Transcription
The broadcast is now starting. All attendees are in listen-only mode.
Hi everyone, and thanks for attending. You can hear me? Quick yes in the chat box, just so I know everyone can hear me.
Alright, perfect. Thanks, Jim, and some others like, oh, Scott, Jim, a lot of people. Alright, great. Well, hey, thanks for taking the poll. I will talk about that in a little bit, the poll of what's most important in trading. And today, what I'd like to do is talk about my five favorite entries, or I should say, five of my favorite entries. I have a lot of favorite entries, but I guess anyone that can make money is a favorite, right?
So, but those of you that don't know me, what I'm going to do first is kind of go over some of my history a little bit and who I am, just so some of you, I know we're new here, and some of you I recognize have attended other webinars and workshops and things like that. So, welcome back. And after I talk about myself for a little bit, we'll talk about what's really important in trading. And then I'm going to launch into my favorite entry, some of my favorite entries, and we'll talk about those in some detail. And then we'll talk about how to turn those entries into strategies. How do you go about doing that? Well, time for questions and answers at the end. And at the very end, an autograph copy of my book that I will give away to somebody who answers the question incorrectly. So, let's stick around for that.
Alright, so here's our favorite government disclaimer that we always start every webinar with. And basically, just don't trade with money you can't afford to lose. That's the best way to treat this and treat everything. It's hypothetical. That's the other key. Anything you see out there, any kind of trading curves, everything else, just consider it hypothetical until it happens in your own account. And then, you know, you should be pretty, you'll be a lot better off. Just be skeptical of everything. That's what it comes down to.
Okay, so who am I? For those of you that don't know me, I'm a full-time trader. And that's primarily what I do for income and for living. And I also have some time, so I do some part-time writing, consulting. I've been trading for about 25 years or so. And almost, that was a lot of that was losing money, and a lot of that was, most of that was part-time. But I was able to make the leap about seven years ago and go from part-time hobby type trader to a full-time, would I would say, professional trader. So, kind of living the dream that a lot of people, you know, talk about, a lot of people want to do.
So, three years straight, I finished in first or second place in the World Cup of Futures Trading Championship. You've probably heard of that contest. It's the one Larry Williams made famous way back when he turned $10,000 into over a million. Obviously, I get nowhere near that performance, but was still up against some of the, the best traders in the world, and I was able to finish first or second three years in a row. So, that was pretty good. And, and let's see, I've also written quite a few articles, and I wrote a book. And so, you've probably seen me around a little bit. Futures magazine, I have articles in there. I'm probably going to have about half a dozen this year in there. And if you ever subscribed to Active Trader magazine, may it rest in peace, I had contributed a bunch of articles to that. I was also profiled in the book Market Universal Principles of Successful Trading, where I was profiled as a market master along with a lot of other really good traders. So, I felt pretty good to be in such company. And that's a great book by Brent Penfold. If you're kind of a newer trader or kind of even an intermediate trader, pick it up. You probably will find a lot of interesting stuff in there. And if you hang out at any of the trading forums, like Big Mike Trading, for example, my nickname there is Kevin K-Dog. And so, I'm frequently there, answering questions and that kind of thing. And I've given some webinars there. And I also moderate this algorithmic trading contest that it's called The Battle of the Bots, that runs every month over at Big Mike. So, you can see me over there.
Alright, and I mentioned I wrote a book. Here's the book. It's called Building Out Winning Algorithmic Trading Systems. And I'll give, I'll give an autographed one, autograph copy away at the end. And I had some people who I'm really impressed with say some good things about my book. Andrea Unger, who was an Italian trader, pretty much a world champion trader, he's done really well. Market Wizard Van Tharp, I'm sure you've all heard of Van Tharp. You know, he said it was a pretty impressive book. So, it's pretty neat to have these kind of people say things about my book. And it was also awarded the Trader Planet 2014 Book of Trading Book of the Year award. That just happened. And it's usually around that the top of the list of the top-selling books in futures and online trading and that type of thing. So, if you get a chance to check it out, especially if you're in algorithmic trading or thinking about it, he'll probably give you a good overview of what I do.
But, you know, that's what I do today. And what I started out, ten years ago? No, my first 10 years. So, this was actually like 15, at least 15 years ago. It was the end of it. So, my first 10 years of trading, I would say I did things, a lot of things the wrong way. I did all kinds of stuff. Added to losers. I did the old trader system, and if it doesn't work, well, then take the exact opposite signal, type thing. I did a lot of trading without any kind of testing or any kind of evaluation. Let's see something in a magazine or a book, and I'd immediately say, "Hey, I want to trade that," and I'd start trading it. And of course, I'd lose money because it was at some kind of half-baked idea.
