<![CDATA[KJ Trading Systems - Best Of Blog]]>Fri, 23 Feb 2018 05:49:48 -0800Weebly<![CDATA[Top 10 Trading Webinar Requests For 2018]]>Tue, 12 Dec 2017 12:54:08 GMThttp://kjtradingsystems.com/best-of-blog/top-10-trading-webinar-requests-for-2018Well, the votes are in.  Over 1400 votes were counted for free trading webinars you'd like to see me do in 2018.  Thanks for voting!

My plan is to hit as many of these topics as I can during 2018.  I'll host some myself, and others will be sponsored by my friends at Tradestation, futures.io, etc.  

I'll inform you on times and dates, so make sure you are on my e-mail list.  (My first one will be January 4th, hosted by Tradestation, on "Your Trading Plan for 2018" - details will be sent out soon).

​Here are the top 10 vote getters;

1.  Trading Automation
2.  Exit Ideas
3.  Entry Ideas
4.  Intraday Trading Tips
5.  Swing Trading Tips
6.  Money Management
7.  Kevin's Trading Journey - Lessons Learned
8.  Position Sizing
9.  Walkforward Testing
10.  Diversification


As I said, I'll try to do as many of these FREE webinars as I can in the coming year.  Of course, if you do not want to wait, and if you want a really in-depth immersion into these topics, you might find my Strategy Factory workshop is just what you are looking for:  https://kjtradingsystems.com/strategy-workshop.html

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<![CDATA[Top 5 Reasons NOT To Automate Your Trading]]>Tue, 21 Nov 2017 13:12:16 GMThttp://kjtradingsystems.com/best-of-blog/top-5-reasons-not-to-automate-your-tradingIf you've followed me for any length of time, you no doubt know that I am a HUGE fan of automated trading.  I view it as having a bunch of robots working for me in the markets 24/7, which frees me up to do other things (like sleep!).

BUT, it is not a cure-all.

Automated trading (or algo trading, mechanical trading, rule based training, bot trading or whatever you want to call it) can be very enticing and it may just make money for you. But, there is a downside to this type of trading, and that is what I want to discuss right now.

Five Reasons Why Automated Trading is Not Good

1.  Garbage In, Garbage Out

Many people think automated trading is a solution to all their trading problems.  "Well, my discretionary trading is awful, so automated trading must be how people make money.  I'll try that I guess."  That is a very common way of thinking.  The problem, of course, it is wrong.  Any type of trading can be good, just as any can be bad. 

Don't assume that just because you automate a strategy that it will produce profits.  Developing a solid strategy takes a lot of time and effort (heck, I even wrote a best selling book on it).  Remember, the result you get in trading is usually a direct result of the effort you put in.  


2.  Automated Trading Does Not Lead to Discipline

I was talking to a newbie trader a while back and he told me he was trying automated trading because he needed discipline in taking the trades his strategy demanded.  I told him automation would not solve that,  He, of course, ignored my sage advice (maybe I need to work on my advice delivery?  I tend to be pretty upfront and blunt with advice seekers).  A few weeks later he went live and told me he made $500 the first week.  Great, I thought, maybe he has discipline.  But then he dropped the bomb…he turned automation on and off during the week.  If he had kept it on, he confided, he would have made $2,600.

The lesson: you need discipline to trade, regardless of how you trade.  Automation does not instill discipline.  You need to find discipline from outside and bring it to your trading.  Not the other way around.  Discipline ultimately comes from within.

3.  Unattended Trading Can Lead to Big Trouble

Many traders with full-time careers can't check on trades during the day, so they mistakenly turn to automation as their solution.  I can tell you from experience that letting automation run without monitoring can be very expensive.  One runaway rogue trade can cost months of profits.  If you automate, you must check-in on your strategies often.  I usually check my swing strategies a few times a day and my intraday systems even more frequently.

So, what is the solution for people wanting to trade, but who cannot check positions during the day?  It is actually quite simple - just design strategies that fit your lifestyle.  It could be as simple as only entering and exiting trades at market open, and not taking any trades during the day.  Attendees of my award winning Strategy Factory workshop learn that exact approach - they build strategies from the ground up, to their exact needs and specifications.

4.  Automation Doesn't Mean You Can Play in HFT World

Many inexperienced traders think they can develop a scalping bot that will trade 50-100 times per day and that they can run it automated through their retail account.  If there is someone doing this successfully, please let me know, because I have never heard of such a person.  "Dream scalpers," as I call them, are playing against the big boys: high frequency trading (HFT) firms with tons of infrastructure, speed, and precision.  To think a little scalping bot can compete with HFTs is pretty much insane. 

The lesson here is if you are automating because you think you have a printing press money machine, think again.  If you don't believe me, test it live.  I bet you'll find out your scalping strategy is really just a dream.  And automating a bad strategy just leads to the poorhouse quicker.

5.  Automated Trading Still Is Emotional

A lot of people think that the emotions of trading can be eliminated by automating.  Wrong.  As long as you are playing with real money, there will be emotions, regardless of your method.  Don't let anyone tell you differently. 

My experience is that "educators" who say "automated trading eliminates emotions" typically don't trade at all!   

The emotions, and the triggers, might be different from automation, but there is still plenty of stress, anger, greed, and disappointment in automated trading.


Conclusion

Automated trading can be a great way to trade, but it is not nirvana.  There are definitely drawbacks to it.  Think carefully before jumping into this arena, and make sure you learn to develop automated strategies the right way!

If you have comments, I'd love to hear them!!

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<![CDATA[READER'S CHOICE: TOP 6 TRADING PLATFORMS]]>Wed, 19 Jul 2017 15:37:36 GMThttp://kjtradingsystems.com/best-of-blog/readers-choice-top-6-trading-platformsIn my last blog post, I gave you my choice of the top 5 trading platforms.  I also asked readers to list their trading platform of choice.  Thanks for voting!!!  So, here are the top 6:

1.  Tradestation - www.tradestation.com 

2.  NinjaTrader -  www.ninjatrader.com 

3.  Multicharts - www.multicharts.com 

4. Metatrader 4 - www.metatrader4.com 

5.(tie)  Amibroker - www.amibroker.com 

5.(tie) Think Or Swim - www.thinkorswim.com​ 

Thanks for voting!
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Remember, if you are interested in my Strategy Factory Workshop (http://kjtradingsystems.com/strategy-workshop.html) my course can be 100% free if you open an account with Tradestation (I am happy to provide details)


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<![CDATA[5 Best Trading Platforms For A Retail Trader]]>Fri, 07 Jul 2017 19:14:19 GMThttp://kjtradingsystems.com/best-of-blog/5-best-trading-platforms-for-a-retail-traderThis is by no means an exhaustive list, but this is based on my experience and input from other traders I talk to...

