Better System Trader

Today’s guest is a trader that has been requested quite a few times actually, I’ve had a lot of requests to have this person as a guest on the show, and the guest is Adam Grimes. Adam has two decades of experience in the industry as a trader, analyst and system developer and is currently Chief Investment Officer of Waverly Advisors. He’s previously held positions at Level Partners, MBF Asset Management and SMB Capital and is the author of ‘The Art & Science of Technical Analysis: Market Structure, Price Action & Trading Strategies’. For those of you that know Adam and his work, his approach to trading is a mix of quant and discretion, and I think even if you’re a purely systematic or quant based trader it’s interesting to hear other people’s approaches and points of view. So we start off the chat by discussing his approach of mixing quant and discretionary models, and then we move onto behavioral factors in the market and why approaches that look at the market as purely rational fail. We then end the

When I was preparing for the previous podcast episode on system trading through the Brexit, I had to review some of the past podcast episodes so that I could include some background content for the guests, and as I was going through some of those past episodes I realized that there was so much great information in them that I had already forgotten about. I even found some concepts or ideas that didn’t really catch my interest because it wasn't appropriate to my trading at the time but it’s now more relevant to me personally, so I thought it might be time to do another review of some of the past episodes as a reminder and to perhaps gain or reinforce past insights. Last year, we did a podcast episode where we reviewed episodes 1- 20. That was episode 30 if you’d like to go back and hear that. In this episode we'll review lessons and highlights from episodes 21-40. Some of the topics we’ll be discussing are: How to never run out of trading ideas, The importance of creativity and a simple technique to increasin

The results of the Brexit decision took a lot of people by surprise and the markets reacted accordingly. What was interesting about this market event is that we all knew the date and time period when the Brexit votes would start rolling in, so we had a rough idea when we might see some type of market reaction, if the market reacted at all. As systematic traders, what should we do in this type of situation: Should we continue trading as usual, following our systems? Should we override our systems to reduce exposure, or perhaps temporarily stop trading altogether? Are there any other approaches that we should consider? How do we go about deciding what to do? In this episode we’re asking 13 system traders and past guests of the podcast (actually it's 12 past guests and one future guest) about their approach to trading around the Brexit vote. I’ll be asking them what their trading plan was going into the Brexit decision and you might be surprised with some of their answers. I’ll also be asking them what factors

Traders are always looking for an edge and today's guest shares a simple approach he calls an 'unfair trading advantage', that can have a dramatic impact on trading strategy performance. The guest on this episode has been on the show before, to discuss breakout trading strategies back in Episode 43. In that episde we discussed the steps to building breakout strategies and we even released a breakout strategy toolkit, included an ebook, cheatsheet and EasyLanguage code for 2 breakout trading strategies. In this episode, our guest Tomas Nesnidal will be sharing a different trading approach, and it’s something he likes to call ‘an unfair trading advantage’. He’s going to explain to us what it is and why he calls it an 'unfair advantage.' It's something that a lot of traders have probably heard about but perhaps are not aware of how to use it properly or even the positive impact it can have on trading results. Tomas will explain it in this chat so take a listen! Topics discussed An 'unfair trading advantage' a

Today we’re covering a topic which can really be a concern for traders of all levels, from beginner to pro, and that is the topic of strategy evaluation. Have you ever found that real-life performance does not match expected results? Or perhaps you have a strategy that is stuck in a drawdown and wondering if it’s actually broken? I’m sure we’ve all heard of data mining bias, over-optimization and curve fitting and the impacts this can have on our trading accounts. We may be even using techniques such as Out Of Sample testing, Walk Forward Analysis, Monte Carlo analysis and a number of other measures to identify or reduce the impact of these issues, but do these approaches actually work? Are there limitations or dangers with these techniques? Are there better ways? In this episode we talk to someone who evaluates trading systems for a living, plus his research into system evaluation techniques has won awards. The guest is Dave Walton. Dave was the winner of the Wagner award in 2014 for a paper titled ‘Know y

Nelson Freeburg was the editor of Formula Research, a newsletter that developed systematic timing models for the stock, bond, and commodity markets. He was also a research consultant working with institutional money managers to design proprietary timing models. Nelson had been an active trader since 1980 and occasionally spoke about his work to audiences around the world. In this episode, Linda Raschke shares memories of Nelson, his approach to model development and what we can learn by studying his work. Topics discussed Timing models and the components Nelson used in his models Russell growth vs Russell value model Out of sample testing and sample size Why Nelson focused so much on reducing drawdown Nelsons biggest strengths in modelling and what we can learn from his approach Voting systems The benefits of overlaying models

Markets are constantly changing. Trading edges come and go. In an industry with such a low survival rate, where some areas are changing at an ever increasing rate, what does it actually take to not only survive, but thrive, over an extended period of time? The guest on this episode, Linda Raschke, has been trading for over 35 years. She traded for several hedge funds before starting her own, ranking 17th out of 4500 hedge funds by Barclays Hedge for 'Best 5 year performance'. She's experienced a large number of changes in the industry, some of them have been huge, but she’s managed to adapt and continues trading even today. Linda stand out from the crowd for three factors: Performance, Longevity and Consistency, so what does it actually take? What has she learnt over the years and what can we do to improve our own chances of performance, longevity and consistency? In our chat with Linda we discuss some of the changes she’s experienced over the years and the impacts this has had on trading. We also hear about