So, what it led to is it led to a lot of research on my end. I spent a lot of time looking at the markets and looking at different ways and looking at what people were saying. And basically, what I did is I took what a lot of winning traders did and kind of stuck it with my own psychology and personality and what I liked and didn't like. And that kind of got me to where I am today. But the big thing for me, the big breakthrough, you know, everybody kind of has a breakthrough. I probably had a couple. But one of the big ones was when I started to create my own trading entries and strategies the right way. You know, there's a wrong way to do it, and I'll talk about that a little later, and there's a right way to do it. It's a big difference. And so, the breakthrough for me was learning how to do things the right way and then actually seeing that in the market.
So, what's really important? Before the webinar started, you took this poll. And here's the results. Exits and entries, people have about equal. Diversification is a little bit beyond that. And what people put the most stock into is position sizing and money management. So, okay, so this is a pretty astute group. There's a lot of people out there who tend to think that entries are the real important thing and everything else just kind of happens after it. But obviously, entries and exits are a big key to it. I mean, you can't get anywhere without that. A lot of people tend to focus on the entries because if you think about it, that's the only time you're really in control of a trade. Because you're sitting there, you're not in a position, and you say to the market, "I, you need Mr. Market, you need to do this, this, this indicator needs to be this value, and this needs to happen, then I'll enter." So, you're in total control then. And that's why I think people focus a lot on entries because it's the only time they're really in control. After that, you know, exits, well, it's going to be at the whim of the market, kind of thing. And but entries are something you can really feel more in control with. Doesn't necessarily mean it's more important, it just means you feel like it's more important.
So, entries and exits, obviously, they're important. Position sizing, money management, you know, are you going to increase size as you go along and start making money, or are you just going to keep plodding along trading one or two contracts? Well, that's, that's an important key too. And then, of course, diversification. What happens? Is there benefit to trading five or ten different strategies or 20 strategies? All these things. I tend to think diversification is the big thing, probably followed definitely by money management, position sizing. But everybody else has a slightly different twist on it. So, when it comes down to it, all of it's important. No big surprise there. I mean, you need the entries and exits to establish your edge and figure out if you have an edge. So, if you don't know that, you know, there's no point in doing anything else. You need an edge. And, you know, it's unfortunate there's a lot of people out there who play up the whole psychology part and, you know, you got to have the right, blah, blah, blah. Yeah, you definitely need the right mindset, and you, you have to have your emotions under control and all that good stuff. But tell you what, if you don't have an edge, it doesn't matter how good you are mentally prepared and all this other stuff. You need something with an edge. You know, it's kind of ironic because a lot of people will spend all their time on their psychology and trading journals and all this stuff, but never really find an edge and wonder why they still fail. And you need both, obviously. But the first thing you really need is that edge. And you get that from selecting your entries and exits properly. Then, once you get that, then you can start looking at position sizing, money management.
With the way I look at it is, you know, the first thing is you really want to control your risk. You can have an edge with entries and exits, and if your money management, position sizing is screwed up, you will blow out the account, no questions asked. And I've seen it happen with people with pretty good systems still blow up because they could not control their size or their money management. They were just reckless in that regard. So, you got to look at controlling your risk. And then the diversification, which is the way I look at smoothing your equity curve. It's adding strategy upon strategy. And the more strategies you add, as long as they're not correlated, you're going to get a smoother equity curve. And, you know, it's definitely true in trading. It's, you, you can review academic literature for, I don't know, what, 50 years where they talk about diversification. Most of the time, they always talk about it in regards to the stock market, which I think is a little harder to get diversified because, you know, all the stocks, even though they have, you know, different correlations to the overall like S&P 500, they still are correlated. If there's a market crash, most of the time, most stocks will go down. But futures, that's a look, that can be a little different, especially if you're trading long and short side. So, you might have a coffee system that's long, and a cattle system that's short, and a wheat system that's long, and cotton that's flat. And tomorrow, it might all change. But, you know, regardless of what happens, those, those kind of systems that are uncorrelated in different markets tend to even themselves out. So, it's, it's really neat when that happens.
So, and really, you need all these. And I've probably not telling you, hopefully, I'm not telling you anything you don't know. If you don't have all those, success is going to be difficult. Why? Well, obviously, if you don't have an edge, you're in deep trouble. Then, if you can't control your risk, or in your poor money management, even if you have an edge, you're done. You know, if you're not diversified well, if you have a system or a strategy that works great all the time and all markets and lasts for years and years, then you don't need to be diversified. But very few people have that type of thing. Most of us need multiple strategies because strategies come and go. They underperform, overperform. But if you're diversified over time, what you hope is that some strategies will do good, others will lag behind. But maybe next year, the laggers will pop up. So, if you have that, you're much better off. So, all four of those things are really, really important.
