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Does trader need anything else beside trading platform?

  1. In last Round Table presentation with Ali Pashaei and Charles Cottle made many good observations. Their points about approach to trading were accurate and practical. I believe their course will be valuable.

    There is one statement in presentation though I strongly disagree with.
    It was said (or suggested) that trader doesn't need any special software beside trading platform. I don't want to fight over words what exactly was said and what was not. I want to address this position which I heard before couple times from various sources. I even remember Dan expressed similar on this Forum (if memory serves me well, if not - apologies for not verifying).

    I hold that additional software is absolute necessity for trader who wants to improve. Staying only with execution software provided by broker is absolutely not enough. Not only that, I think that it is highly recommended, close to necessity, for trader to write his own software – IF he wants to become better trader.

    Why is that? Because such software is a invaluable source of knowledge.
    One can only do so much with trading platform even with platform that offers so much as TOS. There are questions TOS can't answer or it is painfully hard to yank the answers out. Without answers it is impossible to gain knowledge, and thus, is impossible to advance in trading.

    Person who doesn't use additional programs is left to mercy ( =knowledge and honesty) of others - to be some sort of chat or forum or mailing group or service or course. Either way such person does not walk his own path but a path others prepared for him. He is giving up opportunity of active learning. I heard opinion of some old time scientist, that I fully agree with - people can be divided into two groups: self-educated and uneducated.

    Why to write own programs and not just buy ready ones? Because only we know what we need. Software written by others does, in the best case scenario, what others think is important. Software written by others also can not grow along with us.
    If such software exists at all, and if is reasonably priced. I do not know about any of that kind.

    This is not an alternative: use software or pay for course. Both sources are valuable and both should be utilized. I must add to this list free exchange of ideas within community of advancing traders. Cutting yourself off from any of those is not the way to go. Special software being on the first place.

    Understandably it isn't possible for every trader to start coding. Biggest restriction being time commitment. Without putting programing high on list of priorities one will do no progress . Not everybody can do that, I realize there _are_ more important things in life that need to be taken care of but one must realize disadvantage of such situation and decide what to do - quit trading or, with full consciousness, 'hire' trading service (course make no sense in this situation) or other manager and pay him for time spent learning.

    To be clear, I'm not talking here about writing new TOS or new OV from scratch. Simple pushing numbers across spreadsheet cells can make a big difference. With passage of time your tool will evolve to fill your changing needs. It is likely that, with time, few lines of code become something bigger, like, as an example, system Paul showed us not so long ago. (Paul disappeared from Forum, I hope he is doing well. He contributed value.) His system is pretty complicated and exists to answer his questions, but it may not be the best option for others. Make first step and follow your curiosity.
    Hardest thing is to break yourself to start, to open spreadsheet, to watch some Youtube video, to even start thinking about this, especially if you hear opinions that 'one doesn't really need any additional software'.

    If you are not willing to commit and still want to grow as trader you are putting yourself in position of being perpetual client of somebody else, to follow various, often contradicting, ideas. Lucky, if you find right teaches early enough.

    I do not think need for own research (practically it equals converting questions and ideas to computer code) was expressed strongly enough. I will illustrate this point with example hoping this will help convince traders who didn't think about it yet.

    I will show some backtests of Andrew Falde's Net Zero trade. It is not original work, similar tests were published before by Ryan Simmen and other traders. Ryan presented results with numbers, I like graphs better, so I did it with graphs.

    Purpose here is not to evaluate trade itself but show how dedicated software can help.

    Fist pic.: Original trade from 2014:
    [​IMG]
    Just by putting together SPX and equity lines together we can see clearer when NZ performs well, when OK and when it struggles.

    What if we test it with profit target exit?
    [​IMG]
    Ryan's statement that any profit target seems to hurt trade is confirmed.

    What if we change entry DTE?
    [​IMG]
    60 DTE looks good.

    I like to enter my trades by price like Tim does with Parking Trade or Ron with STT. Can we try? Sure. Lets pull some stats:
    [​IMG]
    and backtest entry by chosen prices:
    [​IMG]
    (Other entry prices look much better...)

