Better System Trader

If you’re looking for inspiration, motivation and practical advice on improving your trading results, Better System Trader delivers every week. Each episode brings you an expert trader who shares their own story, along with the steps, both good and bad, that they’ve taken on their path to success. With a focus on actionable insights, the tips and tricks used by the experts contain loads of value, providing you with insanely practical tips and tools you can start using TODAY. Improve your trading with Better System Trader.
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Now displaying: 2017
Dec 24, 2017

Well here we are, another year gone (and so fast too!).

I’m glad you could join me for this final episode for 2017, where we’ll be reviewing all of the special guests we had on the show this year, the topics and insights they've shared plus their top trading lessons.

I think this is a great way to look back, to be reminded of some of the key points, and all of the amazing knowledge our guests have shared with us this year.

Also, thanks for all of the emails of support and appreciation throughout the year, I’m glad that what we’re doing here has been so helpful!

I hope you have a great Christmas and holiday season and all the best for 2018...

It’s going to be a massive year!

Happy trading,


Dec 10, 2017

Our guest for this podcast episode, Dimitri Speck, first became interested in the markets as a child when he found gold while diving at the beach.

And even though trading isn't usually as easy as just picking up gold off the ground, Dimitri has spent years diving deep into the markets and uncovering hidden and consistent anomalies that traders and investors of all styles can profit from.

In this episode he's going to share some of these powerful insights with us, including:

  • How understanding Intraday behaviours can help you to get better prices and additional edge on trade execution,
  • The 4 specific hours of the day that would have given you most of the last 10 years of S&P returns (hint: it's probably not what you think),
  • The 1 market event that has produced almost the entire S&P performance over the past 20 years in just 6% of the days,
  • The challenges of accurately measuring these anomalies which could give you misleading results,
  • The 3 simple techniques traders of all styles can use to apply these behaviours to their own trading,
  • Plus much more.
Nov 26, 2017

A few weeks ago we organised a family holiday for December.

We booked a luxury villa in Port Douglas and we’re all really excited to get there and start enjoying the holiday.

Last year the Huffington Post published an article about vacations, and shared a study in a journal claiming that just planning or anticipating your trip can make you happier than actually taking it.

I’m not sure if anticipating a holiday is more fun than actually taking it (I guess that depends on whether you have to take your kids or not...), but there is definitely value in anticipation, which ties in quite nicely with this podcast episode.

Our guest today is John Carter, and John is going to share with us the value of anticipation in trading, and how anticipating market action and the “pain points” of other market participants can give us an edge in trading.

Some of the topics you'll hear are:

  • How anticipating the actions and pain points of other market participants can give you an edge,
  • A simple but powerful mental switch that can crush the fear of executing trades,
  • The subtle clues the TICK and volume data give to indicate if a trend or range bound day could be more likely,
  • How to identify potential false breakouts and how ‘stop runs’ can actually improve your trading results.
Nov 24, 2017

I can’t believe it’s only 4 weeks until Christmas!

We’ve got the Christmas ads running on the TV here already...

The local grocery store has the Christmas decorations up...

And they’re even playing Christmas carols - can you believe that?

At home my 5-year-old daughter is already priming me for what she wants from Santa this year, which by the way is pretty much everything on TV right now!

2017 has gone by really fast and we’re coming into a time of reflection and rest, time to take a break if you can, and so I wanted to take a few minutes in this weeks Trading Thought to talk about balance, both in trading and in life.

Pretty early on in my trading journey I was absolutely consumed by trading.

I lived and breathed it, it was all I could think about and all I wanted to do was quit my corporate job and trade for a living.

By day I was working a full-time job in a bank, and at night I was staying up late to day trade the ES. I joined a trading room and my wicked plan was to get a few hours sleep after my day job so I could then trade the US session during the night, and then when the US markets closed I would have a brief rest before I went off to work for the day.

Sounds crazy right?

Well at the time I thought it was a great plan, but I’m sure we can all see how poor it really was.

You can probably guess what happened too.

It wasn’t sustainable.

I was only able to do it for a short period of time before lack of sleep impacted not only my trading, which sucked by the way, but it also started impacting my day job and it also pissed off my girlfriend at the time because...