And today, of course, we're just going to talk about entries. So, I'm just going to focus on entries. You know, maybe what will I'll do, especially if there's interest in people like today's webinar, maybe I'll do the other ones, exits and position sizing and diversification, talk about those in later webinars because obviously, each one could be its own little webinar. Okay, so today, we're just going to focus on entries. I'm going to give you five unique entries. They're nothing spectacular, but I actually use them in systems I trade with my own money. So, I'm not giving you some, you know, old, tired indicator or something that I don't use anymore and I used 15 years ago. Or I'm not giving you some back-tested, baloney stuff that doesn't, won't even work going forward. I'm giving you actual ones that I use. And at least one strategy that I trade. So, we'll take a look at those and kind of go over some of those characteristics. And then I'll tell you how I test and evaluate them because I think that's an important part. And then I'll talk about how you can use these entries, other entries that you come up with, doing your own development. And that's what we'll end up with.
Alright, and again, if you have questions, you know, you can type them in now while you remember them, but I will try to answer them all at the end. That'll probably be the easiest thing to keep everything going.
Alright, so here are five unique entries. Okay. Well, first, people always say, "Well, where do your ideas come from?" My ideas come from everywhere. Trading forums, magazines, books, nature, anywhere you can think of something that's trading related. You know, I've even had dreams sometimes where a thought of something and woken up and it's kind of led to a trading idea. Where does that sound? But pretty much, when you're focused on trading like I am, when you're doing it full-time, you pretty much think about trading everywhere. So, you know, I could be at some kind of sporting event, like a football game, and that could just be watching how the crowd moves, for example, and that could lead me to some idea of how the markets might move. Stranger, stranger places give ideas than that, trust me. So, my ideas come from everywhere and anywhere. And the key I found is you just don't disregard any idea until you actually test it.
Alright, so as I mentioned, I trade all of these myself. So, that's what I'm sharing with you. Or once I actually trade. And two keys that I found is, one, you may or may not want to just take this exactly, this entry exactly and just use it. But maybe it gives you an idea to go and modify it yourself. Maybe you'll say, "Hey, I like this entry, but I want to put volume in it, or I want to put some kind of candlestick pattern on it to do whatever you like." And that's usually the key because the more you like a system, the more you like how it was built and what it includes, the more likely you are to follow it. And that's going to be important when you hit things like drawdowns because a system you like is much better, much easier to trade than when you don't like. So, that's one of the keys. And the other key is doing some, some rigorous testing as part of the development. So, what do I mean by that? Well, I have a process I use and that I also teach that starts out with goals and goes through a bunch of different steps. And you'll see a couple times there's testing in there after you come up with your trading idea. And these are really key to evaluating your idea because you don't know your idea is any good until you test it. Simple as that. You know, some people like to test just in real-time. And if you can afford to do that with real money, I'd say go for it. But for the rest of us, we have to do some historical testing. And that's definitely part of my process.
Okay, jump into this and let's take a look at entry number one. And the idea here, all these entries have an idea behind them. So, it's not just some random set of indicators I threw together to see what would work best and found something that worked and then traded it. I'm not saying you can't create systems that way, but I like, all things being equal, I like to have an idea behind what I'm trading and why I'm entering. So, in this case, I said, "I'm going to go with a momentum type trade after a big range bar." So, there's going to be an outsize range bar, and if the momentum is going a certain direction, that's the direction I'll take the trade. So, it's kind of a two-condition type entry. So, the code for it for TradeStation. And if you don't trade with TradeStation, your MultiCharts, I'm sure you can figure this out. It's pretty simple. So, you just take the high minus the low of the bar, that gives you a range. And then you compare that range to the average range over a certain number of bars plus two times the standard deviation. So, it's almost, you know, you, I'm sure you've heard of Bollinger Bands. It's almost like a Bollinger Band type thing because he just uses standard deviation off an average. So, if that's true, meaning it's a high range because the range is much above the average, and the close is greater than the close a certain number of bars ago, days in this point case, then buy the next bar at the market. Exact opposite for the short side. So, pretty simple, two variables. And you can optimize these or not. You might fix them, but it's a pretty simple entry. And here's a system with that I actually trade that utilizes it. So, it works good. I mean, it doesn't catch every single turn in the market, obviously, but over time, it, it does pretty good.
Okay, and of course, you know, I'm recording this webinar. So, if you have to drop out for any reason, don't worry. And if you want a copy of the, of the presentation afterwards, in addition to the recording, just send me an email and I can send you that. So, you don't have to scribble and write down all this code here.