    Do you have more questions? Want to enter on down days? by TA? by IV? by whatever? Go ahead! I hope you are motivated. Producing each graph took below 2 mins, we 'traded' about 2K trades here.
    BTW. I'm not, not!, NOT bactesting fan. Backtesting can be misleading and can cause harm.
    More important work (to me) is done on fundamentals.

    I know there are many traders out there who are doing this type of work. Unfortunately they tend to disappear from public life. That's shame. Exchange of ideas is very important, software alone is not enough (although I admit it gives owner satisfaction and plenty of fun). True, constructing complicated code takes time and effort (especially if you don't have background) thous 'coders' don't have much time for chit-chat, nevertheless I'd love to see some talk about analytical part of trading in future.

    Additional software is absolute necessity for trader who wants to improve. Why not to help each other?
     
  2. We'll have to agree to disagree about back-testing. I think the type of software you need depends on what type of trading you are doing. If you're doing something like a rules based credit spread sale then your broker's platform with basic Greeks is likely more than enough. If you are involved in a more discretionary guidelines trade with adjustments like an M3 then you really need something that can do more sophisticated analysis using some model to make a best guess (it can only be a guess since price and volatility almost always change a little differently) about how volatility will change as price moves.
     
  3. I definitely agree with ACS. If you are putting any kind of trades that are multi-legged (is that a word?) and may/will have a number of adjustments, having a back-testing tool like ONE or OV to keep "accurate" track of your trades is super helpful. I've seen methods for maintaining accurate trade information within TOS (after adjustments), but it is a big P.I.T.A. and easy for screw up if you don't stay on top of it. I use ONE and find it indispensable. "There's my 2 cents worth".
     
  4. Thanks for response.

    The point I was trying to make is more about
    if basic soft (trading platform) was enough to improve trading skills in general
    not skills in managing particular strategy. I think we agree that being 'one trick pony' is not the goal.

    Your point is valid though; managing trades is also area where individualized software is in demand.
    Using tr.platform with OV or ONE seems to be good combination most of the time for this purpose. You are also right that some types of trading (trade type + management) calls for software which offers more.
    For now I'm practically using TOS alone for managing and I feel fine.

    As we are talking about specific combo (TOS + (OV or ONE)). This is decent one in context of growing as a trader. If you know what to look for and know what you are getting out, this combo can serve you well. But some questions definitely can not be answered, for example: how vol surface behaved in Feb18 vs Aug15. To me it is important question and I can not get it answered without lines of code I have to write myself.


    This is yet another topic.
    Let me precise my position so we know what exactly we disagree with.
    (Sorry in advance for possible another longish post. I will try to be brief.)

    I don't dismiss BT as valid method. There are instances when BT is fastest way to get some results.
    I refuse to give it as much weight as some other traders.

    Why? In short, the argument against value of BT: there is vast (we may think as infinite – but for sure we do not know) existing possibilities. Even if we consider fairly fixed time-frame we are operating in, it is still huge number of possibilities. What do we have to BT? About 10 years of equity options data. This is tiny-tiny subset of the whole so any conclusions based on this subset are highly, highly uncertain.
    'Usual' way to avoid dealing with this fact is to make some assumptions and treat those assumptions as Truth.

    I say that BT does give you very little (yes, better than nothing) and can give you false confidence of 'knowledge'.

    Other side of this approach, which I disagree with, is recommendation of almost constant BT to 'know the trade'. It goes like this: 'the more you BT the more familiar you are with strategy, the more confidence you gain, the more profitable your trading will be'. Here BT is primary way to learn – if trader encounter loses remedy is: 'back to BT''.

    Arguing with BT person usually leads to this kind of answer: you can say whatever you want and I can show you how my strategy works on real data.

    What really are we (back)testing doing it ordinary way? Strategy? To some degree - yes. Precisely we are testing how our trade behaves(ed) and how responds(ed) to our actions in specific market situation. If market stays unchanged we may do well, if it change significantly – we may not.
    In other aspect of BT we are testing ourself or rather conditioning ourself to react on signals given by software - obviously very poor simulator of reality of trading. It may work… it may not...

