Throughout my years of experience in the finance industry, I have found that traders – all types, from futures to commodities – often want to use TradersStudio to build an intraday system. I then ask these traders, have you built and tested a successful end-of-day system? Trading end-of-day is like driving an old Toyota through town. It might not be glamorous, but you’re not going to lose a ton of money really quickly either. You move slower so you have more time to react. You can hit the brakes if the road takes an unexpected turn. By contrast, trading intraday is like driving the latest Ferrari through town. It’s fast and glamorous, but unless you’ve learned to drive really well at the slower speeds, you’re going to crash when the road takes an unexpected turn. Put another way, would you give a newly licensed 16 year old the keys to a half a million dollar Lamborghini?
If you’re a parent and have gone through those teenage years when your kids start driving, you’ll agree with me that you would rather your children learn on a safer vehicle than a 700HP race car. Likewise, I heavily encourage traders not to discredit the power of building a good, working end-of-day system. Building such as system is beneficial in multiple ways:
Market signals are easier to read using end-of-day data. You can process a larger scope of events and have more time to react. You can build divergent systems for example, taking advantage of market lags. You can also take advantage of market cycles. Because there’s less randomness to large scale economic trends, you can build a robust system that is verified to do well under all broader market conditions.
End of day systems can be very profitable. We have already shown a few on this blog that do pretty well in real-world conditions and those aren’t even particularly well optimized. Using some basic concepts you could even optimize those further and build systems that consistently crush the returns of the average investor. You don’t really need to be an intraday trader to make a lot of money.
I find that building an end-of-day system is really good practice. It gives you confidence that you can build systems that work and are robust under all kinds of markets. You can do research and find broad patterns in the market to use and build a system based off of those instead of worrying about random market noise. On any given day predicting which way futures or commodities will head within a very short time is challenging to say the least. However, markets seldom decline 10% or gain 10% over two months unless there’s a good reason for it. Rather than trying to predict the way the markets will turn within the next few minutes, it’s better practice to learn the markets, learn cycles, and learn the indicators that can accurately model the markets during all types of economic conditions.
I don’t want to say that building an intraday system is bad – it’s not, if you can find one that works. However, building successful end-of-day systems is necessary to have the building blocks to construct an intraday system that actually works and doesn’t just get either very lucky or very unlucky. TradersStudio can help you test your end-of-day systems and you can test how profitable they would be right from the software. We’ve done a lot of development to make sure that you can trust the results you get with our backtesting platform. I would encourage you to check it out and try building your own profitable and robust end-of-day system.