Entry number two is just a breakout. And it's a breakout on a report play. So, the idea here is you just go with the trend after some kind of report. In this case, the chart I'm showing is actually the 10:30 Thursday Natural Gas report. So, all it's doing is it's saying, "Hey, if there's a reaction after the report that's significant enough, you just go with that trend and hold it for a little while." Okay, well, that's pretty simple. At a certain time, you set your buy, before the report, you set your buy price and your sell price. And then right at the report, maybe right after, maybe right before, you just put in a couple stop orders, one to buy, one to sell. And if there's a significant reaction, then you'll actually do that. So, it's a really simple system, really almost nothing to optimize. All you have to do is just set up the time that you're going to do this evaluation. And I guess, you know, I have the same time for both of these, but maybe the time should be different. You know, maybe one is five minutes before and one is one minute before. There's all sorts of different things you can play on this. You could do it for natural gas. You could do it for the weekly crude oil report. You might do it for egg reports regularly, monthly, or whenever they come out. Egg reports, you could do a whole lot of thing. They have fun. See report, a whole bunch of different ways to do this. And the beauty of it is, it's, it's really simple. I mean, you're, you're not necessarily taking a stance beforehand. You're not using any kind of indicators. You're just saying, "Well, the market's going to tell me which way to go, and I'm just going to hop on and try to ride."
So, here's what that looks like. And this is actually for natural gas, which has, if you trade natural gas, you know, especially around report time, there's a ton of slippage because everybody pulls their orders. But this includes, believe either 50 or $100 round-trip slippage. So, it's a pretty significant amount of slippage. I've already factored into this, and it still comes out to be pretty good. So, that might be a neat idea to kind of try with something like crude oil. And in fact, that's something, some, I, I have a big list of stuff I have to test. One of them is to actually try it with crude oil and see, cuz, you know, we get some, some nice moves in the weekly crude oil report that you might be able to take advantage of if you've got it set up right.
Okay, third one. This is actually on the ES, so the stock market. And it's a mean reversion. Which, you know, if you think about the markets, the stock market indices tend to be a little more mean reverting than other markets. What does that mean? It means they tend to go up, and then they tend to crawl back, you know, fall back and go up, and fall back and go up, and fall back. And you can see that on this chart where this particular entry was pretty good, getting near the tops. And what it was doing is, the idea behind it is, it's looking for low volume reversal points. So, how does it actually do that? Well, first, it looks for low volume. So, the, the volume today, or this bar, however you do it, is less than the volume of the average of the last five bars. Then, you know, it's saying this, this bar is a low volume bar. So, look for a reversal. Then, all it's doing is it's buying it if, if it's the lowest close, it's buying. And if it's the highest close, it's selling short. So, going back here, what you got, you had the highest close here, and it was probably a low volume bar. So, then the entry was to sell short. And down here, here was probably the lowest close in a while. You could see, I don't know how many bars back this was, but you can see this is the lowest close in a while. And then you buy the next open. So, again, it's a pretty simple idea, and it tends to hold up pretty well. And here's what that system actually does over time, which is pretty, pretty good. It does pretty well.
Okay, the next one, show entry number four is a simple breakout. This works good on markets that tend to trend. So, we all know currencies tend to trend more. And yeah, they go through their rocky periods of just going back and forth, but they tend to trend better than even like the stock market. Stock market definitely trends, but it also has some significant pullbacks, which make trend-following kind of tough. But this works, works pretty well in currency. So, just a simple breakout. So, what would that look like? Well, if the close is basically equal to the highest close of a certain length, just buy the next bar at market. And if it's the lowest close, then sell short. So, actually, you don't even need that's greater than or less than symbol. It's just equal to, because obviously, your highest close can't be greater than your close can't be greater than your highest close of the same period. That doesn't make sense. So, not sure why I had that in there. But you're just buying a high close, selling a low close. So, sort of the exact opposite of the previous system. And get one variable, and its performance, you know, it's, that's pretty good too. Not perfect. I mean, there was definitely a nice drawdown here below what, $20,000 per contract. So, it's pretty significant. But it works up pretty well.
And the last one, the last entry I wanted to show you is what I call Dueling Momentum. So, the idea here is you go with the short-term momentum and against a longer-term momentum. And how you define long and short, it's kind of up to the market itself. You know, it's just something you run in your walk-forward test. So, it kind of gets optimized. But basically, if the close is greater than your short momentum, and it's less, and you're less, less than your longer period momentum, then you buy the next bar at market. And vice versa for the sell, selling short. So, two variables again, pretty simple. And here's how it works on a system. Works pretty well.
