Over the course of the past few weeks as the Basket of Systems components have been introduced I've received a number of emails from skeptics claiming that the systems can have little practical value as they are so simple in concept and coding.
I beg to differ.
There's an ancient approach to reasoning called Occam's Razor, which suggests that, all things being equal, the simplest approach to solving a problem . . . typically the one requiring the fewest steps . . . is the best one. Having run the gamut of trading very complex to very simple systems over the past 20 years, I'm definitely in the camp of the later.
If you've got some time on your hands, watching 2 minute bars and waiting for the daily RSI to reach oversold levels, you might want to amuse yourself at the following link:
About 10 years ago INTC was the poster child for technical signal alignment, and every TradeStation system you could think of using INTC made money. 2 higher high daily closes on increasing volume = BUY. Hold till you got a 2 bar reversal, then exit. It was like printing money. But those easy money days are gone. Order flow masking, algorithmic program trading, backdoor order flow conduits like Pipeline, Executioner and a slew of other "smart execution" programs have all made trading a lot riskier.
Last night I spent a few hours with Don Bright and some of his traders just talking about trading and looking at some of the ways they trade. Now I've known Don for about 8 years, have visited their Las Vegas office and have the highest regard for their integrity and savvy. They've been traders for 40 years and have run Bright Trading as a prop shop since 92. They currently have about 500 traders, local and remote, and that's a lot. On a average day Open, they're queued with between 30 and 50 million shares of orders. WOW. . .that's a lot. Their approach is focused on NYSE stocks, simple, basically threefold and they like to be flat at the end of the day:
1. Mean reversion to projected fair value from envelop variations at the open (set a high and low limit and trade against it with Opening Only orders).
2. MOC (market on close imbalances), using orders which trade with the imbalance momentum.
3. Pairs trades of various types
Of course, they've got very sophisticated software that executes all three type of trades on an auto trade basis, but many of their traders still opt for manual execution of pairs trades.
Now, this is not an endorsement or solicitation for Bright, I'm just sharing a conversation that you didn't get to hear, and I think there's more than a few nuggets of wisdom there.
Don's number one caution for traders. . ."Don't overcomplicate".
In the comments a few days ago Muhammad suggested using a 1/3ATR(10) stop for intraday trades. I don't know if he picked that up from Bright, but it's one of their favorites and you might want to test it with your own fantasy trading.
One interesting vignette (to me) was a report from a trader who typically trades pairs, 2000 share lots, with average 7 trades/day. He has a buddy, trading the same pairs, 200 share lots, with an average of 15 trades/day. The buddy's account equity is slightly higher.
Although their performance records only extend back 4 months, the argument favoring smaller trade size to manage risk/reward certainly looks promising. Bright Traders pull nickels, dimes and occasionally, quarters, out of the market on each trade: just a little reality check for those who think that a successful trade has to be measured in 50 cent increments.
For any potential prop shop traders, the link to Bright is noted above. They've got a 3 day "get to know Bright Trading" program and a 2 week boot camp if you want to get serious. Fees are VERY reasonable. Since their traders have professional status, there are tax implications and you need to get a series 7 license (think about 100 hours of prep), which they will facilitate, as much as possible.