Here are the best trading platforms, in my humble opinion:

1.  Tradestation - www.tradestation.com - This is my workhorse.  I use it to develop almost every system I trade.  It is not perfect, but it is pretty reliable, has a lot of historical data, and is easy to program in (that is why they call it Easy Language!).  If you are looking for trading code, you are in luck - the Internet has a ton of Tradestation code in various places, all ready for you to download, modify and test with.  Most of the attendees of my Strategy factory workshop (http://kjtradingsystems.com/strategy-workshop.html) use Tradestation, and that course can be free through a program I have with them: http://kjtradingsystems.com/tradestation.html

2.  NinjaTrader -  www.ninjatrader.com - Many people like this platform, mainly because it is free until you start trading.  I personally found it hard to program in, but maybe once you learn it is easier.  It also costs $1000 or so, which is a turn off.  I do not do any development work with it, but I do use Ninja to help port signals from Tradestation to another broker.  It works great for that, and the support is terrific. I am happy with what I use Ninja for.

3. Metatrader 4 - www.metatrader4.com - If Forex is your game, MT4 is a great tool.  I use this to run Expert Advisors, do some backtesting etc.  I don't create my own EAs (yet!), but I do find that automated EA trading is pretty easy with MT4.  I am happy with it.

4.  Multicharts - www.multicharts.com - I have tested Multicharts, and it is my back up plan if Tradestation ceases to exist.  Most strategies in Tradestation would also run on Multicharts, although performance will be different because of rollover data differences.  If I used MC live for trading, it would have a higher ranking.

5.  Trade Navigator - www.tradenavigator.com - I have never used this, but some very good trader friends do, and they like it.  I have seen it in action a few times, and I like the portfolio testing feature.  It may be worth checking out

6.  Others - Many people use other software, or languages, like Python, R, Matlab, even Excel.  I think you can be successful with these, it just may take more work than with other platforms listed above.  But they also have computational power that typical retail platforms just cannot match.  So, if the platforms above don't fufill your needs, then give these products a try.


My question for you: which trading platform do you use?  Take the 1 question survey:  https://www.surveymonkey.com/r/B8RX9SG


By the way, if you have a favorite platform, feel free to mention it in the comments.  I'd love to hear from you!

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<![CDATA[7 Best Steps to Start Algo Trading]]>Thu, 06 Apr 2017 12:48:25 GMThttp://kjtradingsystems.com/best-of-blog/7-best-steps-to-start-algo-tradingSo, congratulations, you've decided to investigate the world of algorithmic trading.  I use algos for swing trading strategies primarily, but with a little work you can also create intraday strategies, hedging strategies, long term strategies, basically any kind of strategy you want!  You can create algos for stocks, forex, futures (my preferred choice) and more.  If you can program your strategy, then you can create an algo.  Once you create some algos, you can automate them - that way you won't be glued to a screen 24/7.

Here are some steps I recommend to get going (most of these cost you no money, which is a great way "test" if algo trading is for you):  

1.  Learn Basics.   Here are some basics of algo trading:

http://www.investopedia.com/articles/active-trading/101014/basics-algorithmic-trading-concepts-and-examples.asp

https://en.wikipedia.org/wiki/Algorithmic_trading

If algo trading still sounds appealing, then continue down this list...


2.  Do You Measure Up?  See if you are ready for Algo Trading with a simple 5 question quiz:

https://freeonlinesurveys.com/s/UG5df4ou#/0


3.  Get Educated.  Learn about how I do algo trading with my free toolkit and tons of free videos:

 http://www.futures.guru/AlgoTraderToolkit.pdf

https://www.youtube.com/playlist?list=PL3Jd92exRxKTYpk9UIffmPR9y7mkOX3FO


4.  Read Some Books.

Pardo, Tomasini, Carver, Penfold and Garner all have good books on trading in general, and also algorithmic trading.

Consider buying my award winning book (or better yet, get it from the library).  This is more in-depth on algo trading, and shows you my process:  https://kjtradingsystems.com/my-book.html


5.  Learn a Trading Platform.

With algo trading, you are going to have to create lots of strategies, because most will stink!  So, you need to program and learn a trading platform.  I use Tradestation, and I think it is the best package for retail traders out there: https://kjtradingsystems.com/tradestation.html


6. Get Started!

Once you've made it this far, you should be able to develop some simple strategies, and test them in a proper way.  If you still need help...


7.  Join My Strategy Factory® Workshop.

If you are happy with my book and free information, then you will probably really enjoy my Strategy Factory workshop.  It is a big commitment though, of both time and money.  I’ll work with you to help get you going.  It could be the key to getting algo trading to really work for you!  http://kjtradingsystems.com/strategy-workshop.html]]>
<![CDATA[BEST WAYS TO TAKE ADVANTAGE OF THE STRATEGY FACTORY® CLUB]]>Mon, 20 Mar 2017 12:34:33 GMThttp://kjtradingsystems.com/best-of-blog/best-ways-to-take-advantage-of-the-strategy-factoryr-clubOver and over, Strategy Factory® traders tell me that one of the best features of the workshop is the Strategy Factory Club.  This is a strategy sharing club, where members can automatically swap REAL TIME PERFORMANCE VERIFIED strategies with each other.  Of course, everyone understands that strategy results must all be recognized as hypothetical (see disclaimer at bottom), but it is nice knowing that strategies you receive will have 6 months of profitable real time performance.

Here is how the Strategy Factory® Club works:

A.  You create a strategy to the performance requirements of the Club
B.  You verify the performance is acceptable, submit it to Kevin.
C.  Kevin verifies that it is a "legit" strategy, enters you into Club for that month.
D.  Kevin monitors performance over next 6 months.
E.  After 6 months, if your strategy reaches certain performance goals, your strategy will be shared with everyone else who had a passing strategy that month.  Some months, we have over 10 strategies passing - that means you'll receive a bunch of strategies in return for yours!


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Most Strategy Factory workshops sell out early.  My March 2017 workshop sold out 2 weeks in advance, and I had to turn wait listed people away.  Sign up early for the next class (there may even be an Early Bird discount still available!)....  http://www.kjtradingsystems.com/strategy-workshop.html
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So, the Club is a great way to build up the number of strategies you have, and the number of ideas you have to test.

Of course, current and prospective traders both want to know: "How do I best take advantage of the Strategy Factory Club benefits?"  Here are some tips:

1.  Realize that any strategy you receive as part of the Club has passed a 6 month real time performance test.  In other words, it did well with unseen data!  This is important, and it should give you confidence in either trading it, or using the components of the strategy to build your own strategy.

2.  Enter a strategy every month.  By Club rules, you can enter one new strategy every month. Intraday strategies, a swing trading strategies, basically any algorithmic trading strategies are all welcome here, in most major US futures markets.  

​Smart traders develop at least one strategy per month.  One trader does this faithfully, and last time I checked, had received 47 strategies in return from the Club!  So, he builds good strategies, and gets many more good ones in return!!!

