This is a Guest Post by David Bergstrom, he is on twitter @dburgh he is the guy behind the Build Alpha software. He has spent many years researching, building, testing, and implementing market making and trading strategies for a high frequency trading firm, a handful of CTAs, individual clients, registered money managers, and even aspiring retail traders. His website is BuildAlpha.com.
50 Tips for Better Trading
- Quantify your edge
- Diversify across markets
- Diversify across timeframes
- Diversify across trade durations. Have strategies that trade quickly and some that look for big moves.
- Trade multiple uncorrelated strategies
- Trade mean reversion, trend following, and price pattern strategies
- Use Monte Carlo simulations to create proper expectations
- Use out of sample testing
- Don’t rely on one strategy or indicator
- Test everything. Did you know the day after a bearish engulfing bar in the S&P500 has a bullish tilt?
- Backtest your strategy. A good backtest does not guarantee good forward results. But a bad backtest almost always will lead to bad forward results.
- Stress test your strategy
- Use alternative data and be creative
- Keep entry rules simple
- Negotiate for reduced commissions
- Use Monte Carlo to understand drawdown possibilities
- Trade strategies that suit your personality
- Have a balanced life
- Define what a good system is prior to attempting to create one
- Do not cherry pick trades – take every single as long as your results remain within expectation
- Allow law of large numbers to play out
- Converse and chat with other traders
- Be properly funded
- Understand ways to determine if properly funded
- Test new code execution with reduced size or on sim account first
- Have clear rules when to turn off a strategy
- Remove and manage as much emotion as possible
- Test different stop levels
- Include different market regimes in backtest
- Read more and tweet less
- View and understand seasonal tendencies
- View and understand time of day tendencies
- Have ample sample size (trade count)
- Do not compete with high frequency traders
- Vary the noise in the data set and test again
- Understand tax advantages of different markets (futures for US traders, e.g.)
- Ignore personal opinions and preconceived notions when researching and trading
- Invest in a Virtual Private Server if algorithms are trading all hours
- You get what you put in – be research oriented and work hard
- Educate yourself… continuously
- Do not hunt for the holy grail strategy! The holy grail is a portfolio of systems not one amazing system
- Understand profits are additive and cumulative but drawdowns (if uncorrelated) are not.
- Automate your execution if possible so you have more time to research/refine your edge(s)
- Assess performance monthly not trade by trade
- Do not hedge every single trade your systems make
- Do not compare yourself to others – you never know how much risk they are taking or capital they have
- Align your profit (and risk) expectations with your account size
- Track how your strategy performs live compared to a sim account : real-time slippage
- Do not underestimate transaction costs (slippage, commission, missed entries, etc.)
- Use multiple timeframes and Use intermarket signals