I wanted to watch 1 minute bars more than watch a movie with her!

So, at that time there was no balance in my life, and my trading, health, relationships and life really suffered.

In this weeks Trading Thought, I want to share some thoughts from Linda Raschke on how Balance can make us better traders.

Then after that I have a small announcement to share, so take a listen to some nuggets of wisdom from Linda first.

Nov 17, 2017

The Petronas towers in Malaysia are the tallest twin towers in the world at 452m (1483 ft) tall.

Because of the ground underneath the building site, they had to put in some deep foundations, up to 114m (374 ft) deep.

Without these deep foundations, the building would run into problems.

In fact, during construction, at around the 72nd floor, they discovered that tower 2 was leaning 25 mm (0.98in) from vertical, so to correct that lean the next 16 floors were slanted back the other way.

They even hired specialist surveyors to check the lean of the tower twice a day until the building was completed.

Now obviously the foundations anchor the building and keep it from falling over, and even though they’re not visible, they’re probably the most important part of the construction.

When you look at constructing a portfolio of strategies, there are a couple of key concepts, or foundations to consider as well, so that you have a solid portfolio, one that will hopefully weather all types of hostile conditions and produce higher returns with reduced drawdowns.

In this weeks Trading Thought we’re going to hear from 2 guests, who will explain how they construct portfolios and some mistakes that traders sometimes make during portfolio construction, which you need to be aware of.

Take a listen as we start with Gary Hart from Trendfinder Trading Systems explaining the benefits of a portfolio of strategies and we take it from there.

Nov 12, 2017

And we're back for the final episode in this 3-part series on building Mean Reversion strategies with Cesar Alvarez from Alvarez Quant Trading.

In the 1st episode we discussed the goal of Mean Reversion trading, how to select a trading universe, a number of effective techniques to measuring Mean Reversion and how to combine indicators to identify better quality trades.

In the 2nd episode we discussed market classification, trade ranking, exits, order types, position sizing, risk control and much more.

In this 3rd and final episode, Cesar answers all your questions, covering a wide range of topics, including:

  • Mean Reversion in markets outside of Stocks,
  • Controlling risk during market sell-offs, gaps and being overweight in particular sectors,
  • Performance of Large caps vs Small caps,
  • Ranking Mean Reversion setups,
  • Shorting strategies,
  • Readjusting strategy parameters and measuring robustness,
  • Balancing Mean Reversion in a portfolio of other trading styles,
  • Tail risk, leverage, options, performance monitoring and so much more!
Nov 10, 2017

A few weeks ago I got the fright of my life.

I found myself in a situation where I could potentially be crushed by a car, or perhaps even a bus or truck.

Find out what happens and how it applies to tracking the performance degradation of trading strategies (before they kill your account).

Nov 2, 2017

I’ve just arrived back home from a few weeks in the States, I had a great time there but it’s also good to be home.

I’m a bit jet-lagged today so let’s hope what I share today actually makes sense!

A few weeks ago I had the honour of speaking at the ATAA members meeting here in Melbourne.

I presented for about an hour and the topic of my presentation was ‘7 practical tips to reducing drawdown’.

In this weeks Trading Thought I want to share a quick story from that and how it applies to Mean Reversion in low volatility environments.

In part 1 of the Mean Reversion series, Cesar made a statement about Mean Reversion strategies not performing so well in low-volatility market regimes, and I received a number of emails asking what type of strategies DO work in low volatility environments, so...

In this week’s Trading Thought I want to share a quick little sneak-peek into the next Mean Reversion episode with Cesar, due for release in a few weeks, where he answers this question, plus much more.

It’s only short, but let’s take a listen to Cesar sharing what he's found to work in low-volatility market regimes.

Oct 28, 2017

And we're back for the 2nd episode in this 3-part series on building Mean Reversion strategies with Cesar Alvarez from Alvarez Quant Trading.

In the first episode we discussed the goal of Mean Reversion trading, how to select a trading universe, a number of effective techniques to measuring Mean Reversion and how to combine indicators to identify better quality trades.

If you haven't listened to that episode yet, you should check it out first here.

