theasxgorilla
Problem solved... next bubble.
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Amibroker, love it.
What development platforms are forum members using?
I'm not going to reveal my system but perhaps you can dissect tech/a's TechTrader for the general population. However, why don't you select 10 common stocks - preferably at random - and I'll run my system over them and report back. This is not a pishing contest - I just disagree with your statements.If you know of, or find, trend following systems that work for the majority of common stocks, please let us in on the techniques
dissect tech/a's TechTrader for the general population.
Hi Nick --
I agree that simplistic systems, particularly when applied to long term holding periods, are unlikely to work well. They are too easily implemented. If it turns out that one is trading profitably, there are a lot of people who will notice, begin trading that system, and quickly remove the inefficiency that system recognizes.
Surely if many systems are identifying the same stocks on the same days for trading purposes, then (as long as we follow our systems without question & tampering) then this will surely only help to increase the chances of those stocks moving in our favour?
Well if several systems were to buy the opening price of the same stock on the same day, and as such the buy side would be stacked when the market opens (as it would open much higher than if few people were going to buy the stock) then extra consideration must be given to slippage.
But we can incorporate this into our trading simulations with tradesim (market order instead of default order).
Though it shouldnt matter a great deal if you are dealing with liquid stocks (liquidity filter) and if you are a small player (which i am, but hey you gotta start somewhere)
I use metastock/tradesim.
Amibroker i did consider it, but decided the formula language would be too hard to learn.
We dont all have degrees in computer science
nizar said:Though it shouldnt matter a great deal if you are dealing with liquid stocks (liquidity filter) and if you are a small player (which i am, but hey you gotta start somewhere)
Please go ahead.
I personally would like to know why it works when it evidently shouldnt .
Particularly as I have traded it and 2 similar.
Greetings --
If I am trading a group of common stocks, the group must have been selected by some process. Selection of tickers to include must be subject to the same procedures as selection of parameters for a model. The system is a trading model that will be applied to all issues in the group, plus the price and volume series for the issues in that group.
Focusing on the system that is made up of a model and a group of common stocks. During the process of developing the system, I will see that some days there are more buy signals than I have funds to cover. The system must recognize that and handle it as part of the system. There must be some mechanical way of assigning a score to each individual signal, then taking positions in those stocks with the highest scores.
AmiBroker does this in a two step process, all within one system. The model is run over all the tickers in the group. Say the group consists of 20 stocks, each a candidate for a signal to buy, sell, or be flat. I decide ahead of time, and build into my system, how many positions I wish to hold at any given time; say it is five. Assume I am trading using end-of-day data and taking positions at the next day's open. At the end of each day, I run the system. If there are sell signals for stocks I own, those will be sold at the next open. If there are buy signals for stocks I do not own, say there are seven buy signals, each individual signal will be assigned a number called its PositionScore. If there are positions available after the sales, say three, then orders will be placed to buy three stocks -- the three chosen from among the seven are the three with the top PositionScore values. The system knows how to do this and all I see (unless I want to see the deeper details) are the Sell and Buy orders for those tickers that the system chooses.
www.quantitativetradingsystems.com
I'll pre-empt a response from Howard and have a go:
* Start date bias
Unknown at the start date
* Leveraged exposure to a strong and protracted bull market
Thats the way it was designed it performed as expected.
* Non-cap-weighted exposure to the market leading to index out-performance
Hmm dont know that anyone would weight their positions to capitalisation---do people do that?
* Price filter encourages taking positions in what are likely to be lower liquidity issues with inherently greater growth potential
The universe approximates the ASX 300,greater growth is excellent seems then to be within the system.
* Discretionary entry trigger over-ride may have added some performance edge
May do but it still performs within the maximum parameters returned in Montecarlo testing.
ASX.G
Even so I dont think this explains WHY this system succeeds.
It only points out some conditions of the system and past conditions of the market which have contributed to its performance.Many other systems have failed even during this bull market.
The market conditions of the last 5 yrs are exactly the conditions the system was designed for.
As far as I'm concerned job done!
* Start date bias
Unknown at the start date
Understood. A linear regressed line through the equity curve might help address this.
* Non-cap-weighted exposure to the market leading to index out-performance
Hmm dont know that anyone would weight their positions to capitalisation---do people do that?
Heard of an index fund? Mutual funds look a lot more like the index than a trend following stock system with 10 - 20 equal sized positions that also avoids the ASX50 altogether, by design. You bet people do it, and it's a hand brake on performance. Therefore, not doing it is an edge and IMO a reason why a system like TechTrader works.
* Discretionary entry trigger over-ride may have added some performance edge
May do but it still performs within the maximum parameters returned in Montecarlo testing.
Does this mean you helped walk the system through a superior equity curve path as it was traded forward? Perhaps you could Monte Carlo the traded period of TechTrader and compare the public result with the distribution of CAGR and MaxDD observed during testing.
I don't see anything magestic about it beyond the things I've already pointed it.
Nor do I.
The biggest kick I get out of it is that its simplicity and public performance pissses the hell out of a lot of people who would love to have seen it fail miserably.
I'll say it again its not that hard.
Humans have the capacity of turning the most simple into the most complex.
It may not be that hard for some but there are 2 things that make it hard for us normal irrational humans. Firstly our emotions and, secondly, we don't really know what is going on - what the psychologists call "cognitive difficulties" .