So, what, how do I actually test these? So, it, you know, I mentioned all these different entries. I don't actually test them. Well, there's, there's two points in my process when I actually test these entries. One is during what I call this limited feasibility testing. And all that is is you're just trying to establish, "Do I have an edge or not?" And you don't test over all your data. You test over a specified period because you just want to see, "Hey, is there anything to what I'm doing, or is it just complete garbage?" Because there's no use testing it over all the data if it's not going to be acceptable over a short period. So, I test it down. And then if it passes that, then I'll actually go and run through my walk-forward testing. And, and that's when I'll do it as part of the whole strategy. So, it'll be with entry and an exit and all that. That's the whole system. And obviously, that's something you have to test. And the results of that will either say, "Yes, this particular entry is good," or "No, it isn't." Now, it might be that some of these entries work well in certain markets, as I mentioned, and they might work terribly in other markets. And it could even be a related market. So, you could, for example, find a good system that worked well with, let's say, soybeans, and you tried it on soybean meal, which is a pretty related market, not exactly that close, and it might fail. Same thing with the ES and Mini Russell, for example. You might find something that works good with the Mini Russell, works awful with the ES. Doesn't mean your entry is bad. It just means the markets are a little bit different. And sometimes different markets react, you know, will react quite a bit differently to different kinds of entries. But the key again is, you have to test it. And I've said that a few times.
So, the big question, you know, this so-called 800-pound gorilla. You know, talked a lot about entries, but how do you create strategies using these entries? You know, when it comes down to it, that's the key, right? You can have all the entries in the world, but if you don't know how to put it into a system and evaluate it, you're out of luck. So, what most people do is what I call a traditional backtest. They'll take all their rules and all their parameters and the ranges for all those parameters and stick them with all the historical data they can find, throw it in this hopper and optimize it. You know, run thousands or millions of cases. I saw somebody a few weeks ago who had 25 different variables they were optimizing, and it was going to take like a couple months to run the optimization. I mean, just people will just go crazy with this. But they optimized, they get the best parameters, and then tomorrow, you know, they get them tonight at 8 o'clock, and then tomorrow morning at 8:00 AM, they're ready to start trading with those. That's how a lot of people do it. Of course, that's wrong. That's just, I think, a terrible way to do it for a lot of reasons. And primarily because you're just kind of over-optimizing. And you run a million cases, of course, you're gonna find something that works.
So, this, this is what ends up happening for most of those people. They create this great-looking backtest over in the chart on the left. But then once they go live, which is right about this point, the strategy immediately falls apart and just continually loses money. And you might think, "How could you actually get such a good strategy to go so bad?" It happens. It can definitely happen if you do things incorrectly. Even if you don't know what you did incorrectly, it's still possible. And of course, that leads to this guy pulling out what little hair he has left, just complete frustration. And, you know, I've been there a lot. I'm not there anymore. Sometimes I still, that still happens to me, but not as much as it used to. And that's because I've come up with a much better process for testing and evaluating where the curves I'm generating tend to work better going forward. And that's really where I think I can help you out.
And so, this is something I teach. And a lot of the concepts are in my book. So, that's a good way to start learning. But I do an all-day class that goes way beyond the book and includes a bunch of support, which I'll get into in a minute. But I really will help you create strategies that work and strategies that are built the right way. So, you could, just because I gave you these entries today, you could still mess it all up by testing wrong, or testing incorrectly, and, you know, doing all sorts of over-optimization and everything. The flip side is, you could take those entries and you could probably create some good strategies with them if you knew the right way to do it. So, that's about what I do. It's how you can create your own strategies because ultimately, your success in trading is going to depend on you and how well you can do things. It's not about buying strategies or these black boxes or gray boxes or whatever. It's learning how to develop strategies on your own, test them, and then trade them. You know, it sounds simple, it's a lot more complicated, obviously, but that's what it really comes down to. Is you, you want to put that power in your own hands. And that's kind of what I help you to do.
And so, I've created this course. It's called the Strategy Factory Workshop. And it's basically an all-day class where you learn all sorts of things about how to create a strategy and pretty much an A to Z type thing. It's packed with information. Actually, it's packed with so much that I've had to include an extra webinar that you'll have to listen to afterwards, that's an hour of just extra information. I just couldn't fit it in in one day. But you learn about a lot of mistakes I've made, how to avoid them. You learn pitfalls, and you learn the proper process. And we walk through the proper process, great way to do things. And I would say people who've attended tend to agree because everyone who's taken the class, we've, Anthony, who's answered the survey, said they would absolutely recommend it to a trader friend. And almost everybody said it was excellent. A couple said it was very good, but apparently, it didn't reach excellent for them. But hey, still, it's a pretty good indication of what you get out of this course. And it's only got six students in the class. So, during the class, you know, you can type in all the questions you want. I take the time, I answer them. You feel like you're the only one listening to the webinar through this workshop. So, and it's an all-day type thing.
