's columns you can capture at the entry and then columns you can capture with the exit.
Dave:It keeps those separate in your backtest, which is quite nice. It's just built in from the ground up to keep those separate cassettes. So that's quite nice. Cannot do this in trade ideas. You're only getting the columns from the entry time.
Dave:You get a whole bunch of them for free with every back test, so it's really quite convenient. With Amabroker, you can do this, but you have to have a good way to separate. You're putting all the columns in there in one go, so you have to be able to mentally keep these separate in your mind and make sure you're not gonna optimize on the ones that are post trade.
Michael:So Yeah. And you could you could probably come up with a clever naming scheme for those columns, like put put a suffix or a prefix or something in there so that when you're when you're exporting the the CSV, you can just delete anything with that that Yeah. Code or something in it.
Dave:Yeah. And that's exactly what I've added to the cruncher. And it's based on what the the Kite platform with SMB. It's based on that protocol. So anything that you tag with and mark as an entry column is fair game for optimization.
Dave:And anything that you mark as an exit column is ignored for the purposes of optimization. Once you capture that, and it's important to think about how you're gonna distill that situation into a value for a column that you can actually use. That's the tricky part. It distills it into something you can actually take action on. And that's it.
Dave:That'll take some thinking like the, the one where it went in your direction. Maybe you have, you know, some value for MFE during a certain period, not the lifetime of the trade, but maybe the first entry window period. How far did it go during that? Then how did those trades react after that? What was the performance after that?
Dave:So then what you could do is you can include this in a back test, and then you can filter on just these things. Look at a whole bunch of charts for just ones in this situation, see exactly how these performed. And that's just one scenario. You could add a whole bunch of scenarios. It's a bit of a rabbit hole.
Dave:You need to really figure out exactly what, real world situations that you have questions on. But it is useful to go through this exercise because you'll learn a lot. Like I said before, you're in a trade, you're in this area of unknown because you've got all this information that you don't have it, you don't have any real answers for, and you know you could. So anytime you can gain confidence and know that, okay, I shouldn't move my stop here to break even because I know it just doesn't work. I've got data to prove It just makes you feel more confident.
Dave:Not only that, it can lead to more strategies like what we're talking about here. Once you find answers here, it opens up the possibility for creating a new strategy based on what you discover.
Michael:Well, and right, so just shouldn't shouldn't have to be said to our audience. I'm sure they know it already, but make sure you're normalizing your your MFE, your maximum favorable excursion, right, to some sort of ATR value. But I think the bigger point is that, like anything, and what we talk about, is it shouldn't be a guess, right? And these are the steps to make sure that it's not a guess. You shouldn't be sitting there in the moment and saying, you know, it's coming back down, should I yank my order or not?
Michael:And what Dave just kind of gave there is a system where you don't need to. You could look at, okay, how far has it gone? What do my rules say? Or what does my system say for either how long the stop, the order should be out or how far it has to move before it gets canceled or something like that. Then And there's probably ways to automate all this as well.
Michael:But you should kind of decide in the interim. Now, what would you say, because I'm kind of gonna put you on the spot here for someone who hasn't done that yet, and they're live in the scenario and it's kind of happening for the first time. You know, now hopefully, it's just one trade out of many that you make every day and every week, so it's not going to make a huge difference. But what of, what would you give as advice for like the first time? Like for me, I'm just, I instantly say, well, you should probably just cancel it and then do the work later to try to figure out what would happen.
Michael:But that person who's just, you know, maybe, I don't know, maybe listening to this right now and is having this scenario and hasn't thought about this and hasn't gone through and do the work in the interim, do you think the person should do?
Dave:I think you should take the simple approach and follow the original system. That means if you were in the trade, if you would have been in the trade with the original entry, take the trade now when it comes back and gives you an extra entry. But the fact that you're uncomfortable and have to think about it is a good thing because now it's the market nudging you to here's an idea to test. So my simple advice here is do the simple thing, but make a note of it. The minute you start overriding it and making a habit of overriding it without a data driven reason, it's you're it's kind of a bad habit to get into where the better approach is, okay, I really feel like I wanna take some action or override, but I'm not going to.
Dave:But instead I'm gonna take notes about this exact situation, take some screenshots, give myself a to do list of things to test so that next time this happens, I'm much more confident And that puts you in a situation of not frustration, but productivity
Michael:and
Dave:ways to get better. Yes.
Michael:And just because I say that because I bet you there's a lot of people, and I know a lot of people who probably really haven't even thought of this. And I'm thinking kind of primarily people who use things like Basket Trader in IB and things like that, where they just, they set out the orders and the orders just exist out there for a single day, and they don't even look at or check the system or whatever till they're home from work or home from whatever. And for those people, they've just always done it this way, and it's probably the same way that their back test has worked. But for them, it's not even I think so much as correcting a problem at that point, is it's creating potentially another kind of filter or another idea in which if they start doing this exercise, even though their back tests had always leave stop and open till the end of the day, and this is what we assume your thing is, but you can now maybe do this additional step and make that system even better, right? If you end up doing this additional step and you realize, hey man, if you don't get filled in the first half of the day, it's not worthwhile leaving that order out to get mixed.
Michael:Then even though you didn't kind of initially see this as a problem just the way you were going about trading, and so definitely it kind of wasn't a problem, it's now an optimization. Right? You're now saying that there's an optimal period of time on average to keep that order out live in the market and then to have it killed, and that in and of itself should end up making your your trading better. So you can look at this as two ways as as fixing a problem or even just kind of further optimization in in kind of going a little bit deeper than you're doing now.