In this 2nd episode in the Mean Reversion series, Cesar will be sharing:

  • How to classify market conditions and adjust Mean Reversion strategies to the current market,
  • Tips to choosing trades with a higher probability of success when you have more trades than your account can take,
  • How the maximum number of positions you trade affects the role of luck on trading results and how to produce more 'reliable' results instead,
  • Why it can be a good idea to have different strategies that enter at market and on limit orders instead of just one or the other,
  • The impacts of stops on returns and why they don’t often protect you from the really big losses,
  • Implementing multiple exits, what works best in Mean Reversion (and what to avoid) and testing exit combinations.

Watch out for the 3rd episode in the series, where Cesar answers all the questions submitted by Better System Trader listeners.

Oct 26, 2017

Have you ever wondered:

  • Why the word "abbreviate" is so long?
  • Why are wise men and wise guys opposites?
  • Why is it called quicksand if it takes you down slowly?
  • Where do forest rangers go to "get away from it all?"
  • Why is it that when we transport something by car it's called a shipment, but when we transport something by ship it's called cargo?

I'm sure there are reasons for all of these, but on the surface they don't seem to make sense.

What about stop losses, do they make sense?

We often hear the trading rule of 'always use a stop loss', no matter what, use it everywhere, but…

Does it actually make sense to ALWAYS use a stop loss?

Or are there occasions when using a stop loss DOESNT make sense?

And if so, how do you handle that? How do you manage your risk?

In this week’s trading thought, we’re going to review a chat with Dr Ernie Chan about stop losses, and we discuss these exact points, so let head on over to Ernie and find out if it makes sense to ALWAYS use a stop loss.

Oct 17, 2017
As you probably know, we’re currently focusing on Mean Reversion trading strategies.

In episode 127, Cesar Alvarez shared a number of techniques to measuring Mean Reversion and identifying setups.

There was probably close to 10, maybe 12 different ideas Cesar shared with us, so there are lots of ways to measure Mean Reversion when looking for trade setups.

Are any techniques better than others?

In this weeks Trading Thought I want to add a little bit more to the insights Cesar shared with us on Mean Reversion setups by referencing another very popular Mean Reversion episode I did with PJ Sutherland, episode 62.

In this weeks 'Trading Thought' PJ is talking about measuring Mean Reversion setups and a technique where he ‘really started to see phenomenal test results’ -  who doesn’t want that right?

So what is this technique?

And where did PJ see these phenomenal test results?

Take a listen as PJ explains it to us... 
Oct 14, 2017

We’ve got something special organised for you here...

This is the 1st episode in a special 2-part series on building Mean Reversion trading strategies.

And to discuss Mean Reversion we have a special guest, someone who has been on the podcast a couple of times already - Cesar Alvarez from Alvarez Quant Trading.

Those of you who know Cesars work would be aware that he is a Mean Reversion specialist.

He has a wealth of knowledge on Mean Reversion trading that he's going to share with us over this special 2-part series, so I’m really excited to be sharing it with you.

In this first episode Cesar will be sharing:

  • The high level steps to building a mean reversion trading strategy,
  • Why carefully selecting a trading universe is so important and the factors you need to consider,
  • Simple but highly effective techniques to measuring mean reversion you can start testing today,
  • How to combine indicators properly to identify better quality trades, and
  • Why strategies with a smooth equity curve may not actually be the best strategies to trade in the future.
Oct 13, 2017

It seems from the emails I’ve been getting lately that more and more traders are becoming concerned about the state of the markets, especially the stock markets, which is understandable.

And the concern is really around what’s going to happen when the stockmarkets start falling.

What could happen to their strategies and accounts and how can they prepare for it now?

How can they protect their portfolios?

One form of protection that often comes up is using diversification to reduce portfolio risk.

However, a common question that is raised is how to actually go about diversifying?

Is there more protection in diversifying across markets, or staying in the same market and diversifying across strategies?

In this short piece of audio, Perry Kaufman discusses how he looks at diversification, and it’s something you may want to consider when you’re thinking about how to protect your own trading account and portfolio in a market downturn.

Oct 6, 2017

In this weeks ‘Trading thought’ we’re going to discuss an issue that all traders have to face...

How do you know when to stop trading a strategy?