    Let me show it on example.
    Actually graph of basic NZ I posted before is a good one.
    Think of trader who holds mentioned above BT position at the end of last year. He likes NZ, he tested it a little but never put trade on because was told that to do good he needs a lot of BT. New year comes and his new-year-resolution is to finish his BT and start making money with NZ like everybody else around him. So he sits down and finishes his '10K hours'. It is end of Jan18. He puts his trade and get hammered – as graph shows. Hmmm, maybe not enough BT?
    He still can be better off than his friend who finished BT of NZ year earlier, started small, slowly increased size – was doing exceptionally well – get leveraged and… was completely wiped out in Feb18.
    There will be no help from using more advanced techniques like designating out of sample data or similar. It may improve level of confidence though...
    Treat this is as metaphor. I understand that in life trades are usually more complicated than NZ and 'pure BT mindset' is hard to be found.

    So you disagree. Why?

    And back to my original thesis: trader from my example would be better off if he was able to do some other testing than OV or ONE offers, and to do so he needs to write his own programs (or hope that next course he sign in do this for him), ergo: do not listen if somebody tries to convince you that TOS is all you need to became good trader.
     
  5. Good discussion topic. I did watch the session briefly. Some good insights. But I couldn't find where they say traders don't need software other than trading platform. I must have missed it.

    My view is this - software is a tool. Whether the software is useful depends on the user. How he uses it and does he have the right knowledge and right work process to take advantage of the software. I think the wrong way to use a software is to use it purely to give trading signals. Any software that does just that or a person who rely on software to do just that isn't learning to trade. The trader will not grow. Software should enhance the ability of the trader. It should facilitate learning. It should assist the trader to develop new trading strategies himself.

    Market is forever changing. Traders can never be successful long term by relying on someone else's trading system. A trading system that is sold publicly will lose its effectiveness once enough people start using it and/or when market condition changes. And market conditions do change more and more frequently. Therefore, the only way to be successful long term is to develop the ability to craft trading strategies ourselves to suit our lifestyle and our psychological disposition.

    My personal belief is also that trading is fast becoming a data science. Obviously, there are many schools of thought and I'm not eager to debate this belief here. But if you're of the same belief, then I think that opens up many new ways to understand the market and to discover tradeable advantages. The secrets are hidden in the data. However, tradeable edges that are visible through simple technical analysis, ie by drawing lines on a two dimensional graph or creating simple indicators are long gone. The best metaphor I heard is it's like digging for gold. Long time ago, people got rich simply by digging for gold with simple tools like shovel and sift. But nowadays the big pieces of gold are gone. Left are micro dust of gold embedded in lots of dirt and rock. It's no longer profitable digging for gold with ancient tools. People need modern technology. Digging for tradeable advantage in data is the same.

    In this context, I do think learning new techniques and using modern software tools are critical. However, taking that approach means we would have to go outside our comfort zone (unless you came with the right skill set) and learn new skills. I'm in the process of doing it. I have a long way to go but it has been a rewarding experience so far.
     
  6. They didn't mention that traders don't need software. They merely said their approach to options trading do not require additional software for more accurate greeks. It seems to me they acknowledge that there are those we trade by the greeks, nothing wrong with that, but it is just not their approach.
     
  7. My goal was not to attack Ali or Charles. I watched presentation only briefly as Kevin did. I don't know much Charles, Ali I heard before and think he is excellent teacher with no BS approach. I'd gladly listen to him myself if I have spare time. I even didn't intend to target paid education in general. I'm not that naive to think I can change anything. But of course, in my opinion, they approach, pretty darn dominant across options trading educational services, is not the right one for advancing traders and because is so prevalent it can be taken as non-questionable thing.

    My primary goal was to present CD members with different approach to education. They can accept or reject it.

    There was also second goal – to drag coders in, to encourage exchange ideas (not codes), maybe even to form something more formal in future to work on some projects, with thought that whole is bigger than just sum of parts.