If you want tips on passing strategies, check out the Club Member Only interviews I did with other traders.  Also, check out the Club Member webinar I did on how to improve you passing odds. (Only workshop attendees have access to this bonus material - nearly 3 hours of tips, tricks and advice on how to better develop strategies using the Strategy Factory process.)
 
3.  For each strategy you receive: Take a look at the code, make sure you feel comfortable with what it is doing.  If you see something and say “oh, I do not like that” chances are you should not trade it.  Why not, especially since it has proven to be profitable?  Simply put, the strategy, like any other strategy, will have a painful drawdown at some point.  If you already are uneasy about the strategy, and significant drawdown will put you over the edge.  You’ll quit trading it, and if you have luck like mine (!), you’ll quit right before the strategy recovers.
 
4.  Take a look at the trades, especially the biggest win, biggest loss and win percentage.  While none of these items should be a deal killer (after all, the strategy already has been shown to have positive expectancy), psychologically it might be a tough strategy to trade.  Maybe it does not have a stop loss, and holds overnight.  You have to ask yourself if you feel comfortable with such an approach.
 
5.  If the strategy passes step 3 and 4, then you should run the walkforward optimization and Monte Carlo steps of the Strategy Factory® process.  Does it still pass the criteria given to you during the workshop?  Sometimes, different walkforward analysis tools/methods/software will yield different results.  You want to make sure you can replicate successful results with your walkforward tool.  Many times, this analysis will be very close to the original analysis.  The goal here is to make a strategy version that you completely understand where all parameters came from, just like you would with a strategy you created from scratch.
 
6.  If everything looks good, perform the final step of the process – incubation (as taught in the class).  Also, run correlation checks with other strategies (you can use the method taught in the workshop), to make sure that the new strategy adds to a diversified portfolio.
 
7.  If the strategy fails at any point, maybe you can still take bits and pieces of the strategy, and use it to create your own unique strategy.  Maybe the entry, or the exit, paired with something new, will give you a brand new strategy.
 
8.  Also, try the strategy with other timeframes and markets.  You might be able to create multiple strategies out of the original! >> This is a GREAT way to get a whole bunch of strategies.  I use this approach myself.

There you have it - some great ways to take advantage of a strategy sharing group one Club trader called the "unexpected best part of the workshop!"

The Strategy Factory Club is open only to traders who have attended the Strategy Factory Workshop. http://www.kjtradingsystems.com/strategy-workshop.html

Your comments and questions, as always, are appreciated!

(Thanks to trader Faete F. for asking the question that produced this post)
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<![CDATA[BEST DAY OF THE WEEk TO TRADE]]>Fri, 19 Aug 2016 13:32:23 GMThttp://kjtradingsystems.com/best-of-blog/best-day-of-the-week-to-tradeWhat is the best day of the week to trade?  Actually, this is a trick question - let me explain...

Part of my normal routine is developing new trading strategies.  I am always testing new ideas, creating new strategies and adding the successful ones to my live portfolio.   That is what most of my Strategy Factory students do, too – producing new strategies is really the lifeblood of any serious systems trader.

Anyhow, the other day I was looking at a strategy I developed.  It had a pretty nice walkforward (out of sample) equity curve, and it was profitable most years, and even most months.  Then I looked at results for each day of the week, and I was shocked.  If my strategy did not trade on Thursdays, my backtest profit would increase by over 60%!  WOW!

My first reaction was to then adjust my strategy code, and prevent trades on Thursday.  My second reaction was to admire the greatly improved non-Thursday equity curve.  I was ecstatic!
My third reaction was to throw away those results, and stick with the original strategy.

Why?

Simply put, I realized I was just optimizing for day of the week.  It did not seem like optimization – after all, I did not run my trading software through any kind of computerized optimization – but it was optimization just the same.  I took existing results, and then when I found something better, I accepted the improved results.  That is optimization.  And that is bad.

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If you want to learn the RIGHT way to develop trading strategies that actually work, join me at my next Strategy Factory workshop.  http://www.kjtradingsystems.com/strategy-workshop.html
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Many people do things like this, with either day of the week, time of day, or even certain months of the year.  They will look at results, and then decide what to keep, and what to eliminate.  Then they’ll go back with their filtered strategy, and bask in the glory of the improved results.
Wrong, wrong, wrong…

Could there be some significance to certain times of the day, days of the week or months of the year?  Absolutely!  I am not saying that you can’t develop a strategy that takes advantage of these situations.  You just have to do the development correctly.

So, what is the correct way to frame this problem? 

Here is what I do…

BEFORE I do any testing, if I think time/day/month matters for my strategy, I’ll develop a hypothesis or guidelines.  For example, I might be developing a natural gas system, and I don’t want to get bounced around by the weekly US Gov't energy report (usually on Thursdays), so I’ll just eliminate that from the strategy – no Thursday trading.  Or, maybe I’ll make sure all Fridays end flat, to eliminate weekend risk.  Maybe I’ll even exclude certain months for stock index futures (the old “go away in May” adage).

The point is I develop the idea before I test it, not after.  It is easy to look at results, and then develop a reason why certain periods should be excluded.  But that is just hindsight bias – Monday morning quarterbacking.

It is much, much harder to come up with the reason before you test.  But it is the right way to do things.

So, there may be a best or worst time, or day or month to trade your system.  But don’t look for that after you test.  If you instead come up with your filtering/exclusion approach before you test, you’ll probably get worse results (no more cherry picked results), but those results might just work better going forward.
 
 Do you do things differently?  I'd love to hear your comments!
 

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<![CDATA[4 Best Ways To Deal With A Drawdown]]>Fri, 29 Apr 2016 13:22:22 GMThttp://kjtradingsystems.com/best-of-blog/4-best-ways-to-deal-with-a-drawdown
Many people ask me "how do you deal with drawdowns?"  While I have no magic wand that can make a drawdown go away, here are some tips and tricks I use to get me through my trading drawdowns.  Maybe these tips will help you, too.


1.  Realize that Drawdowns are Normal

A major aspect of trading is that there are ups and downs.  For me, it seems like I always remember the downs, and never the ups.  Maybe that is just human nature, I don't know.  For example, in 2014 and 2015, both years I had very good annual returns (>60% each year).  Yet, looking at my weekly results, 41% of the weeks I lost money!  In other words, over that 2 year span, I spent 43 weekends enduring a drawdown of some type.  That is a lot of losing weekends!  That can be depressing, especially for people who think every week should be a winning week.  But, at least for the way I trade, this is pretty normal. I think it is true for most traders, except the market makers and the high frequency guys.  So, you really have to accept the fact that drawdowns are just part of the game.