Okay, so just a couple more slides on this, and then we'll, we'll get some questions. But I just wanted to tell everybody, in case you're thinking of this, if you want to build a strategy the right way, there's three dates that I have open for this. One's coming up this Friday, and there's two spaces left. Actually, we might be down to one space right now. But you go to my website and sign in and click on the Strategy Workshop and read about it. And if you're interested, sign up for it. And if you do sign up today, I normally give six months of email support with it. I'll throw in a few extra months for you, so you get up to nine months free of this one-on-one support. So, you know, anytime you have questions, you can ask me, which is pretty cool. And then if you can't make the March and April ones, there's also one in May that I'll be having. And there's a, right now, there's space, limited space for the March one, and a little bit more space for the April, May one. So, you get some bonuses if you decide to do this Strategy Factory Workshop. The first one, like I said, is six months, and if sent today, nine months of one-on-one email support. And what I'm going to do during that time is help you create those first strategies. So, I kind of, you know, you tell me what you're doing, and I kind of guide you. Obviously, you have to do the work, but I can be there as kind of your sounding board of, "Hey, am I doing things right?" or "I forgot what you said to do here, what do I do?" And it's only me. You know, I don't have this staff. You know, I don't offshore things where, you know, it's some, some people in a foreign country that are answering your questions, or some non-traders. It's all me answering the questions. So, it's a great way to get support on this class. Is, you know, for me, obviously. And then you also get another bonus, just a few strategies to start trading with. One's an ES strategy, one's a TF strategy, and they're actually not that correlated. So, you can trade them together. And then one's a multi-market strategy, and that you can see in the middle. And those are the equity curves. I actually trade all these strategies myself, my own account. So, the one in the middle, the multi-market one, I've actually been trading live since about 2009. So, I, I trade a slight variation of it. But, and actually, the version I give you historically is better than the one I trade myself. But I give you those. So, it's a great way to start. So, as you're developing strategies, you can also start trading them, or you can just look at what I've done and kind of make up your own mind on how to do things and change things around.
And then the third thing, the third bonus you get if you decide to trade in this course, it's probably the coolest thing, I think. It's something I call the Strategy Factory Club. And so, what I do is I take students who've created, you know, gone through the workshop, and when they create strategies, they submit them to me. And I'm kind of the referee and judge. And what we do is we run them in real time for a certain period of time. And if they meet certain performance goals, then they're considered a passed strategy. And then what we'll do is every strategy that passes, they all get shared. So, here's, here's an example where these are ones we're doing in April. So, people have submitted all sorts of different strategies for the ES market, crude oil, platinum, soybeans, lean hogs. These are equity curves that they've done with the walk-forward process that I teach. So, these are all created with the method I teach. And actually, I think one of these students took the course less than a month ago. So, he was actually able to put something out back quickly. And assuming these pass their evaluation period, then they actually get shared among everybody. So, you could submit one strategy. So, maybe you submit this strategy, and then all these pass, you'll get the code for actually five more strategies, plus one another one that I throw in that I trade myself, not part of this evaluation. So, you could end up, depending how many people participate, three, five, six, who knows how many strategies. Which, you know, I mentioned earlier that my key is diversification, trading a lot of different strategies. And then you don't rely on any one strategy for your results. And if one strategy dies, that's okay. You can just replace it. You know, it doesn't kill your account. It's a very small percentage of your account. Well, the tough part about that, obviously, is getting a lot of the strategies going. This is a great way to hopefully get a whole bunch of strategies. So, I think it's something kind of unique. And I'll tell you that current students who are participating are really excited about it for good reason, I think.
So, that's it for the about the Strategy Factory. So, let's just go back to entries. You know, I showed you five different entries, breakout entries, mean reversion entries, a report type entry, and a couple others. But just remember that's only part of the story. And I think most of you know that. You know, entries are important, exits are important, but so is money management, position sizing, which we didn't talk about. And so is diversification, which, you know, I kind of touched on at the end here. Diversification, I think, is really important. But you have those entries, you can go and take them and test them and do whatever you want. You know, you might be able to create multiple strategies out of them. And that's really what you should do is try to create as many different strategies as you can. Aim for that diversification. That's key. And obviously, part of it is just learning to build strategies the right way. Too many people do it the wrong way, and you can mess up a good entry by just testing it incorrectly. So, if you're going to test, and you know, you're serious about doing some kind of mechanical type trading, make sure you do things the right way. Learn to do them the right way.
Alright, so that's all the prepared remarks I had. So, if you have some questions at this point, feel free to type them in. I'll take a couple minutes and just wait, and I'll start going through some of the questions I've already been asked. And, you know, after we do the questions, we'll go over to the book giveaway.
Okay, so I'll just start going through some of these questions. As a webinar recorded, can we get a copy? You should get an automatic email after the webinar, probably within a couple hours, with the link to it. You can download it. And we send us the code later. Should we copy it down? What you can do is just send me an email and I'll send you a copy of the slides, and then you can copy it right out of that.
