The Traderclub Forum 14.01.

2020, 23:28

The Traderclub Forum

Chuck LeBeau's System Traders Club
BULLETIN Vol. 1 Number 15 Dec. 3, 1998

Elaborating On Our Multiple Systems Concept

Only a handful of members have been with us since the very beginning of
the Club last February so I thought it would be worthwhile to repeat and
clarify some of our logic in suggesting that multiple systems might be a
worthwhile approach to trading.

In the past the typical approach was to simply take one systematic
approach and apply it to one or more markets. Because of the potential
for major profits per trade the majority of knowledgeable traders were
naturally attracted to trend following strategies. Richard Donchian and
many of the pioneers of technical analysis were advocates of trend
following and they as well as many professional trading advisors were
able to generate profitable historical results to substantiate their
preference for this style of trading. The giant inflationary trends of the
70s made these early trend followers rich and the world of technical
analysis was thoroughly convinced that trend following was obviously
and conclusively the most profitable way to trade.

In more recent times the so-called Turtle System is a good example of

this basic approach. A simple but effective trend following system
applied to many different markets with highly disciplined money
management (the true secret of their success) does indeed provide a
profitable equity curve over time as the Turtles and many other
professional traders have clearly demonstrated.

In the last few years the absence of inflation and the coordination of
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worldwide economic policies has, in our opinion, resulted in fewer trends

than in the past. As trend following profits have become less frequent the
trend followers have sought diversification by adding more global
markets to their ever-expanding portfolios.

However it takes a great deal of capital to diversify over so many different

markets and long term trend following in general is typified by frequent
and very substantial drawdowns, with the Turtles and other professionals
being no exception. The frequent losses in the non-trending markets can
only be offset by catching some occasional winning trades of huge
proportions. Unfortunately only extremely broad diversification can offer
a trend follower any assurance of participating in those rare markets
where the big winners are found. As a result of this increased need for
market diversification the most successful of modern traders have large
staffs of employees working around the clock frantically trading markets
all over the world.

All of this effort at diversification is predicated on the assumption that we

must take one system and then find as many markets as we can to trade
with it. The search for this one system that successfully trades all
markets has often been alluded to as the elusive �Search for the Holy
Grail.� Having tried the �one system trades all� approach for several
years with limited diversification and limited success we began searching
for a better way to trade and we think we have found it. We intend to
trade multiple systems in multiple markets.

We have long been advocates of looking at markets as having three

directions rather than just two. We view markets as being up, down or
sideways. To carry that logic one step further we have also observed that
the characteristics of the markets in each direction are distinctly
different. Markets going up tend to follow a generally orderly pattern that
is much different from a market that is going down and the sideways

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patterns are not anything at all like the up and down trends. With this
perception in mind, why should we try to trade up, down and sideways
markets with the same system? To be sure, it can and has been done. We
did it ourselves with a simple ADX system but only with very limited
efficiency.

Wouldn�t it make more sense to design several systems that were each
very specific in their application? For example we can easily design
systems that work well in a rising market and these simple systems can
perform that limited task in a surprisingly efficient manner. We can also
design these long-only systems to include a simple on/off switch so that
when the market is not rising they automatically shut down and no longer
generate trading signals. We wouldn�t want to be trading an up-only
system in a down market would we? A little bit of common sense goes a
long way in this business of trading.

In a down market we would want to be trading a system that goes short

and was capable of taking advantage of our perception of what a down
market usually looks like. In our experience down markets tend to be
quicker and more violent so profits need to be taken faster than those we
might take in a rising market. The old adage of letting profits run is a
policy best employed in rising markets. After all, no commodity markets
ever go to zero. (However, the bearishness in commodities we have
experienced for the last year or two might have some of us wondering if
zero is really out of the question in some markets.) There is certainly no
question in my mind that the upside in any tangible commodity is much
less bounded than the downside, so it makes perfect sense to let our
long side profits run while taking our short side profits much sooner.

Sideways markets on the other hand require an entirely different strategy

for both entries and exits. When a market is in a trading range there is
seldom anything to be gained by letting profits run in either direction

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because they will only turn into losses. Since our profits are limited by the
boundaries of the trading range, the entries need to be as precise as
possible and we need a high percentage of winning trades to make up for
occasional losses that are large relative to our limited gains.

We have little doubt that there is great logic and justification for having
different systems for up, down and sideways market conditions. Over
time we intend to create and employ multiple trading strategies in
multiple markets. We seek to become diversified in our systems as well
as diversified in our markets.

We are now very close close to achieving our goal of creating a complete
multiple system package for the bond market. As an example of our
grand scheme lets briefly look at where each of our bond systems fits
into our strategy as we trade from the beginning to the end of a complete
price cycle.

Starting at the bottom of the cycle, the Phoenix system is designed to

begin trading the long side while the trend, by most definitions, is still
down. If this bottom-picking system is correct and the market reverses
direction and begins trending upward as anticipated, then the �25 X
25� system and the Big and Little Dipper systems will recognize the
confirmed uptrend and start buying dips of varying magnitude within the
strengthening uptrend. It is very likely that the Phoenix system will still be
patiently long with a nice profit while these other system are beginning to
identify and buy various dips in the trend.