2.  Continue To Follow The Plan

Once you realize that drawdowns come with the trading territory, there is really only one thing to do: FOLLOW YOUR TRADING PLAN!  If you have a well thought out plan, one that accepts the inevitability of drawdowns, you just need to follow the plan.  It will help you endure and survive the drawdown.  If you don't have a plan, though, all bets are off.  It is very easy to panic during even a minor drawdown, if you have no plan for dealing with it.

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Learn how to develop strategies correctly, and learn how to minimize drawdowns, at my Strategy Factory Workshop.  

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3.  Look at Past Drawdowns - Did You Survive?

When most people look at an equity curve, they only see the end profits, and tend to ignore the drawdown periods.  I tend to do the opposite - I look a lot at the drawdowns.  I try to imagine myself living through the equity curve - could I handle the depth and length of those drawdowns? (One trick is imagine you are a mountain climber, and you have to climb that equity curve.  Could you do it, or would you die falling into a drawdown chasm?)  If I can't stomach the climb, I won't trade it.  But if I do think I can handle it, I realize that I'll likely survive any drawdown, since historically each one has ended in a new equity high at some future point.  I find a lot of comfort in knowing that, based on historical backtesting, my trading system eventually overcomes the drawdowns.  Of course, you have to have faith in your backtest, which is really only possible when you develop strategies properly.  If you have a garbage backtest, imagining yourself climbing the equity curve is a waste of time.



4.  Stop Looking At Your Net Equity

For me, it seems like I look at my equity more often when I am in a drawdown.  I wonder how long the drawdown will last, and how much deeper it will get.  But does that help me at all?  NO!!!  I can stare at my equity 100 times a day, and I'm still not going to influence what it does.  So, why even bother looking?  If it causes you stress, just look at your equity once per week (that is what I try to do, but I'll admit I cheat occasionally during the week).  The less you look, the less stressed you'll be.  But again, it all goes back to having a plan that encompasses drawdowns, and having trading strategies that have been proven to work in the past.  If you don't have those things to rely on, you eventually will get into deep trouble - a drawdown you can't recover from.



Do you have tips on how you handle drawdowns?  Feel free to add them below...
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<![CDATA[FACTORY STUDENT BEST PRACTICE]]>Mon, 04 Apr 2016 11:27:59 GMThttp://kjtradingsystems.com/best-of-blog/factory-student-best-practiceI really enjoy seeing how students take the material from the Strategy Factory class, and use it successfully in their own trading.  Here is one such example...

Hi Kevin, just wanted to share something with you from my monthly trading reviews, it contains a few key lessons using your approach to monitoring.
 
See the attached file (shown below), it’s the equity curve for one of my Mean Reversion strategies for the ASX.
 
All live trades, from April 2015. The big drop in equity is Dec 2015, 2 large losses that were both bigger than any in the 10+ years of backtest history. At the time I was thinking the strategy was starting to break down.
 
On Jan 1st 2016 I decided to put my trade history into your spreadsheets from the workshop and boy did I learn a whole bunch of stuff, it was very eye-opening:


  • I didn’t realise this strategy had actually been performing much better than expected initially (those numbers are correct – I triple checked them!) so I could have expected at some stage it would revert to the mean rather than expecting it to continue how it was,
  • Those big losses in Dec brought the performance back to expected average so may not necessarily be a cause for concern, and after a few months the strategy has recovered to average expected,
  • The gap between actual and perfect performance is widening, in some cases slippage is much higher than expected, some trades no longer show up in my backtests due to data adjustments plus my broker may have execution issues I’m still investigating so it’s interesting to notice those problems and try to resolve,
  • My previous monitoring approach was very basic and didn’t give me any context in relation to expected average, personally I think looking at this stuff in context is huge!
 
Anyway, I thought it was really interesting and your worksheets have taken my performance monitoring to the next level, so thanks!




If you have comments, please send them via e-mail to me.  Right now, all blog comments are stuck in approval, until my web host gets the issue solved...

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<![CDATA[Comments allowed (or not)]]>Wed, 30 Mar 2016 00:26:28 GMThttp://kjtradingsystems.com/best-of-blog/comments-allowed-or-notIf you've left a comment to any blog post here the past few weeks, you probably are wondering why it never showed up.  

No, I am not censoring you...

Turns out why web hosting service has some kind of issue with allowing me to approve comments.  They say "our engineers are working on it, but we have no completion date."

So, sorry if your comments are in "limbo" for a while...


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<![CDATA[BEST FUTURES BROKERS]]>Fri, 04 Mar 2016 01:30:13 GMThttp://kjtradingsystems.com/best-of-blog/best-futures-brokersBased on my personal experience, here are what I believe are the best futures brokers out there.  But first, remember: There is a substantial risk of loss in futures trading. Past performance is not indicative of futures results. 

Optimus Futures
Optimus Futures (OF), LLC. OF has a direct relationship with TradeStation  and they could help you with account opening.  Also, they are familiar with my programs, and will assist you technically with any issues.  I have talked to Matt Zimberg, the person in charge there, many times over the years.  He is a wealth of knowledge, and a generally good guy.  He really wants traders to succeed!
You can reach the main broker, Matt, who will help you with all the necessary paperwork to establish an account. You can start your process here: Open Your Futures Trading Account 

Tradestation
I use Tradestation for all my development work, and a lot of my trading.  They are very good.  Best of all, if you open an account with them, you can take my Strategy Factory course for free (after rebates).  You can find out more about Tradestation and the rebate program here: http://www.kjtradingsystems.com/tradestation.html


Striker
I offer my KJ Diversified and KJ Diversified II programs through Striker.com, where you can auto trade them.  I have been impressed with their service, their support and their ability to run my strategies for people to autotrade.  You can find out more about them here: www.striker.com


DeCarley Trading
You've probably seen Carley on Mad Money.  She is a well respected trading figure, and a great broker also.  I usually trade options through DeCarley, and I am glad I do.  She is a true professional.  She can be reached here: www.DeCarleyTrading.com

OptionXpress

I use them mainly for some manual trading I do.  Generally, they are very good. No real issues to speak of, and good customer service.  Worth checking out, especially for options trading.  www.optionsxpress.com


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<![CDATA[December 20th, 2015]]>Mon, 21 Dec 2015 04:16:55 GMThttp://kjtradingsystems.com/best-of-blog/december-20th-2015Best Way To Determine if a trading vendor/room is "real"
One of the words of trading wisdom out there is to ask trading education or trading room vendors for "proof" of their profitability - before you sign up for their service.  After all, who wants to join a room where the person calling the trades either 1) does not trade with real money or 2) trades with real money, but is a net loser?

Is this a good idea?  I think so, although you probably won't get many vendors to offer any kind of proof (there is likely a reason for that!)

Of course, some potential customers are afraid to ask - they think it is too invasive, or they don't want to upset the "master" trader, or maybe they just don't want to know the real answer (the real answer being that most trading vendors are frauds)...

