Dump it Here

[Skate]

Arrgh! Don't remind me about 2011.
Apologies as I'm not posting results of a backtest. I'm happy sharing my real time performance for that time because I learned something very important.

I established my SMSF in June 07 and decided to manage it myself. As a complete newbie I handled the GFC like a champ. My market filter kept me safely out of the market and when the market recovered I pounced on the opportunities. I was into my fourth year of managing my SMSF and was feeling really good about my performance.
View attachment 101083 Then, 2011 started. This was the year of my max DD -17%.
I struggled to beat the market. I didn't stand aside like I did during the GFC but traded through it. What a dummy. From champ to chump. The DD happened in slow motion and I didn't see it happening.

View attachment 101084

@peter2, thanks for the raw post. I would say we have both learnt lessons from 2011 even though yours carried a financial burden. It appears luck was on my side as my trading career didn’t start until July 2015.

My comment to the systematic traders and wannabe systematic traders is that you don't know how you're going to handle yourself in a larger draw down situation until you've traded through one and come out the other side.

Backtest draw downs are meaningless. They're just numbers. It's vital that you stick to your proven systems when you experience a draw down like we're all going through currently. The current fall in the market is putting us to the test. It's a good opportunity to see if we've got what it takes to be profitable traders.

On the money
Your last post sums the current situation up perfectly, well done. The rapid decline of the last few weeks has caught everyone by surprise. Weekly systematic traders would have felt the burn that was unavoidable. My posts today reinforces why a trading plan is critical to our survival while reinforcing why a trading plan trumps a trading strategy.

Skate.

 

[Skate]

@Skate 's post prompted me to see how my MAP Strategy fared during the 2011 down turn.
Below are the backtest results. As @peter2 rightly noted these are just numbers and mean nothing unless I am able to stick to my system. They, however, give me confidence to trade this system!

Backtest settings:
Portfolio: $30,000
Positions: 20
Commission: $6.60
Start Date: 1/7/2010
End Date: 30/6/2012
View attachment 101085

@Saqeeb, thank you for posting your backtest results & you should have confidence in your strategy. There are trading period where even the best strategies struggle against the tide.

Comparison between our MAP Strategy
IMHO, the reason why our results vary maybe due to (a) the added protection a StaleStop exit that’s included in my MAP Strategy. The StaleStop exit affords me the luxury of getting off a position quicker than most. (b) Another reason might be the inclusion of a ranking filter not only of the trend but also of individual positions - filtering the wheat from the chaff before making it to the buy condition.

Skate.

 

[Newt]

I'm curious Skate - the PP strategy results you posted seem to have sailed through that period better than CAM and MAP, or am I mis-reading?

Here's some results from my current strategy over that difficult period, on historical All Ords, $300k, 20 positions:

 

[qldfrog]

acid test:

300k 20 pos I reinvest using
SetPositionSize( 100 / maxOpenPositions, spsPercentOfEquity ); // Fixed Fractional Sizing
System 1my oldest live one) CAM based supposedly conservative entry



System2: CAM twist live, more dynamic and winding down as replaced by BBand




New system BBand with a twist (ramping up):




hope it helps

 

[Warr87]

 

[qldfrog]

Noticed bband graph not up?I will add the graph again asap
This reflection is must welcomed as I wonder if I should wind down system2 with better paper results or my old faithful system1 both live at the moment:
Go with the bright new mistress or keep the older faithful wife..;-)

 

[qldfrog]

new BBand system

 

[Newt]

One of the indicators I put up on my Equity curve backtests is a count of weeks in DD. The depletion of "trading morale capital" will of course depend on how deep but also how long a DD lasts. Another tool for judging "would I really be able to keep trading consistently through such a period?".

I wonder what is the lesser evil - a strategy the quietly keeps making new highs or stays flat in this difficult period, or acceptance of a more aggressive strategy that surges quickly to significant new high but suffers a much larger DD in the difficult period (then hopefully surges aggressively to significant new highs in 2012 onwards)?

While we're flirting with mistresses here is my weekly strategy on its usual universe (full ASX listed and delisted) with slippage modelling turned off. I love the curves of my mistress in 2010 and 2012, but try not to notice the lengthy acid test DD length and depth bump in the middle.....

p.s. if change to usual 15 positions (versus 20 shown here), equity pushes a bit higher up to $1m before finishing around $958k. Time to stop flirting and daydreaming now.....

