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Tuesday, April 14, 2020

TTP - Optimal System Trading Design

Jan 14, 2010

Hi Ed,

After taking the Trading Tribe Workshop with you I have been doing much pondering and introspection about optimal trading system design.

I have studied many different trading strategies, curve fitting and over optimization, various risk/reward scenarios, different drawdowns vs return, Calmar ratios, bliss function, equity curves, walk forward tests, Monte Carlo simulations and still not sure what to select from all this data; wondering if I am getting the most optimal balance of return vs risk in a world of imperfection.

It is my understanding that “optimal” system design is highly personal, based upon personal desires, emotional thresholds, and what makes us happy. And so are the system parameters that we ultimately would select for said personalized trading system.

I’m wrestling with what is most important to focus on and how to make the process of personal optimal trading design as simple as possible. The simpler the better, right?

Would you be able to point out your process for analyzing ourselves to:

1) find our personal sticking points; uncovering rocks and negative patterns we may not be able to see?

2) what questions to ask ourselves for “optimal for our personality system trading design”

3) what the correct focus is for creating a highly compatible personalized trading system that is right for us individually?

Thank you,

- Your student,

Thank you for raising this issue.

Each person has a unique personal relationship with the markets that guides his trading.

Some people manage to quantify their relationships, even to encode them as a rigorous algorithms.

Others proceed on and tinker with their algorithms and modify the rules and run back tests to optimize parameters.

You might consider asking yourself if you can follow the rules on the Essentials Card (also in the Whipsaw Song).

If you have trouble in any of these areas, you might consider taking your associating feelings to Tribe.

Once you line up your personal psychology, you might consider formalizing your trading as rules.

If you start with optimizing a mechanical system, you may find out later that you do not really fancy following it.

You might consider taking your feelings about <wanting to build the optimal system> to Tribe as an entry point.

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