In my opinion, it is not too invasive to ask one of these rooms or vendors for independent verification of real results: brokerage statement, certified letter from their accountant, results from a tracking service such as Collective2.com (although that may not be real money) or Striker.com, etc.  After all, maybe their claims of profitability are not true.  Since when it is acceptable to say things that are not true?  That is illegal and unethical!
 
Remember, they should be able to prove they actually trade – you have a right to demand this before you hand over your money.
 
Some vendors will provide a spreadsheet or list of trades - that might be useful, but it does not prove profitability.  Anyone can create a list – it doesn’t mean the record is real, or was done with real money.  You might be dazzled by numbers they give, but what if it is all fake?
 
I know a few rooms that give out list of trades, but they are all simulated trades.  That means absolutely zero.
 
I know other rooms that create their trade list after the trading day is over – you listen live, and get one set of trades, yet their daily log shows completely different trades.  That is illegal and highly unethical, but people do it.  There is one VERY popular author and trading room guy who does this.  I spent time in his room, recorded every trade he claimed to make (which was really hard, as he is a slippery eel, and usually speaks in riddles - "oh this could be a short here or a long continuation...I'm not sure which.. OK I just booked a quick 1/2 point scalp on that move").  But his end of day record always looked a ton different.  What gives?
 
 
Here is my advice:  find a room or vendor, make sure you are really interested in them, and then ask them for one of the following:

1.  Some type of independent proof that they trade, or have traded, successfully with real money.

2.  Even one day/week/month worth of brokerage statements that show the trades in the list match up with the trades in their log.  They can cover up their name, account number, balance, etc – and just show the trades.  See if the trades match up.  No reputable person will have a problem with that.
 

Some will say it is illegal to provide actual statements – that is a lie.  The vendor just cannot claim you will get the same results as he did.

 
If you try this, I bet you few, if any, vendors will meet your request.  And there is a reason.


If you do get a positive response from a vendor, let me know in the comments below.  I am always interested in verified profitable traders.
 

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<![CDATA[DID THE CME DATA CHANGE IMPACT YOUR STRATEGIES?]]>Tue, 06 Oct 2015 14:18:30 GMThttp://kjtradingsystems.com/best-of-blog/did-the-cme-data-change-impact-your-strategiesEven though this blog is a "Best Of" blog, I am posting this warning about the recent CME data change.  Following my advice is definitely a "best " practice!!!

Effective September 21, 2015, the CME changed the closing time for futures that closed at 5:15 PM ET from 5:15 to 5:00 PM.  The CME did this because the volume from 5:00 PM to 5:15 PM just wasn't that significant.

My initial thought was "no big deal, my strategies hardly ever traded during that time anyhow."

Turns out, I was wrong.  It could be a HUGE deal, depending on your strategies.  Here's the story, and what you can do about it.

At the end of every month, I take a look at how all my strategies performed during the past month.  I take a quick look at the equity curve, record a performance metric or two, and then move on to the next strategy.  I do this for live strategies, experimental strategies, strategies I am watching (incubating), etc. - I analyze over 100 strategies (and growing!) each month.

So, at the start of October, after the CME data change went into effect, I took a look at a 30 minute Crude oil system I had.  Last time I looked at it in the beginning of September, it looked like this:



At the beginning of October, though, it now looked like this:



Whoa!!!  What happened?????

Answer: The CME data change screwed up my strategy!!!

Of course, my immediate thought was "oh no, all my strategies are ruined!"  Turns out that is not the case, as I'll explain later.  But the bigger question is why is this happening?

This particular strategy trades the 24 hour market, with 30 minute bars.  So, the last bar of the day was always from 5:00 PM ET to 5:15 PM ET (a 15 minute bar, but a bar nonetheless). 47 bars defined one full session.  When the CME changed the trading time, my data provider (Tradestation) went back and modified their 24 hour session to end at 5:00 PM, not 5:15 PM.  This means all the history changes, with one less bar per day.  Now I only have 46 bars each day.  Can you see how this might possibly be an issue?

What is the impact of having one less bar per day?  Well, it depends on your strategy, but here is what happens to a 20 period moving average indicator.  As you can see, as time goes on, the moving average shifts more and more.  It is very easy to see how this could dramatically impact your trading strategy signals!


So, that is the bad news.  What is the good news?  Depending on the market you trade, this data change may or may not be a big deal for you.  If you trade with daily bars, chances are this will not be a problem.  If you day trade the mini S&P, you should be OK, because your session ends at 4:15 PM ET.  And, of course, any product on the ICE exchange (coffee, cocoa, etc) is not impacted.

Plus, your strategy may not be impacted by this at all.  Strategies that use moving averages might be troublesome, but strategies with candlestick patterns might not be impacted.

Finally, your data provider may matter, too.  Tradestation chose to eliminate all history of trading from 5:00 - 5:15 PM ET from their "regular" session (don't worry, the data is still there, you just have to create a custom session to access that "lost" data), but other data providers might have accounted for the changeover differently.  CQG, for example, assumes the closing price of a daily bar is the last trade price.  Now, that last trade occurs 15 minute earlier - that might be an issue for you.  Really, you need to check with your data provider to see what they did.

In short, you may or may not have to do anything about this data change, but you should definitely check.  Here is what I did:

1.  I analyzed performance of all my strategies.  If the historical performance changed between my September 1 and October 1 evaluation, then I knew the strategy was impacted by the data change.  Most of my strategies were NOT impacted.

2.  For strategies that had a change in performance, I did one of three things:

A.  If performance difference was small, I assumed data change was not that significant, and just left the strategy alone.  That could be a bad assumption, I realize.

B.  If change was large, I re-ran my development steps with the new time session for all the history.  Basically, I am treating this as a new strategy.  If this new analysis looked good, I now treat this as a "new" strategy.

C.  For cases where the "new" strategy (based on 5:00 PM end time throughout history) looks awful, I am keeping the original strategy, and just accepting the change.  I’ll monitor the performance, but not trade it live.  How will the strategy perform with the time session change?  I don't know, but if it keeps working in the future, I might just trade it again.  I won't be surprised, though, if the strategy falls apart.  After all, the backtest was based on 5:15 PM stop time, and the future will be a 5:00 PM stop time.  Why should that strategy still perform the same?

Bottom Line:  Check all your strategies.  See if the data change impacted them.  Realize that future performance might change, and this effect is strategy, market and data provider dependent.  Don’t assume you are safe from this subtle data change.  It may be dramatic for you.



Do you see this issue differently than I do?  I'd love to hear from you - please comment below!
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<![CDATA[Best vps - virtual private server for trading]]>Wed, 10 Jun 2015 13:01:44 GMThttp://kjtradingsystems.com/best-of-blog/best-vps-virtual-private-server-for-tradingIn my award winning book "Building Winning Algorithmic Trading Systems," I mention that I do not use a VPS (Virtual Private Server) in my trading. Running your trading strategies on a VPS is one way to ensure that your strategies are always running.  A few years ago, I just did not have a need for VPS. That was true when I wrote it, but as time as rolled on, my situation has changed.  So, I thought I'd update you on my use of VPS, and my recommendation for what I feel is the Best VPS option out there.