The lines on a computer generated equity curve don't convey the emotional turmoil when a trader hits a 20% plus drawdown - "what if my system doesn't really work", "what will happen tomorrow, is this 1929 / 1987 all over again" or "I am going to lose all my money" etc. We see this sort of navel gazing on these forums.
tech trader is a great exercise. Ideally people get to understand it, do some system testing themselves, run through the signals it has given in the past and get a handle on what they are getting into. I am sure that lots of people have gained a huge amount of knowledge from understanding tech trader better.
I would rather not be tech/a to all those traders that see it as a pot of gold but have no idea how it works. The first big drawdownwill see them blaming everyone else and probably abandoning the system because it doesn't work - probably just before it takes off again!
I have seen it happen in a small way with a friend, although he just over-rides the system because he has a "feel" for the markets and doesn't need it anymore. Supreme confidence, most of us think that we are god when it comes to the markets
I know my ability to trade by gut feel and animal cunning - no chance!
I personally believe that simplicity is vastly over-rated, but then I ignore most of the market information and look for a solution based on incomplete knowledge.:
Enough of my ranting.
stevo
T/T is at an interesting phase now with only a few open positions, a great deal of cash and still within its blueprint.More learning will come I'm sure.
* Non-cap-weighted exposure to the market leading to index out-performance
Hmm dont know that anyone would weight their positions to capitalisation---do people do that?
Heard of an index fund? Mutual funds look a lot more like the index than a trend following stock system with 10 - 20 equal sized positions that also avoids the ASX50 altogether, by design. You bet people do it, and it's a hand brake on performance. Therefore, not doing it is an edge and IMO a reason why a system like TechTrader works.
Victor Niederhoffer Reviews 'Does Trend Following Work On Stocks?'
This paper, by Cole Wilcox and Eric Crittenden of Blackstar Funds, makes a worthy and thoughtful effort to answer the question of whether it's possible to devise a trend following method that works in stocks. Their method is to buy stocks at all time highs then they sell them after a 20% decline or so using the true range as a cut-off to sensitize. In order to do a valid study of such a phenomenon they have had to be careful to adjust properly for survival bias. They do this taking account of all NYSE, AMEX, and NASDAQ stocks listed and de-listed from 1983-2004.
Their results show that $1000 would have grown to some $30,000 during the period. Results for the years 2003 and 2004 of 55% return and 27% return are particularly impressive.
The defects of the study are that they do not show the statistical significance of their results. Small stocks performed much better than big stocks during the latter part of the period. It is not clear that buying the average stock in the category that they found the new highs from, and selling an average stock or a matched stock next to it in price would not have yielded very similar results. More to the point, I hypothesize that buying stocks that were 10% off their high, or at a new low, with similar inclusion criteria, would have come up with as good results. Finally, the inclusion of companies with lower than $250,000 daily trading volumes in the study makes the results unobtainable for those who would wish to implement it with reasonable new money.
While these are serious objections, they are of the armchair variety. We have tested similar strategies on big groups of stocks like the S&P500 and found it produces random results. That is just the point the researchers say, the small stocks are the ones that give the superior returns.
We must compliment the authors on a true attempt to find out the nitty-gritty of the market . Further work in the field by them and us will undoubtedly clarify the issues.
Eric Crittendon Replies:
I believe the following statement is in error:
"Finally, the inclusion of companies with lower than $250,000 daily trading volumes in the study makes the results unobtainable for those who would wish to implement it with reasonable new money."
The last paragraph of the paper goes into detail. Stocks with daily dollar volume that low would not have passed our filter.
The origin of this project was a data mining test on NASDAQ only stocks to find effective stops using a random entry method (that was back in 2001). We found several methods that were effective through various market cycles; all were derivatives of volatility, however. The stops we present in the paper are the most bland and easiest to understand. It is my nature to know what our "total wash out" risk (a.k.a. total portfolio risk) is and be comfortable with it. Without stops, and their aggregate remaining risk across all positions, I can't quantify this value. Under the assumptions in the paper we would have nearly realized this loss, being stopped out of almost 90% of our positions during the crash of 1987. I expect crashes to happen and wish to live through them. The entire system depends upon this reference point, total portfolio risk. It is calculated daily for existing and new (buy tomorrow) positions and becomes an independent variable input into a utility function that, in turn, specifies how much should be risked on each position. New positions are sized accordingly and existing positions are resized (both up and down) if they are out of alignment by a significant margin (determined by yet another utility function). The circular reference repeats every day. In this way we are able to honor every trade and control total portfolio risk. So, you can see my inability to provide portfolio performance results without the use of stops.
When restricted to the S&P 500 we found an inverse relationship between the tendency to have substantial and prolonged % moves and market capitalization. Intuitively this made sense to us as index members have already experienced the market cap growth necessary to get into the index. Also, index members tend to offer transparency that is communicated in real time by an army of analysts and research reports. Furthermore, their business models tend to be overly diversified relative to small/medium companies. Additionally, there is typically millions of dollars bid and millions asked just cents away from the prevailing price at any given time. It seems only an accounting scandal, speculative mania, or major market shock can provide the fuel for outlier moves. That being said, we don't discriminate against them; we are just happy that there are so many more small and mid-cap companies to buy.
Alston Mabry Adds:
The chart comparing their Trend System to the S&P over the period January '91 to January '95 reminds me of a chart comparing the VAY to the S&P over the same period. Most importantly, the bulk of the Trend System outperformance occurred in the period January '03 to January '05, during which the Trend System essentially doubled. The VAY essentially doubled in that same period, so one could make the case that Trend System results are hard to distinguish from the results of a randomly-selected, equal-weighted portfolio, or at least that the mean and standard deviation of the returns of such a portfolio should be the benchmark for the Trend System, rather than a cap-weighted index.
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