Jim is asking, "How do you backtest that?" I think he's asking about the report. So, what you have to do with those reports, if you're, if you want to use that report type entry where you're just trading off the report, you really have to set up your strategy to know what time that report trades regularly. Obviously, there's going to be, it's going to get messed up on holidays and that kind of thing. But, you know, so for example, like the natural gas report normally comes out at 10:30. That's what it does currently. And what you'd have to do also is probably research it back to the beginning in your backtest. And if it was in a different time or a different day back then, you'd want to adjust for that. So, it would take a little bit, it takes a little bit of work to actually set up your strategy to make sure you're evaluating that report time. But once you do, then it's a pretty simple thing to actually just go and run a test over that period when the report comes out.
Okay, we have a question. "Shouldn't multi-time frames eliminate curve fit and over optimization?" I assume the person who's left actually means, "Does that mean, you know, if I test an idea on five-minute bars, 20-minute bars, 60-minute bars, and it all works, doesn't that prevent over-fitting?" Well, it can, but you can still overfit by doing that. So, in the, you know, the fact that it works over a certain timeframe or multiple timeframes doesn't necessarily mean it's not an overfit type thing. You know, obviously, the more testing you do over different markets and that kind of thing, probably the less likely it is that it's overfit. But you could still do it. But that's one way to to kind of get around it. I tend to just try to be as sparse with my testing as I can. What I mean by that is I try not, I'm pretty conscious of trying not to have too many variables, trying not to have too many iterations of those variables. Yeah, you know, try to keep everything to the minimum that you can, and that helps.
Okay, we have a question. "I understand it's not a rule for me, for you, but when you come up with an ES strategy, don't you expect it to work with TF as well since the markets are similar? The equity curves are going to be different, but don't you expect profit for both markets?" Yeah, that's a good question. In general, I would. And if I saw a case where the ES was doing great and it just created this great equity curve, but the TF created a terrible one, and then maybe I looked at the Mini Nasdaq and maybe Mini Dow, and they all look terrible, that might give me some pause to work and say, "Well, maybe, you know, maybe I'm doing something wrong here." But usually, what would end up happening is the ES would be good. Maybe I'd run it on the TF, and it would be profitable, but it might not meet all my performance measures. So, it would be good, but not really good, kind of thing. But, you know, when it comes down to it, sometimes I'm, I'm pretty sure I've probably traded somewhere the ES looks good and the TF is an example, doesn't look good at all. Or one currency looks good, but other currencies don't look good. And that's just something you got to look at on a case-by-case basis. Obviously, the more markets you have that look good, you have a little bit, you have more confidence in it. But doesn't always mean it's a showstopper if it's not that way.
Okay, another question from Jim. "Could you review the Dueling Momentum entry one more time?" Sure. So, all that does is you're looking at a short-term momentum and a longer-term momentum. So, the shorter term, you're saying if the close is greater than the close so many bars ago, which is a short-term bar, and the momentum, the longer-term momentum is against you, where your close is below it, so you're going to buy that situation. So, you're, you're looking for, I guess, a short-term swing in a longer-term momentum downtrend. You're looking for to get your swing up. And that sometimes, depending on the market, works pretty well.
Okay, John's asking, he missed part of the presentation. "Do you work with NinjaTrader?" I do some work with NinjaTrader, but not a lot. Most of what I do is with TradeStation. And the reason is, well, one, it's, you know, they call it EasyLanguage for a reason because it's pretty easy to learn. And two, it's because I've been doing it with TradeStation for probably 10 years. So, if I had started with NinjaTrader way back when, I'd probably feel that way about Ninja. Where I knew it so well that I didn't need to look anywhere else. And, you know, for the most part, whether it's me, just the way I trade, or the way I develop systems, probably 90 to 95% of the things I ever want to do, I can do in TradeStation. But again, that's not a knock on Ninja. You know, if you know Ninja good, you could certainly use that to build some good strategies.
"Can strategies be recycled after being discarded?" Domingos is asking that question. Yes, they can. There's a couple different things you can do. So, let's just say you create a strategy, and maybe you live trade it, maybe you don't, maybe you just watch it, and it might underperform for a while. And then, but then the performance might pick up. You know, maybe the, the market changes, the volatility in the market changes, and maybe it had underperformance, and then it starts doing good. You could certainly just be watching it, and, you know, maybe a year from now, you'll decide to start trading it. So, you
Can do that. The other thing I do is sometimes go back to old systems and maybe look at what I did or did not like about them, or maybe you see now their flaws. And what you can do is you can actually go back and kind of maybe change it around, change the system around a little bit. You got to watch out that you're not just optimizing to current conditions, but I've done that before where I've just made a kind of improvement to it, to an existing system. And if you're careful, that can work out pretty decently.