Trading can be tough, markets are noisy and finding signals in the market noise can be challenging. Also, applying indicators to trading strategies can introduce lag, however a lot of traders don’t even realize the lag their indicators are introducing or the impact it can have on trading. In fact, the guest in our chat today, John Ehlers said “One of the biggest enemies of traders is lag”. So, what's the solution? John Ehlers is well known in the commodity futures arena as the Creator of MESA, having pioneered the MESA method of cycle analysis in the late 1970's and becoming the founder of MESA Software. He is author of four books including Rocket Science for Traders, Cycle Analytics for Traders, Cybernetic Analysis for Stocks and Futures and MESA and Trading Market Cycles. He has also been a contributing editor of Stocks & Commodities, winning a number of awards for his work. In our chat with John we discuss the issue of indicator lag, the impact it can have on trading and some solutions. We also talk ab

Backtesting and execution are such key parts of algorithmic trading so choosing the wrong platform can have a huge impact on our trading. There are loads of trading platforms available and a lot of considerations which need to be made when choosing one that suits our needs, so in this episode we’ll be discussing backtesting and execution platforms with Nitesh Khandelwal, department head at QuantInsti who also co-founded iRageCapital and iRage Global Advisory Services. After our chat on algorithmic trading platforms we’ll also cover statistical arbitrage, high frequency trading and some interesting audience questions, so listen out for those. Topics discussed The 3 key components to an algorithmic trading platform and the basic questions you need to answer before choosing a trading platform Why backtesting and execution platforms should be separate Choosing a programming language and why python has become a popular choice in trading The benefits and drawbacks of using python in trading Statistical Arbitrage,

I’m sure we all want to create trading strategies that perform better and last for longer but there are a number of issues we need to look out for when developing robust trading strategies, some are well-known and some perhaps aren't. In this episode we’ll be talking with Perry Kaufman about strategy development and more specifically some of the issues that can catch us out when creating trading strategies. Perry raises some interesting points about optimization that may not be well known plus he shares loads of tips to creating more robust strategies. Perry writes extensively on markets and strategies, having published fourteen books and has just released a new book on building algorithmic trading strategies, which we'll be discussing in this episode. He has worked and consulted to a number of successful CTA, investment and prop trading groups, creating systematic trading and hedging programs. This is also his 2nd appearance on the podcast, appearing as a guest way back in Episode 10. Topics discussed The m

Andrea Unger is the only trader to ever win the World Cup Championship of Futures Trading ®* titles 3 years in a row, with returns of 672% in 2008 (futures division), 115% in 2009 (futures division) and 240% in 2010 (futures & forex division). This is his 2nd appearance on the podcast, he was also a guest on Episode 16. In this episode Andrea discusses his approach to trade entries, how the traditional approach to entries can limit our ability to read the market and how he's modified the standard approach to identify entry opportunities. Topics discussed The typical approach to entries and how Andrea uses a modified approach to identify and test his entries Why starting an entry with a setup can limit your ability to read the markets The grouping of setups and how the style of trigger you use can determine the most appropriate setup The best timeframes for indicators and the impact lower timeframes can have on indicators Combining intraday and daily timeframes for better entries How Daily Factor can be u

Back in Episode 32 we had a chat with Laurent Bernut, a systematic short seller who spent years working in the Hedge Fund world specializing in short selling strategies. He shared loads of knowledge with us in that episode but we actually had a lot more to talk about. We ran out of time back then so in this episode we’re going to continue with the chat, covering a bit more on short selling, including common problems and mistakes traders make when short selling, the 5 psychological stages of a bear market, how these stages manifest in market behavior and where we are now. We also chat about his Convex position sizing model, visualizing your trading edge and how to tilt it more in your favor PLUS he shares with us a special trick to switch our minds from a flight or fight mode back into a state of flow. We also have some great questions submitted by podcast listeners so listen out for those. Topics discussed Common problems traders face when short selling When to never short a stock The 5 psychological stages

Tomas Nesnidal has been a full-time trader for over 11 years, specializing in automated algorithmic trading strategies. He has experience with a number of trading styles, including option trading, spread trading, statistical arbitrage and market internals but in this episode we’re going to discuss one of his other specialties, breakout trading. In our chat we discuss the key components of a breakout strategy and how to combine them to create profitable trading strategies. We also discuss the degradation of strategies over time, how to add new life into old strategies and why creative thinking is such an important aspect of successful trading. In this episode we discuss The benefits of trading breakout strategies and what makes a good breakout strategy How to build profitable breakout strategies using 4 key components The degradation of strategies over time and how to add new life into old strategies Using filters to improve trading results Adapting strategies to market conditions The best timeframes and mark