A common approach is to wait for a strategy to reach the maximum historical drawdown and then either stop trading the system or look at modifying it or optimizing it, but...

There are a couple of problems with that approach:

  1. Once the strategy has hit that drawdown level, the damage is already done, you’ve already taken a series of losses to get to that level,
  2. What if you stop trading the strategy and it recovers from the drawdown, you missed out on the recovery.

When we have a system that goes into drawdown, we never really know if it’s the beginning of the end for that strategy or if it will be a drawdown within expectations, so it can be tricky issue to address.

Can this be managed differently?

Are there warning signs to watch out for that can tell us if our strategy is sick or healthy and can we manage these sick strategies differently without having such an impact on our trading accounts?

In this episode we’re going to hear from Alan Clement, who is going to share some ideas on measuring system health, so take a listen to our chat with Alan.

Oct 1, 2017

Trade management is a critical component of a trading strategy.

It can often be the difference between a profitable trade and a loss...

However many traders focus on the entry only and leave trade management as an afterthought.

In episode 49 of the podcast, Linda Raschke, said "trade management is probably the most neglected area of system development".

In that episode we focused on Linda's approach to modelling the markets but in this episode Linda is back to discuss trade management and exits, including:

  • Why trade management is such a neglected aspect of trading,
  • How to model different types of exits and the impact of market environments,
  • How volume and breadth measures can give clues to the tone of the market, and
  • How to use the power of relative strength to target the best markets to trade.
Sep 28, 2017

In this weeks Thursday Trading Thought we’re going to discuss a market pattern that was identified over 80 years ago, perhaps even longer, that could indicate what happens in the markets for the rest of 2017.

Now, I can imagine some traders are probably thinking, “who cares about some old, dusty trading rule from the 1900’s, surely that has no relevance to the markets today?”

Well, that’s what we’re going to discuss with our guest Brent Penfold, who is going to answer the following questions, plus more:

  • What is this pattern and can something identified over 80 years ago really have any relevance to trading today,
  • Does the pattern still work and what is it suggesting the markets could do for the rest of 2017,
  • And how could this pattern be applied to trading today?

Brent is even going to share 1 application of this pattern with some very interesting backtest results so you don’t want to miss that.

Sep 21, 2017

With the explosion of computing power, more and more resources are being deployed to analyse the markets.

Edges that used to work are being eroded away or destroyed as traders from all around the world get to work analysing the same sets of price data.

Add to that mix the sophisticated machine learning algorithms and the rooms full of PhDs, how do we even compete with that?

If everyone is looking at the same price data, is trading based on price alone enough, and if not, then what is the solution?

In this weeks Thursday trading thought Gary Hart from trendfinder trading systems is going to share his approach to this problem. 

We pickup the conversation discussing changes in the markets over time.

Sep 17, 2017

In this episode we’re going to explore a topic we don’t cover much on this podcast and that is options trading.

2 of the mains reasons we don’t discuss options trading much, is firstly because I don’t trade options myself and have limited knowledge of how to use them, but also because there are some challenges with testing options strategies which makes it difficult to backtest them systematically.

However, there are some potentially huge benefits to trading systematic options strategies in a portfolio, if you can overcome these challenges.

Today's guest, Luca Giusti from QTlab, is here to discuss options with us, explaining:

  • The benefits of trading options systematically,
  • The challenges of testing options strategies and the solution,
  • Why volatility is such an important aspect of trading which can’t be ignored,
  • How to factor market volatility into trading strategies to reduce risk and increase performance.
Sep 15, 2017

In this weeks Thursday Trading Thought we’re going to inject some inspiration into the podcast.

Trading is a really tough business and sometimes as traders we can get into a bit of a funk, no matter what level of trading we’re at.

But we’re only human and we’re all trying to get better, so in this episode I’ve pulled together 3 of my favourite stories or motivations from the podcast.

We’ve had a lot of inspirational guests on the show over the years so I could have pulled out a whole bunch of these but to keep it short for this Thursday Trading Thought I’m going to share 3 that stood out to me.

Hope you enjoy them!

Sep 7, 2017

Fear, Hope and Greed are 3 dangers that traders of all levels need to watch out for.