Normally in my trading, I am at or near my PC all the time, watching my automated strategies.  And, I have a VERY stable and reliable internet connection - I think it has gone down only 1, maybe 2, times in the past year - for very short periods of time.  Finally, my strategies are deliberately "slow" - latency and time delays of even a few seconds are not a big deal to me, so having my strategies co-located or near the exchange servers is not a requirement.  Any one of these is a very good reasons to have a VPS, since a VPS can help with all of these issues.

So, what has changed for me since I wrote my book?  2 things: more travelling, and more automated strategies.  The travel part is the big thing.  I have found myself being away from my home computer more and more, so having my strategies run on a VPS becomes much easier.  I still have to check things once in a while, but it is nice being with my kids on Splash Mountain at Disneyworld, for example, and still have my strategies running on a VPS.



(Here I am in the first row, thinking about how my strategies are running fine on the VPS while I have fun...)

http://www.kjtradingsystems.com/MK_SPLASH_7135227549.jpeg




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If you are thinking of building and trading strategies which you create yourself - which I highly recommend - make sure you learn the right way to create strategies first.  Learn how to build strategies that actually work in my Strategy Factory Workshop.  Click here for details.
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When I realized I needed a VPS for my travels, I did some research, and settled on Speedy Trading Servers (www.speedytradingservers.com).  I already knew the owner, Sam, from BigMikeTrading.com, and I knew what a reliable, helpful and trustworthy person he is.  That made my decision a lot easier.  HIS VPS solution has turned out to be a really good service for me.

Right now, I am using the medium VPS service Speedy provides, https://www.ninjatraderbrokerage.com/hosting_services, and it works really well (although I think I am starting to bump up with the memory limits, and may need to go the next step higher sometime soon).  It is affordable and reliable.  That is a key combination for me!  I only use it when I am travelling, but I would feel comfortable running it all the time.  Someday soon I might do just that.

In short, I am very, very happy with Speedy Trading Servers.

If you find yourself needing a VPS for your trading, definitely take a look at speedytradingservers.com.  Tell Sam I sent you!
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<![CDATA[The 5 best trading books for new strategy ideas]]>Mon, 20 Apr 2015 13:15:23 GMThttp://kjtradingsystems.com/best-of-blog/the-5-best-trading-books-for-new-strategy-ideasThis is the first of a few lists I am creating on trading books.  For me, trading books are useful for different reasons:  some inspire me, some warn me of danger, some give me great ideas and some entertain me.  Today's post is about strategy ideas.  What books can give you solid strategy ideas?

Here are my 5 favorite trading books for getting ideas.  Over the years, these books have given me tons of ideas for my own trading.



1.  "Beating the Financial Futures Market" - Art Collins

This book is an absolute gem.  Not only does it give a ton of interesting ideas, it also provides a lot of prewritten Tradestation code!  Plus, the framework Art uses for creating entry signals is unique, and very useful.  Based on his work, I created an ES strategy that I provide FREE as part of my Strategy Factory Workshop.  Since I created the system in June 2014, it has produced over $7,000 in hypothetical profits per contract.  I actually trade the system myself.  You could spend years developing strategies with the framework he provides.  I have been using this book for ideas since 2007, and I have not run out of things to test yet!




2.  "The Honest Guide To Stock Trading" and "The Honest Guide To Candlestick Patterns" by Llewelyn James

I've listed 2 books here by the same author, since they are so inexpensive (and good!).  Very rarely do you find inexpensive trading books for the Kindle (actually FREE if you have Kindle Unlimited) that are actually good.  These 2 books are definitely the exception to the "free is bad" rule.  Very well written, packed with good ideas and information, you can easily become overwhlemed with all the ideas Llewelyn provides.  I have found quite a few ideas in his books.  Highly recommended!

The link in the heading is for the stock trading guide.  For the candlestick guide, just click here.


********************************************************************************************************************
MY STRATEGY FACTORY WORKSHOP
ONLY ONE SPACE REMAINING - APRIL 28TH

If you are thinking of building and trading strategies which you create yourself - which I highly recommend - make sure you learn the right way to create strategies first.  Learn how to build strategies that actually work in my Strategy Factory Workshop.  Click here for details.
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3.  "The Encyclopedia Of Candlestick Charts" - Thomas Bulkowski

If you want to use candlesticks in your strategy, this is a great book.  Loads of patterns, along with statistics, guidelines, etc.  If you just focused on creating systems with these patterns, you'd be able to create strategies for a long time.  Of course, many won't pan out, but even if you get one or two strategies out of these ideas, it is well worth it.


4.  "Trading Systems - A New Approach To System Development" - Urban Jaekle and Emilio Tomasini

Here is another "must read" book in my opinion.  Not only do the authors lay out a very reasonable way to develop strategies, they also provide quite a few ideas and systems for you to build off of.  In particular, I have used the "Luxor" strategy they provide to create some new strategies of my own.  I love their scientific, fact based approach to developing strategies.



5.  "Beyond Technical Analysis: How to Develop and Implement a Winning Trading System" - Tushar Chande 

Over the years, I have created quite a few strategies using Tushar's concepts.  What is interesting is that he probably would not even recognize any of my strategies as coming from him!  I took his ideas, twisted them around, added to them, modified them and "poof" - I created strategies that were very unqiue, and totally my own.  One I like a lot is a TF strategy I give away in my workshop.  In hypothetical walkforward testing, this strategy averages about $13,000 per year per contract in net profits.  All based on an idea from a book!

So, that is my list of the best trading books for new strategy ideas.  Do you have a favorite you want to share?  Please feel free to comment below!
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<![CDATA[Top 6 Pieces of Advice I'd Give To NEW traders (AND experienced traders too!)]]>Tue, 24 Feb 2015 05:03:00 GMThttp://kjtradingsystems.com/best-of-blog/top-6-pieces-of-advice-id-give-to-new-traders-and-experienced-traders-tooI love talking to traders of all styles and experience levels.  I have a special place in my heart for newbie traders, especially those just getting started.  We've all been there, right?  Unfortunately, when I was starting out, I think I got all kinds of bad advice.  So, I want to give new traders the advice I wish I had gotten!  And if you are an experienced trader, keep reading - I think you'll find this list helpful too!

If I was just starting out in trading, I’d follow this path:
 
1.  Read as many books as you can on trading.  Just immerse yourself in the field.  After a while, you’ll get a sense of what you want to do, what you want to trade, how you want to trade, etc.  There are many right ways to do things, but probably twice as many wrong ways.  Do some research, and soon enough you'll be able to separate the wheat from the chaff.
 