Murray Ruggiero is the chief systems designer and market analyst at Tuttle Wealth Management, with around 200 million dollars under management. He is one of the world’s foremost experts on the use of intermarket and trend analysis in locating and confirming developing price moves in the markets. He is also a speaker, author and has been a contributing editor to Futures magazine since 1994, producing over 180 articles. In this episode we discuss various aspects of system development, including optimization, curve-fitting and creating robust strategies. We also discuss why strategies must have a premise, the importance and applications of intermarket analysis, cycles and a bunch of great questions from the audience. In this episode we discuss Factors to success in system development Why it’s important to understand the underlying premise of a system Techniques to reduce or avoid curve-fitting and develop robust strategies Why Intermarket Analysis is so important and how it can be used to create profitable trad

For those traders looking for an edge in every aspect of trading, today's topic is something that isn't discussed too much but has had a great impact on the 2 guests of this episode. The topic is collaboration in trading and the guests are Michael Cook and Kevin Davey. Both of these guests have appeared on the podcast before, with Michael being a guest on Episode 39 and Kevin being a guest on Episode 5 and Episode 38. Both have extensive trading experience too, successfully trading their own money and others. In this episode they share the impact collaboration has had on their own trading as well as why collaboration is so important, the actual benefits to traders, how to find the right people and tips to maximising effectiveness. In this episode we discuss Why it pays to put the work into strategies other people would find awkward or too difficult Why collaboration is so important in trading The benefits of collaboration and what you could be missing out on The different levels of collaboration and tips to

Larry Williams has been a guest of the podcast before, sharing insights from 50 years of trading in Episode 20. In 1987 he won the World Cup™ trading championship, turning $10,000 to over $1.1 million in 12 months. He is a published author, with a long list of best-selling books and has also created a number of market indicators including Williams %R, Ultimate Oscillator, the Williams Accumulation/Distribution Indicator, COT indices, cycle forecasts, market sentiment and value measures. In this episode we'll be discussing algorithmic forecasting, the methods and applications of forecasting, cycles and seasonality, plus some forecasts for the markets in 2016. In this episode we discuss Why algorithmic forecasting can be so interesting and so challenging Is forecasting just an academic exercise or can it actually be applied to real trading? The difference between Larrys forecasts and others made in the media How past cycles can project what may happen in the future How Larry actually generates forecasts based

We've been very lucky to have a number of trading champions on the podcast before and this episode we get to talk to another champion trader, Michael Cook, who won the World Cup Trading championships in 2007 (Futures), 2011 (Stocks) and 2014 (Futures). Michael worked in the institutional world for a number of years before leaving behind the banks and hedge funds to trade for himself. In this episode we'll be discussing how to increase returns with the same risk, using the market to determine stop levels, selecting a position sizing algorithm and the role of discretion in systematic trading. In this episode we discuss How a short statement from Larry Williams influenced Michael to enter the World Cup Trading championship and what we can all learn from it How Michael won the trading championship multiple times and the unexpected benefit of winning A method to increasing returns for a given risk Why market related stops make more sense that a fixed cash amount Position sizing algorithms and why fixed fractional

Happy New Year! The start of a new year is typically the time when people review their accomplishments and progress for the past year, and make fresh plans for the year to come. I thought it might be good to do a quick bonus episode with someone who knows all about setting goals and achieving them. That person is World Cup trading champion Kevin Davey, who was a guest of the show on Episode 5. Now this is a bonus episode so it’s a really short one but it’s full of great information, including the importance of goals in trading, common mistakes traders make when setting goals and the process to creating good goals. Whether you're an accomplished goal setter or just starting out I think you'll find value in what Kevin has to share with us today so I hope you enjoy this short chat on goals in trading. In this episode we discuss Why it’s important to have goals in trading The impacts of not having goals can have on trading success The types of goals appropriate to traders Common mistakes traders make when settin

In this episode we’re discussing the results of a quantitative study on stop losses completed by Cesar Alvarez of Alvarez Quant Trading. Cesar was also a guest of the show way back in Episode 3. Cesar was director of research for Connors Research for almost 9 years, developing quantitative trading models for individuals, prop traders and hedge funds. In this episode he’s going to share the results of a quantitative study on stop losses, also testing out some common pieces of trading advice to see if they're actually true. Stops can have such a huge impact on trading results so I'm sure traders of all levels will find this research invaluable.   We will be discussing backtesting results and some charts. We'll be explaining them for those who are listening along but if you’d also like to see the results while we discuss them, you can download a copy or even watch as a video in the show notes page at bettersystemtrader.com/37. I hope you enjoy Cesars discussion of ‘Stops - the Good, the Bad and the Ugly’. In thi

Creating robust trading strategies can be a difficult task, sometimes taking months or even years to generate something you find acceptable. Even then, once you start trading it live there is no guarantee it’ll work in the future. With strategy creation being such an involved process at times, how would you like it if you could just tell the computer the results you wanted and let it figure out the trading rules? Is it actually possible to create robust trading strategies that way? In this episode Michael Bryant from Adaptrade talks to us about automatic code generation, methods to exploit trade dependency and techniques to trade the equity curve. Michael has been trading the markets since 1994, providing trading systems for the futures markets and even managing money as a CTA. He is founder of Adaptrade, a company which provides innovative software tools for individual and professional traders. In this episode we discuss The traditional approach to creating trading systems and issues caused by this approac