They can have sometimes have a dramatic impact on our trading results, and even cause traders to quit trading or to blow up their accounts.

And even if you think you’ve got them covered things can change pretty quickly, and even seasoned pros that are often as cool as ice can turn into a quivering mess in the corner!

OK, that was a little dramatic, but it can happen and I’m sure you get the point that at times traders of all levels can become susceptible to the dangers of Fear, Hope and Greed.

So how can we manage them so that it doesn’t impact our trading?

In this weeks 'Thursday Trading Thought' Brent Penfold is going to share some practical tips on how to overcome these 3 dangers, so let head on over to our chat with Brent to see what he has to share.

Sep 4, 2017

So here it is, the 2nd part of our conversation with Brian Miller from Optimized Trading.

In the chat today we're going to combine some new topics with an expansion on our previous conversation, including:

  • The application of game theory in trading (it doesn't just apply to HFT),
  • The importance of letting the R&D process guide you instead of trying to squeeze it into a preconceived idea,
  • How to balance simplicity with complexity for more robust trading solutions,
  • The impacts of price data evolution on trading model longevity and how to address them,
  • Plus a few questions from listeners.
Sep 1, 2017

A common misconception with systematic and algorithmic trading is that it removes the impacts of human psychology on trading.

But that’s really not the case.

In fact, even when we’ve got trading platforms automatically executing trades for us, the mental aspects of trading can still have an impact on execution, model development, position sizing and other areas...

Sometimes without us even knowing.

And not only can they have a negative effect on our trading results, but can also take a toll on our health, well-being, relationships and other areas of our personal lives.

But by being able to identify issues and putting plans in place to address them, we can make better trading decisions.

So how do we do that?

In today’s Trading Thought we’re going to hear Laurent Bernut explain a technique that he uses, plus he also shares a 'jedi mind trick' that can quickly reset some of the mental states traders can get into.

Aug 25, 2017

You may have noticed over the past few weeks of 'Thursday Trading Thoughts' that we’ve been following a theme.

In episode 113 we heard about a test Kevin Davey calls the ‘Monkey test’, which can be used to measure the effectiveness of entries and exits.

Then in episode 114 we reviewed a technique that Dave Bergstrom shared to measure the decay of a trading edge so that we can determine when an edge has gone, and not overstay our welcome at the party.

In this weeks trading thought we’re going to discuss the process of combining edges, filters, conditions into a trading system.

A common practice when building trading strategies is to combine indicators or filters to see how that particular combination impacts performance, however this practice can be overused or abused, leading to curvefit strategies that don’t perform so well in live trading.

In today’s episode we're going to hear one solution for this problem, from our guest Art Collins, who is going to tell us the process he uses to combine edges while reducing the risk of overfitting, so let's hear from Art.

Aug 20, 2017

Glad you could join us today for our chat about intelligent systems that maintain themselves.

Sounds good doesn’t it?

Well actually, that’s not all we’re going to discuss today, we’ve got so much more than that.

Our guest for this episode is David Stendahl, from Signal Trading Group.

David is a CTA with more than 20 years of experience designing and trading systems, and not only is he an international speaker and the author of 4 books but he also co-created the backtester in Tradestation many years ago.

In this episode he’s got a lot to share with us, here are just some of the points we cover:

  • How to build intelligence into trading strategies so they dynamically adjust and maintain themselves over time,
  • The key to portfolio construction and the major factors to consider for effective diversification,
  • Why it can be better NOT to specialise in a particular market,
  • The main drivers behind strategies that have lasted more than 10 years in the markets,
  • How to assess if a strategy suits your personality.
Aug 18, 2017

Last week we reviewed a technique Kevin Davey shared to measure the effectiveness of entries and exits using something he calls ‘the monkey test’.

This week we’re going to look at entries and exits from a slightly different angle:

  • How can we measure a trading edge after we’ve entered a trade,
  • Is it possible to identify when that edge has disappeared so we can consider exiting the trade rather than overstaying our welcome?

In this episode we’re going to review a technique that Dave Bergstrom uses to measure the decay of a trading edge.

We pick up the conversation talking about validating trading strategies for robustness, take a listen!

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