Okay, question: Would you trade a system with partly subjective or discretionary elements, such as pitchfork trading? I don't personally do that. The only discretionary trading I do is more with selling options on futures, and even that, there's some pretty rigid rules. But when you start introducing things like pitchfork trading and that type of thing, I always worry that you don't really have an edge, or you don't really know if you have an edge. You know, you can look at how many charts do you have to look at before you feel confident that you actually have some kind of edge? Let's say with pitchfork trading, just as an example. I don't know. But I like to usually get hundreds of trades, and it's pretty hard to go and do even manual back tests, you know, to look at charts to get that kind of thing. So I'm a little hesitant to do that kind of stuff.
Diane's asking, what kind of momentum criteria are you looking at comparing in the fifth strategy? All this is doing is just, it's a real simple momentum. It's just the close minus the close of a certain number of bars ago. There's a short one, and then this SLX is just a longer-term one, and that's that's really all it is. It's pretty simple.
Okay, looks like I think I got all the questions. If I didn't, please feel free to to just email me, and you can go to my website and find my email or contact information. I'm also K Devi @kjtradingsystems.com. Also, a couple of you have asked about the Strategy Factory, so I'm just gonna type in a link to it real quick.
And the other thing I wanted to mention, at the end of all this, as you're leaving the webinar, there'll be a short survey that I would appreciate. Just two questions, just, you know, how you like the survey, kind of the webinar kind of thing, just so I know I'm on the right track with, you know, when I have these things because obviously it takes me some time to prepare, and I want to do what people like. So I just put the link for the Strategy Factory workshop. You can just go to my website, kjt trading systems.com, and you can also get the information. And here's my email address.
Okay, so with that, and again, if there's any other questions, there's one more. Let's see. Diane, if you thought about letting people buy the successful strategy code others develop and test for a cheaper price than spending the time to take the class? No, I have not thought about that yet. And part of the reason is, we, this club is something we just recently, I recently just started. So and there'd be a lot of issues probably involved in having people sell their code and that kind of thing. You know, maybe six months from now, maybe we'll look at this and say, oh, that's a great idea that Diane had. But the big thing though, is to get a strategy, you have to create a strategy. And that, I think that's important because when you create a strategy using these principles that I teach, chances are you're going to be able to create a second one, and a third one, and fourth one. And if you can do that and are successful, then just getting these other strategies is just kind of icing on the cake. It just, it just accelerates your whole trading experience. You know, you don't have to wait two years to get ten strategies, you might get that in a matter of months. But I think it's important for the the people involved to actually submit ones that pass the evaluation on their own because now they know, hey, here's how I create a strategy, here's how all these other ones were created, and everything seems to be the same. So it's kind of nice.
Yeah, and there is, Diane says, the process is important. Yes. And then Jim, who is actually a student, one of those strategies was his up there, says, you need to understand the work goes into it, otherwise you don't appreciate it as much. And that is absolutely key.
And one last question: Do I trade one strategy in different markets? You can, if it, if it works, if it passes all the tests that you have, you run on it, you can trade the exact same strategy in multiple markets. If it passes. When I've won the World Cup a few years ago, I actually created, treated the same exact strategy, just with different parameters, in eight different, eight to twelve different markets. So I've done that. Don't do it currently. I think a couple strategies I have, I trade in multiple markets, but for the most part, I create different strategies for each market.
Okay, so let's get to the book giveaway, and then I'll let you go. Courtesy of Wiley Finance. You know, they're the premier publishing people for trading books. And as I mentioned, this book was a 2014 Trader Planet Book of the Year winner. So if you don't have a copy and you don't win one today, you know, pick it up. You'll be able to understand how my method works, and I think that'll help you out a bunch if you follow it.
Alright, so what we're going to do is I'm gonna give you a question, and I'm looking for the fifth correct answer. So type it in, either in the question. Why don't we do it in the chat area? So you should see a little chat box towards the bottom. Just type it in there. And as long as you're the fifth correct answer, you will receive an autographed copy of the book. I'll contact you afterwards. So with that, here's the question: True or false: I trade every entry shown today in the three bonus strategies that I give to you in my workshop.
Alright, so we've got one, two, three, four. Okay, looks like Diane is the winner. So of course, it is true. You know, I put my money where my mouth is, and I'm not going to tell you stuff that I don't follow myself. So I actually do trade all those strategies, all those entries. And like I said, those bonus strategies, I also do too. Right now, I currently trade around 50 strategies, and most of those were developed with the Strategy Factory process I talked about. And most of my strategies are rule-based, many are automated. So that's kind of how I do most of my trading. And if you've never looked into it, I suggest you look into it because I think it's a great way to go. Trading a lot of strategies is nice for a lot of reasons. So thanks to everybody who answered it correctly. It looks like there were probably 20 or 30 people who answered it correctly quickly. So I'll be contacting you, Diane. And that's pretty much it.
So I want to thank you for attending. And again, you'll go to my website and just click on that strategy workshop if you're interested. You know, get those extra bonus months of support. And happy trading, everyone. Thanks. And please don't forget to answer the two survey questions if you can. Alright, thank you.