# Simple discretionary system



## Gringotts Bank (7 May 2012)

Use a low lag MA, plotted on the lows, period about 10.

Higher highs and higher lows will be used to identify a stock that is trending,  ie., the stock's last MA trough is higher than the previous one, AND the last MA peak is higher than the previous one.  

Ensure that the distance between the troughs and peaks is at least 10 days.

Now buy any time the SP is above the MA.

Sell when the close crosses the MA(Low, 10).

You can encode this, but discretionary is better.  Have your fear and greed in check for best results.


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## Gringotts Bank (7 May 2012)

_"Now buy any time the SP is above the MA"._

This should read: "Now buy at the most recent upturn of the MA".

With this approach, winners are allowed to run and losers are kept small.  The longer the period between peaks and troughs, and the higher the % change between peaks and troughs, the more reliable the signal.  

I put this up for anyone who doesn't have the time to devote to developing a mechanical system.  It can work just as well, if not better than a mechanical system, particularly if you have your trading mojo working.

A good example.  They aren't all like this, obviously.


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## CanOz (7 May 2012)

So how do you know it makes money overall? TF systems are great when there are trends but they chopped up in ranging markets. 

That's the great thing about coding, you can at least determine if the system ever WAS profitable in the first place.

CanOz


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## Gringotts Bank (7 May 2012)

I'm just trying to find the code now.  I have actually coded it before.


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## sinner (7 May 2012)

Hey GB,

You should definitely read this paper

"The Cross-Sectional Profitability of Technical Analysis" by Han.

It might be hard to implement the strategy exactly as specified, but I have a feeling one could successfully apply the same principle to a much smaller universe with good results. I have done a small backtest on the principle using high beta stocks.


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## tech/a (7 May 2012)

CanOz said:


> So how do you know it makes money overall? TF systems are great when there are trends but they chopped up in ranging markets.
> 
> That's the great thing about coding, you can at least determine if the system ever WAS profitable in the first place.
> 
> CanOz




If this can make a profit over even 12 mths 
I'll dress as a human for 12 mths!


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## Gringotts Bank (7 May 2012)

I thought you'd have me on ignore after my rant the other day sinner (my apologies).

Some of the body of that paper is well over my head, but I'm gathering that a MA can be quite useful if applied to low volatility stocks.  If so, the way I estimate that volatility is by looking at the smoothness and "loopiness" of the MA, and having a smoothed indicator (eg. Jurik's JMA) is necessary in order for me to be able to see this.  I certainly can't do that with say the T3.  I think I'd struggle to code the volatility aspect, but maybe average distance form the MA over n bars would do it?

The premier anomaly (momentum) might be broken....!  The Aussie in charge of Porter Capital isn't performing too well I notice.

Thanks.


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## sinner (7 May 2012)

Gringotts Bank said:


> Some of the body of that paper is well over my head, but I'm gathering that a MA can be quite useful if applied to low volatility stocks.




High volatility. Try Highest[N](High)-Lowest[N](Low) > ATR(X)*C



> If this can make a profit over even 12 mths
> I'll dress as a human for 12 mths!



tech, 

For the last 12 months:

Running the 10MA system roughly as outlined in the above paper against the equal weight 100 most high beta components in the SP500 gives a raw return -3.6% after transactions and slippage. 

If you run the same system against the entire equal weight SP500 the raw return is -12%. 

If you run the same system on a market neutral high beta portfolio, the raw return is +4.7%.

No stops, no leverage, each trade 10,000USD.


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## Gringotts Bank (8 May 2012)

This is the system as described at the top.  It makes money, but the whole idea is to use your discretion to trade it more profitably than if you traded it mechanically, by picking and choosing which stocks you enter.

2003-2012
Starting capital: 50K
Position size: $15K
Commission: .11%
Slippage: not included.
% annual return: 21.6% pa


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## kermit345 (10 May 2012)

Had a bit of a play around with what you mentioned in your original post and adjusted it a little bit. My knowledge on a technical's side of things is reasonably poor but I just enjoy messing around with calculations and excel so figured i'd have a play.

Anyhow the results were pretty interesting, unfortunately with how I was playing around in excel could only backtest one stock at a time but if anyone has some interest and wants to code what I came up with into AmiBroker give me a PM. Would be interested to see what the results were on a fully backtested version of what i managed to come up with.

EDIT:

It's important to note that while I was playing around with it the system showed it easily made money when stocks were trending (whether that be buying for the start of an uptrend or staying out of the market during a downtrend).  However as tech/a eluded to earlier in this thread I think its performance in range-bound periods were mediocre. There is probably a HEAP of optimizing you could do to what I came up with but just interested to see what the results would be.


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## CanOz (10 May 2012)

kermit345 said:


> Had a bit of a play around with what you mentioned in your original post and adjusted it a little bit. My knowledge on a technical's side of things is reasonably poor but I just enjoy messing around with calculations and excel so figured i'd have a play.
> 
> Anyhow the results were pretty interesting, unfortunately with how I was playing around in excel could only backtest one stock at a time but if anyone has some interest and wants to code what I came up with into AmiBroker give me a PM. Would be interested to see what the results were on a fully backtested version of what i managed to come up with.
> 
> ...




Throw an ADX on it and see if its any better of the ADX is strong(20+).

CanOz


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## kermit345 (10 May 2012)

Seems like the ADX calc is pretty long to do in excel but after following through a website i go it nutted out. However on the face of it so far it doesn't seem like the ADX adds any value, if anything it seems like the best entries are when the ADX is less then 20 and vice versa.

I'll have to continue to play with it though and see how it goes.


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