I am planning on launching a new set focused on candlestick analysis (see that announcement here). This set run the ETH Moonshot X algorithm and include my own discretionary input using candlestick analysis.
The way this new set works is simple, it will be based on the same ETH Moonshot X algorithm but will allow me to override the balancing of the set if my discretionary analysis is in disagreement with it. The idea behind using both mechanic trading rules in addition with the traders own experience and discretion is to improve the performance of the rules-based system and increase alpha.
This overriding will be seen in one of two different ways. The first is preemptively making a trade. This would be if my algorithm is close to signally a buy or sell but my candlestick analysis is showing a clear indication that buy or sell, then I would pre-emptively perform the rebalance. The hope is that this would remove some of the “lag” in the indicator and get into the trade at a better cost-basis. The risk is that the discretionary intervention of a specific trade actually reduces the performance of the trade rather than improving it.
The second way I would override the algorithm would be to ignore or delay a signal. If the algorithm threw a signal to either buy or sell and my candlestick analysis was in direct disagreement with that signal, I could choose to ignore or delay the signal until my discretionary analysis came into agreement with it. The hope is that this would reduce whipsawing of the algorithm. The risk is that the discretionary intervention of a specific trade actually reduces the performance of the trade rather than improving it.