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Charts & Analysis

Outperformance By Hanging Around

Yesterday we decided not to trade the system. We’d found that when the market had gapped and was in some direction by over 4% – then we found that by and large we don’t make positive returns if we traded in that direction.

By the time our first trade was in the market had gapped down 4%, and was down a further two percent. At this point, there wasn’t a point trading – and our system was throwing out shorts – so we decided, heck, let’s not do it. This is evident in back tests too, so there’s some element of ‘quant’ in it.

But we thought why not look at the days we haven’t traded for any reason – meetings, illnesses, holidays – and see what happened. Amazingly, more than 90% of such days were our system underperforming the market, or the market going down tremendously and our system going down in small absolute terms. Either ways we had outperformed the system or outperformed the market.

I call this OBHA – Outperformance By Hanging Around. Sometimes not doing anything is worth it.

  • Nilesh says:

    >this is because we are in bear phase. it would have been opposite if it was bull market. as simple as that.

  • Raghuraman says:

    >Correct. What do we do with the pile of cash now? Which sector do you see a better one to invest now? Your opinions pls.

  • Deepak Singh says:

    >I agree.

    80/20 Rule: 80% money is made in just 20% of the trade; and in 20% of the time.

    Trader’s job is like a watchman…waiting for an opportunity…which comes pretty rarely now-a-days 🙂

  • Deepak Shenoy says:

    >Tough ask. Gold is the only way out really. But the rupee isn’t being very kind.

    Best is to find a one year FMP, I think. Or, stay put in cash. Opportunities will come.

  • Anonymous says:

    >I got news for you,you got no system here at all.

    This is worse than just discretionary.. neither here nor here..but with false sense of edge.

    I agree with most your views but for system trading posts keep hitting new lows.

    Some observations:
    1.discarding systems and hopping to next is the first novice mistake..read survivorship bias.

    2.yr selection process reeks of curve fitting ..best in past..so run now.. oops failed.

    3.a good system just works all the time. with no tinkering.

    4. you *cannot* not trade a sys..this input shld be built in.

    5. Every rookie discards a sys in the wrongest time.

    6. Sticking to a system is hardest.

    Not trolling but this is textbook- how not to.

  • Deepak Shenoy says:

    >Anon: Thanks mate. Are you a system trader? I’d like to see your history/experience.

    I think you’re talking way too much textbook mate. And the wrong textbook. We’ve been making profits despite OBHA, and it will eventually become an input to the system about when not to trade.

    Btw, “a good system works all the time without tinkering” – that bit seems to say you haven’t ever traded systems.

    Sticking to a system is hardest – most definitely agree, though constant research is necessary.

    Remember though: It’s not about trading everyday. It’s about trading when the opportunity is right.

  • Anonymous says:

    >There is no highly secretive esoteric model for good sys design.
    So the basics sounds just so simple,but you flout those basics per novice.

    For ex. over the long run,your discr beating/getting beat by the sys will average out.So why not just code it.

    Tinkering..you ever thought a regime switching system parameter.. bull/bear.. hi vol/low vol triggers diff algos.

    *and*..good algos run for years..but not easy to develop.

    2c.

  • Deepak Shenoy says:

    >anon: True, we are coding this in as a param. There’s another highly reverse correlated system that we can run on such days, and that seems to work. Very interesting results. Effectively a liquidity/TRIN/gap/Change parameter can determine what system we’ll trade.

    Eventually there won’t be discretion in the system – there’s not right now eitehr, but OBHA is about how money is not lost by trading despite odds. THe calculation of the odds can be as objective as the system itself.

    Good algos don’t run for years, not high freq ones. They just seem to run. The parameters always change.

  • Siddharth says:

    >Anonymous,

    I would have anticipated a bit of appriciation of one’s efforts, politeness in your words even when you disagree, as you are arguing here.

    No offense intended.
    cheers

  • Anonymous says:

    >Deepak/Sidharth

    Totally not my intention..Sorry, but reading, yes came off that way .
    was typing in hurry.
    I lurk here!