2.  Don’t buy anything just yet.  Most of what is for sale is junk anyhow.  Keep your money close to you, and don't fall for the sales pitches.  Do as much on your own as you can, before you call in expert help.  If and when you need an expert, make sure to verify his credentials first.  You'll find most trading educators are failed traders, or never traders.  But, they usually are good salespeople!
 
3.  Sign up for my free newsletter "Trading Club" on my website.  I periodically send out helpful tips and articles on all sorts of trading topics.  I also do a lot of free webinars, and you’ll be notified of them.  I try to "tell it like it is."  On one trading forum, an attendee at one of my free webinars stated: "No BS, very honest."  That is a good description of what I do!
 
4.  If you eventually decide to go with algorithmic/mechanical/automated trading (which is what I recommend), get some software to test with.  I use Tradestation, but there are other platforms that are good too, such as Ninja Trader, Multicharts, etc.  Learn the software as well as you can.

5.  Don't fall for the "I can easily make money in demo or sim mode, so therefore I should be able to make real money with no problem."  The trading world is full of simulated millionaires, but not a lot of real millionaires.  There is a reason.  You need to discover why.
 
6.  Learn the right way to develop strategies.  Most people build strategies the wrong way.  It is much more than looking at a chart and saying "hmmm, that looks like a good entry point.  I think I'll take it."  It is also more than optimizing, adding rules and adding filters to get a great backtest. 

I cover this in my book.  You could also take my Strategy Factory Workshop (all previous attendees say they'd "definitely" recommend it to a friend).  I lost a lot of money early on because I had to learn all this stuff on my own.  Focus on the PROCESS of developing strategies.  It is critical to your success.


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If you are thinking of trying automated trading, make sure you learn the right way to do things first.  Learn how to build strategies that actually work in my Strategy Factory Workshop.  Click here for details.
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Notice that in these six steps, I did not even mention trading yet.  Trading is like running a marathon.  First you need to crawl, then walk.  After you learn to walk, you can start running, but you need to run and train for a long time before you are ready to run a marathon.  Trust me, I know -- I've finished 5 of them!  Trading is the same way.  Don't run (trade) until you are ready!

Trading with real money can always wait.  Most people start too early, and blow their capital. Don't get caught in that group.

I'm curious, readers: What additional advice would you give a new (or experienced trader)?  Please leave your comments below!]]>
<![CDATA[Top 6 reasons discretionary traders have trouble with algorithmic trading]]>Thu, 22 Jan 2015 18:57:03 GMThttp://kjtradingsystems.com/best-of-blog/top-6-reasons-discretionary-traders-have-trouble-with-algorithmic-tradingSince I have been on both sides of the fence - I've traded pure discretionary methods, and pure algorithmic methods, I thought I'd point out some of the troubles discretionary traders have when transitioning to algorithmic / rule based / mechanical trading (which, by the way, I highly recommend).  

Here are some top reasons / problems with discretionary traders moving to mechanical trading:


1. Discretionary Traders Can't Program Intuition


Discretionary traders usually can’t program some of the nuances of their method.  Some or all of it relies on intuitive feel, or some of their methods are so complicated (using intuition with multiple indicators, multiple timeframes, judgment calls when drawing trendlines, anticipating news events, etc) that they just cannot put their system into code.  The end result is a usually a poorly performing system, which makes the trader like discretionary trading even more ("I knew algos didn't work!")


2. Discretionary Traders Don't Follow The Rules


Discretionary traders think they follow certain rules, but often they do not.  This is very common.  I saw this firsthand in a price action trading room, where the "trader: had rules, yet always seemed to have a reason to not follow the rules.  There was always another exception to the "rule."  The funny thing was these exceptions only showed up on trades where the rule did not work.  When the trade worked, credit was given to the rule, and listeners were told how great the rule was.  Problem is the rule was not that great when you followed it 100%, which an algorithm would do! 


3. Discretionary Traders  Have Too Many Rules


For some discretionary traders, there are so many aspects to a trade decision, that they just cannot accurately program it all – there might be 5-50 triggers, each with their own dependencies.  Their "simple" approach turns into thousands of lines of code, and even then it still doesn't work as well as their discretion.  Or so they claim...


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If you are thinking of making the switch to automated trading, make sure you learn the right way to do things first.  Learn how to build strategies that actually work in my Strategy Factory webinar.  Click here for details.
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4. Discretionary Traders Want To Be King

Once many discretionary traders program their method, they can’t just sit and watch the PC takes trades – they have to overrule.  They are so used to making decisions, that it is blasphemy to let a computer make all the decisions.  The discretionary trader turn rule based trader just has to take control of the trading.  So, what ends up happening is that you get the worst of both worlds: an algorithm that never gets a chance to show what it can do, all because of a overbearing discretionary trader.


5. Discretionary Traders Turn Into Ostrichs

Many times, discretionary traders backtest their method, and find out it doesn’t work over a long period of time.  At that point, they usually curse mechanical trading, or curse the backtest software and go back to discretionary “bliss.”  They do not want to know that their method has no staying power.  They just stick their head in the sand, and ignore the likely truth -- maybe their approach just doesn't work.


6.  Discretionary Traders Can't Evaluate a Strategy


Many discretionary traders don’t know how to evaluate an algorithmic strategy.  They just have not learn the right process to create and evaluate a strategy, like the one I teach.  This causes them to make major mistakes, dooming their strategy forever.
  


What do you think?  I'm sure I missed a couple of good reasons.  Let me know in the comments below!]]>
<![CDATA[The Best Trading Computer I have owned]]>Sun, 18 Jan 2015 17:43:02 GMThttp://kjtradingsystems.com/best-of-blog/the-best-trading-computer-i-have-ownedThrough the years, I have owned a lot of PCs, starting back with a "high speed" 486 machine.  I also had a Gateway PC (remember how the shipping boxes were painted to look like cows?).  After that, and for the last 10-15 years, Dell was my PC of choice.  Why, Dell's were cheap, reliable and easily configurable.  All these computers worked well as general PCs, and as trading PCs.

I last bought a PC 4 years ago, so as you can imagine, my PC is now relatively slow.  I had upgraded it with an SSD, which really improved performance.  But for number crunching, the processor was the limiting factor.  Frankly, this was a blessing in disguise, since a slower PC always nudged me into simple trading strategies that optimized quickly.  (As an aside, I was reading about a newbie trader who wanted to run an optimization that lasted months.  He didn't want to hear my advice on his problem - after all, who am I? :)

So, last month I went looking for a new Dell. Unfortunately, Dell has changed.  No more extreme customizing.  Worse yet, I could only get an SSD (I'll never go back to a regular spinny hard disk) with their top of the line system.  Looks like Dell was out of the running.

I then searched for an alternative.