Dave:Sure. I mean and think about the implications of what we're, in the example I gave. So let's say you find situations where you should be taking that trade that gives you another entry and some situations where you shouldn't. So you have an original entry, it's gone in your direction a little bit, it's come back and give you another entry. You can figure out some scenario where you should take that trade and not.
Dave:Think of the implications of that. If you discover that, all of a sudden, you've got a way to scale in trades you didn't miss when this happens. That's huge. That's a huge improvement and a dramatic way to improve your system by taking the data that comes in after the trade and figuring out something to do with it. That could dramatically improve your results just by you know, being able to make that decision.
Dave:And, you know, that's just one area. The next, the next thing you could do there is all right, maybe, maybe what I go back and do is widen my original strategy quite a bit. And then only look for the situation where it goes in your direction a little bit and comes back. Like all of a sudden you've got a whole new idea for a, for a system that you could use based on this second entry. So there's just so this is the way traders get better.
Dave:They go through these scenarios, figure out ways for new systems and ways to figure out, systematic ways to think about data that's coming in and profit from it. This is how people get better.
Michael:Well, always look at this as, you know, in the beginning, in the initial kind of conversation we had here, it seems like a pretty simple idea. It's like either you take the trade or you don't. Right? But with everything with systematic trading, which is why I really do love it, is that it it seems like, you know, you open a door and there's two doors there, and then you go and you open another door, and then there's three doors there, and so on and so forth. Where something is a pretty generic sounding question, but not only is there a multitude of answers and then, you know, work to do to get to that answers and everything, but all along the way, you're going to discover different things about your existing strategy, or like you were just talking about there, potential new strategies, or so improvement happens, it seems for this kind of trading in the weirdest of ways, in like the most uncommon of potential ways, because you might be in this happens to me all the time, I'm, you know, working on something over here that's kind of wildly different.
Michael:And that answers a question that I had for a completely different kind of trading style, and you end up kind of going back to things that you were doing before. So yeah, this is one that again, I think opens up a lot of kind of pathways where you could say, you know, hey, maybe my order should only exist for a certain period of time or canceled, here's, you know, things that, you know, if they don't come back, here's a scenario to do, and you end up getting these branching decision trees, which I think goes back to another episode we did about why you should kind of automate your trading. Because every time I, you know, I hear us talking about adding a different layer of decision making process to a trade, and knowing that we want to take multiple trades a day and multiple trades a week, and then, know, tons of trades a month, the systematic nature of execution, it has to be to be there because now we're thinking about like 30 different things for one single trade. And the more you can kind of pass off that in the moment decision making, think just the better because now for this one trade that you miss and came back, there might be five decision points on the way back down to see if it's something you end up taking or not.
Dave:Yeah, it's, there's, should always be situations where you're uncomfortable as a trader or you're not sure what to do, those are really valuable things to take notes about. Because those are the ideas and situations that You're not the only one that's uncomfortable with this situation. Other traders are too. And if you can have an answer and get an edge on other traders because of it, that's a really powerful thing to be able to do. The first thing So once you add it to the backtest, I think one tendency would be add it to the backtest and adjust your exit based on it.
Dave:That's going to be pretty complicated the first time.
Michael:So
Dave:the real trick here is figure out the column to add that will identify these traits. Maybe the default is there's a null value for those if they don't exhibit the behavior. And then you can sort on that field and just do a chart review. Go back and look at the trades that have exhibited this behavior. And you're going to see maybe your entry window is too long and it's not really capturing the idea of some of the ones that come in there.
Dave:But a chart review is very, very valuable. I'm sure a lot of listeners to this podcast get called in backtest world. They look just at the data. It's always a good idea to go back and review charts. It's not in the nature of systematic traders or developers to do that, but it's always valuable.
Dave:You always learn something and you should really streamline that process so you can do it very efficiently.
Michael:Yes.
Dave:It's something to think about a lot and you should be looking at charts probably more than you do.
Michael:Well, and not only that, but we talk about it all the time, like how the trade is going to feel. The chart's going to tell you a lot about that, how long you're in drawdown, and you know, how does it had because you can look at the beginning point of the trade and the end point of the trade, that doesn't really tell you the path of the trade as much as looking at the chart, like how many times did you get underwater, right, you know, were you in profit really quickly? That's a big thing. And then also just, I like what you mentioned there about, know, making sure it's still in the spirit of the trade, because I've done some things where I have an idea, hey, I want to buy, you know, a breakout of a tight consolidation or something very simple. And then by the time you're done all your back testing work and all of that, you go back and you do the chart review, and you realize that somewhere along the line, you've completely lost the spirit of the thing that you were to capture, which doesn't, you know, if all the data is pointing correctly, it doesn't necessarily mean it's wrong, but it just means you may have accidentally, you know, invented another trading.
Michael:You should try again to do to do the thing that you originally set out to do. Right? And go back to that.
Dave:Yeah. I call that like, you're hitting foul balls. Like you're making contact, but you're not some of these are just you're hitting foul balls. And the only way you're gonna discover that is by looking at the charts and and then you'll say, oh gosh, of course. Yeah.
Dave:It satisfies the rules I just came up with, but it's, you're right. It's not the spirit of the, of what I was trying to capture. And let me go back and make an adjustment and do another back test to see. So yeah, it's, it's a powerful thing. Yeah, I think some listeners will hopefully find some good ideas to take back to their system and see if they can improve it.
Dave:I'm curious to see what listeners are able to take away from this.
Michael:Well, yeah, and we always love the follow-up comments and emails and all of that, that you can reach out and you can find us. I always love when I hear feedback of, I didn't think about that. Then I listened to the podcast and I did some work and maybe a system got a little bit better or something like that. Always love that. But as always, I'm Michael Noss.
Dave:And I'm Dave Mabe. Join us next week on Line Your Own Pockets.
Creators and Guests
