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David Bean

System Developer

Program(s) Developed: SR Countertrend Gold

Interviewed by John F. Gallwas - Founder of Striker Securities, Inc.

Capstone Trading Systems is a Dallas based system developer, owned by David Bean a professional trader, who since earning a BS in Electrical Engineering from Texas A&M in 1994 has been trading futures, using systems. He began developing trading systems in 1996. During this period he evolved from trying to build the perfect trading system and hoping they never fail, to developing solid short term day and swing trading systems coupled with strategies to withdraw when a market environment turns hostile.

John Gallwas: David, we understand you have been a trader most of your adult life. Tell us how you evolved to be a system developer.

David Bean: In 1996 I started with Super Charts, a software program from Tradestation, that allowed me to back test strategies on daily bars. I wanted more information about what was going on inside the bars to make sure my back-tests were accurate so I purchased Tradestation.

In 1998 I took an engineering job in California so that I could watch the market open since it opened at 6:30 am on the West Coast (versus 8:30 am in the Central Time Zone) and I could come home at lunch and watch the close at 1 pm before going back to work.

In 2001, I finally took the leap to a full time system trader and left my engineering career. I had developed a portfolio of swing strategies for the S&P futures and I couldn't imagine not being able to trade them live, which required full time monitoring.

One question that I receive is "Why do I offer my trading systems to other traders?". There are several reasons for this. It is a separate business that I can run that closely relates to what I already do. Trading and system development can be a reclusive profession and offering my strategies to other traders provides a social aspect related to this profession. This is turn also provides a positive feedback loop. Even when strategies go through drawdowns, there can be comments from clients that are worth exploring. I enjoy publishing and providing education. Both of my parents are educators/teachers so I believe I inherited some of my desire to provide education and publish strategy ideas.

John Gallwas: Describe the basic market philosophy behind your trading systems and how you time their use to the current market environment?

David Bean: Most of my strategies are day trade while some are swing trading strategies. I develop strategies and combine them in portfolios with three basic concepts. 1.) Use trend and counter trend strategies. 2.) Use strategies that I have had a long time combined with strategies based on new patterns (emerging strategies). 3.) Use strategies that are doing well in the current market (run-up) and combine them with strategies that have done well in the past but are in a drawdown.

I like to keep my strategies as simple as possible based on simple concepts. I keep my code short as a rule to prevent bias and overfitting. I like to use generic parameters and do not use the optimization tool. I usually manually test a few parameters but most of my strategy development is based on graphical observations.

Being able to time when to start a strategy and when to stop a strategy, as well as position sizing can make a big difference in your trading results. A basic approach is to wait for a drawdown but when a strategy like SR CounterTrend Gold hits a series of consecutive winners, you may watch a strategy continue to make equity peaks for 12 months or more while waiting for a drawdown and missing the gains. When it comes to portfolios, I still apply this simple approach of waiting for a small drawdown to start.

When trading individual systems you can do this systematically with an equity curve algorithm (also known as money management algorithms). Applying an equity curve algorithm to your trading system is essentially applying a trading system to your trading system. Equity curve algorithms will "watch" your strategy and apply technical analysis to the trading systems equity curve and trading statistics to determine when to systematically start and stop a trading system.

Simple ideas such as waiting for an equity peak to start or waiting for a drawdown to start or applying moving averages, stochastics, and RSI to your trading systems equity curve are just a few examples of how an equity curve algorithm could be applied to a trading system to test a method for timing when to start and stop a trading strategy.

Since I develop strategies using a minimal number of parameters, I am comfortable adding an additional parameter when applying the equity curve algorithm. General development principles should still apply when using an equity curve algorithm since it increases the number of rules and parameters which can increase the likelihood of overfitting.

Combining individual strategies that use equity curve algorithms into a portfolio is a whole new conversation that requires even greater consideration.

John Gallwas: Your SR Countertrend Gold Trading System, as tracked by Striker, has performed very well. What are your expected risk/ reward parameters for this trading system going forward?

David Bean: It has done well and better that my expectations as the winning percentage in 2017 was higher than the historical average winning percentage. As long as the market environment remains the same, I expect it to continue trading the way it has been trading. Markets do eventually change and then we may have to make adjustments. Knowing what is working and knowing when a pattern stops working or if it is in a normal drawdown can be determined using trading system statistics from the back test or the equity curve algorithm that I previously mentioned.

John Gallwas: Are you working on anything new you share with us now?

David Bean: I test new strategy ideas almost daily. There are two new things I am working on. 1.) Using a high frequency strategy (with average trade profits that are too low to trade live) to determine the direction of the trend for a low frequency strategy that has a higher average trade profit. 2.) Crypto currency algorithms is a hotly debated sector, loved by some and hated by others, has some good trading opportunities. With counter party risk removed as a risk factor with the futures trading on Bitcoin and futures liquidity improving, it can be a market that may provide some incredible trading opportunities based on my early observations.

This interview is for informational purposes only and is not intended to be a solicitation of any kind. Trade only with risk capital. The risk of trading can be substantial and each investor and/or trader must consider whether trading systems are a suitable investment.