At this point we would hope to have more than one long position. In our
experience, a well established uptrend is one of the lowest risk and
potentially profitable market types to be trading. These very orderly
markets present an ideal situation for carrying multiple positions.
Throughout the uptrend the Little Dipper is trading the short term price

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swings, the �25 X 25� system and the Big Dipper are trading the
intermediate swings and the Phoenix system is patiently riding the longer
term trend. Not only are we trading multiple strategies but we are also
trading the uptrend over multiple time frames.

As our price cycle moves on and the market changes its trend and goes
into a broad consolidation or perhaps shows evidence of a downtrend,
the long only systems shut down and the Serendipity and Sidewinder
systems, which trade both long and short, will automatically begin selling
rallies and buying dips. These two systems take over as our dominant
strategies because they were specifically designed to profit from
sideways or downtrending markets. If the bond market resumes the
previous up trend the long only systems will automatically reactivate. If
the market continues downward the Serendipity and Sidewinder systems
will continuously be selling short on rallies as the market declines. Finally
after a sharp and sustained down move completes the cycle the Phoenix
system will try to pick another bottom and the cycle starts anew.

As you can see, it was not our intent to simply design six or seven
systems that could make money in bonds. The intent of our multiple
system approach is to be constantly trading with only those systems that
are most appropriate for the current market conditions in bonds. Each
system has its assigned mission and each plays an important role in the
grand scheme.

How well will this multiple strategy work? We can�t say with any
certainty, but the idea makes sense to us and the historical results are
very promising. But the proof as always lies somewhere in the future. The
combined historical results of our bond systems can now be viewed on
our web site at:

http://traderclub.com/systems_bondscombined.htm

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In our next Bulletin we will discuss and give some practical advice on how
to manage positions when trading multiple systems.

****************************************
Webmasters Report
Recent additions to the Traders Club Website.

Chuck mentioned the Combined Equity Page

http://traderclub.com/systems_bondscombined.htm This is the most
recent change on the site. In addition we have also added Trade by Trade
Reports for all of our systems. You will find a link at the top and bottom of
each System's page which will take you to the report for that system.

THE NEW FORUM on the Traders Club Website is also up and running.
http://traderclub.com/discus/board.html
Some of you have been there already and made use of it. We hope that
the rest of you take advantage of this excellent way to exchange ideas
and share with fellow members. The New Forum has features that make it
easier to post messages, create new threads and keep track of
everything that is going on. Here is a brief rundown on some of the
features.

NAVIGATION:This Forum uses Frames and has a frame on the left side of
your browser window and a Main window on the Right side. Whatever you
click on the Left shows up in the right. This allows you to be able to do
any moving around the forum from wherever you are. When you first
enter the Forum there are three "Topics" at the top and some instructions
below, we suggest you read the instructions before moving into the
"Main" forum area. If you would like to practice posting we have a test
area where you can experiment, and be sure to leave us messages in the
suggestion area.

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POSTING: Once you enter the Main Area the threads on the forum are
there. Below is a button for starting a new thread and a message area at
the bottom of the page for making new posts. I keep getting questions
about the username and password. This software is configured for
private discussion areas and other features dependent on User/Pass . We
are not using these "secure" features at this time, however it is still
necessary to enter a username when you make a post. It can be any
username, however we suggest that you use the same name when you
post so that your messages can be identified by others. If you enter your
email address your name will be hyperlinked to your email address in the
final post.

SEARCHING: There are several methods for searching the forum. They
can be accessed from the top of the navigation frame on the left. Topics
brings you to the Main Forum Page. New Messages takes you to a search
page where you can look back as many days as you want to see all the
messages that are new. Keyword search allows you to search for specific
text in the forum and can also be used to find posts by a specific person.
Try searching For Chuck. Tree view shows you all the topics and threads
and is a good way to see everything that is going on in the forum at one
time. Also when you search the forum the username feature is not
functional and is not required. If you want to know what was posted since
the last time you were on the forum better method is to simply set the
number of days back you want to search.

FORMATTING: The new forum allows you to do many things with your
posts the most exciting being the ability to add images, and excel
spreadsheets. You simply copy them from your application into the forum
message. There are many other features, we suggest you read the
Formatting Section of the Forum Help.

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REGARDING THE OLD FORUM: As soon as the New Forum went online,
the old forum became unavailable. We began to move the posts over and
to date have 80% of them moved. The rest will be there soon. These
posts are timestamped with the current date, however we are leaving the
original date in the post and keeping threads intact to provide some
continuity.
Some people have asked us to go back to the Old Forum and we can only
say, please be patient and take some time to use this new area. We think
it is a great improvement and is a better tool for communicating amoung
members.

WHAT'S COMING: There are plans for a System Owners area which will
be secure and only available to people who have bought one or more of
our systems. Here you will be able to discuss the systems in detail, with
other owners, compare test results, watch signals and monitor trades
and generally communicate in a private enviornment.

Please continue to send me emails when you have a problem with the
Website or to make a suggestion. Many of the changes and
improvements to the site come from members telling us what they want.
We are only an email away.

David Elden
webmaster@traderclub.com

***************************************************

That�s all for now.

Good luck and good trading

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Chuck

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