My first (and last) stop after Dell was www.tradingcomputers.com.  I had heard lots of good things over the years about them.  I went to their site, saw I system I liked, and was close to buying.

Then came the clincher: http://www.tradingcomputers.com/TC_reimbursement.html

I could get this new PC for FREE!  All I had to do was fund a new Tradestation account (with new money from outside Tradestation), and they would rebate 20% of my commissions until the PC was paid off.

Needless to say, I jumped at this chance (I am not sure how long it will last).

So, a few days ago I received my smoking fast F-37 PC.  It is at least 5 times as fast as my old one, has a next day on site service warranty, and was pre-tested and checked out before they shipped it.  In short, it was nearly ready to go out of the box.

So far, I cannot say enough good things about it.  It runs like a dream, and knowing that it will essentially be free, it is a great deal!

The folks at Falcon have provided excellent support.  Phil Harris answered all my questions before I ordered very, very quickly.  Tell Phil I sent you - he is great!

Anyhow, if you want a great trading computer, just head over to www.tradingcomputers.com.

Comments?  Please feel free to leave them below...


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<![CDATA[top 5 REASONS TO NOT (Yes - NOT!)  AUTOMATE YOUR TRADING]]>Mon, 05 Jan 2015 04:18:53 GMThttp://kjtradingsystems.com/best-of-blog/top-5-reasonsto-not-yes-not-automate-your-tradingAutomated trading (or algo trading, mechanical trading, rule based training, bot trading - whatever you want to call it) can be very enticing, and it may just make money for you.  But, there is an upside and a downside to this type of trading.  In an earlier post, I discussed five reasons I think automated trading is good. Based on discussions I have had with many traders, and my own personal experience, here are some of the big "automation is bad" issues I see.

Five Reasons Why Automated Trading is NOT Good

1.  Garbage In, Garbage Out

Many people think automated trading is a cure-all.  "Well, my discretionary trading is awful, so automated trading must be how people make money.  I'll try that I guess."  That is a very common way of thinking.  The problem, of course, it is wrong.  Any type of trading can be good, just as any can be bad. 

Don't assume that just because you automate a strategy that it will produce profits.  Developing a solid strategy takes a lot of time and effort (heck, I even wrote a best selling book on it!).  Remember, the result you get in trading is usually a direct result of the effort you put in.   


2.  Automated Trading Does Not Lead to Discipline

I was talking to a newbie trader a few months ago, and he told me he was trying automated trading because he needed discipline in taking the trades his strategy demanded.  I told him automation would not solve that,  He, of course, ignored my sage advice (maybe I need to work on my delivery?).  A few weeks later he went live, and told me he made $500 the first week.  Great! I thought, maybe he has discipline.  But then he dropped the bomb - he turned automation on and off during the week.  If he had kept it on, he confided, he would have made $2,600.

The lesson: you need discipline to trade, regardless of how you trade.  Automation does not instill discipline.  You need to find discipline from outside, and bring it to your trading.  Not the other way around.


3.  Unattended Trading Can Lead To Big Trouble

Many traders with full time careers can't check on trades during the day, so they mistakenly turn to automation.  I can tell you from experience that letting automation run without monitoring can be very expensive.  One runaway rogue trade can cost months of profits.  If you automate, you must check in on your strategies often.  I usually check my swing strategies a few times a day, and my intraday systems even more frequently.


4.  Automation Doesn't Mean You Can Play in HFT World

Many inexperienced traders think they can develop a scalping bot that will trade 50-100 times per day, and that they can run it automated through their retail account.  If there is someone doing this successfully, please let me know ---- because I have never heard of such a person.  "Dream scalpers," as I call them, are playing against the big boys - high frequency trading (HFT) firms with tons of infrastructure, speed and precision.  To think a little scalping bot can compete with HFTs is pretty much insane. 

The lesson here is if you are automating because you think you have a printing press money machine, think again.  If you don't believe me, test it live.  I bet you'll find out your scalping strategy is really just a dream.  And automating a bad strategy just leads to the poorhouse quicker.


5.  Automated Trading Still Is Emotional

A lot of people think that the emotions of trading can be eliminated by automating.  WRONG!  As long as you are playing with real money, there will be emotions, regardless of your method.  Don't let anyone tell you differently.  The emotions, and the triggers, might be different from automation, but there is still plenty of stress, anger, greed and disappointment in automated trading!


All things considered, I still think automated trading is the best way for a retail trader to succeed.  In my own trading, I have been able to develop methods and tricks to counteract each one of the above automation dangers.  So if you try automation, be prepared to battle these disadvantages.  Automated trading is NOT a guaranteed path to profits...


Do you agree with this list?  Disagree?  Have items to add to the list, or your own automation disaster to share?  Feel free to leave your comments below!]]>
<![CDATA[Top 5 Reasons to Automate Your Trading]]>Wed, 17 Dec 2014 12:26:36 GMThttp://kjtradingsystems.com/best-of-blog/top-reasons-to-automate-your-tradingAutomated trading (or algo trading, mechanical trading, rule based training, bot trading - whatever you want to call it) can be very enticing, and it may just make money for you.  But, there is an upside and a downside to this type of trading.  With that in mind, here are five  reasons I think automated trading is good. In the next post, I'll give reasons why automated trading is not so good.


Five Reasons Why Automated Trading is Good

1.  Trade with an Edge

The main reason I like automated trading is that I can trade knowing I have an edge.  Too many people just jump in and trade a strategy without properly evaluating it.  Therefore, they don't even know if they have an edge - a positive expectancy strategy.

I trade automated strategies that I have historically evaluated.  My strategies have positive expectancy.  That does not mean they will keep working, but I like my chances. This is much better than just assuming if I study charts long enough, I'll somehow devlop an edge!

2.  Diversification

It is hard to manually trade more than a few strategies.  With automated trading, you can fairly easily trade 20, 30, 50 or more strategies.  And being diversified is a great way to trade.  If you don't believe me, just review academic financial research over the past 30 years - many papers show how good diversification is.   Automation makes diversification easier.

3.  Hard To Cheat

Many people who have one automated system like to turn it off and on - basically overrule it.  That is not good.  But, once you start trading 5,10 or more strategies, it becomes much harder to cheat on the systems - it is easier to just let them run without interference.  That is usually a good thing.

4.  Easy To Include Position Sizing

Once you have a strategy up and automated, you can include position sizing into your code.  Then, as your account hopefully grows, the position sizes you take are defined by the algorithm, and that helps you keep your risk rules consistent.

5.  You Can Do It Yourself

Once you commit to learning how to properly create your own strategies, it is possible to create strategy after strategy, in any market you choose, with any type of system you choose.  You don't have to buy or lease strategies any longer - you can simply create your own! 


Do you agree with this?  Disagree?  Have items to add to the list?  Feel free to leave your comments below!]]>