 

[Skate]

One of the indicators I put up on my Equity curve backtests is a count of weeks in DD. The depletion of "trading morale capital" will of course depend on how deep but also how long a DD lasts. Another tool for judging "would I really be able to keep trading consistently through such a period?".

@Newt, that is also an important metric for me as well. It's so important I have it coded into all my strategies having it displayed in every "Exploration Analysis" report.

I'm curious Skate - the PP strategy results you posted seem to have sailed through that period better than CAM and MAP, or am I mis-reading?

@Newt - here's the rub. On face value the "Pocket Pivot" Strategy looks an outright winner. I measure a strategy worth by the consistency of the results not the profitability of a strategy. With all strategies there is a trade off between the two. I personally find the "consistency metric" the easiest to trade & live with.

Warning
This is going to be a boring long post to many but staying with me will give an insight into the amount of research that goes into any report.

Let's talk about flaws
Backtesting O'Neil's methodology raised a few concerns (inherent flaws IMO) but what saved O'Neil trading a "Pocket Pivot" strategy was his ability to make judgement calls using his experience leading him to "take some signals while bypassing others" - that was "IMHO" his secret in trading the "Pocket Pivot" strategy with success.

O'Neils saving grace
What saved the day for O'Neil was his ability to pick which signals that had the best chance of a follow through, a visual of the charts & what he gleaned was held tightly to his chest & rarely discussed. Now combine that with his uncanny ability to have a "feel" for the markets & his unique way of reading charts & the market direction - the gift he has honed over many years of trading. I now better understand when one of his disciples made a quote "trading his own account" that he had to endure a few "massive drawdowns" including some over 50% highlighting one of those flaws.

"Pocket Pivot"
O'Neil used a "Pocket Pivots" strategy to find initial candidates than they were filtered in a discretionary manner. O'Neil's ability to read a chart ultimately decided the timing of the entry. Many times O'Neil refers to a "base formation & strength of the position within a consolidation period".

Research
While I was researching "Pocket Pivots" it was apparent there are multiple ways to calculate the "Pocket Pivots" & as they say "all roads lead to Rome". As there are many different ways to code "Pocket Pivots" entry signal I decided on the most basic, passing up the more elaborate ways to get to the same place. @peter2 in a previous post gave an alternative view regarding how the entry makes a difference to the RR. (alternative views are the heart & soul of this thread)

It's worth repeating
O'Neil used the "base formation & strength of the position within a consolidation period" to enter a position from support, not a breakout from resistance. Entering a position from resistance is the most common way being utilised by current crop of traders. I've tested most of the common entry conditions off the "Pocket Pivots" leading me to the conclusion of "entering a position off support rather than resistance" I believe this is the best use of the "Pocket Pivot" indicator.

Staying true
When I coded my "Pocket Pivot" Strategy I stayed true to O'Neil's original concept of buying from a consolidation period - whereas I enter a position off a "secondary support". Yes, my code uses two "Support" lines. The first support (S1) is the consolidation period, the second support line (S2) demonstrates the strength of the position in the consolidation period. When the second support is breached this generates the buy signal. This was O'Neil's secret that I found the most difficult to code. O'Neil gauged the strength of a position by looking at the charts, using his wealth of experience.

Remarks about the charts
I'm posting two charts, the first chart is the "Pocket Pivots" strategy so you can see why O'Neil prefered buying in a "consolidation zone" picking the move "before the breakout" ensuring a higher RR ratio. The second chart is the "1st Green Bar CAM Strategy" buying the breakout as discussed by Peter in his previous post. (NEXT: I'll make a few additional comments that Peter has raised in my next post)

Bullet points
1. O'Neil would sit in a consolidation zone for lengthy periods if the underlying strength of the position was being maintained (evident by the chart)
2. My StaleStop exit "is not time dependent" as mentioned recently. My StaleStop exit code uses a few metrics to measure & ultimately deciding when momentum is slowing, stagnating, stopped or heaven forbid "retreating" to generate an exit signal. FYI - my StaleStop is not time dependant - it's a woven part of my Looping trailing stop.
3. The charts - As they say: "a picture paints a thousand words"


# The O'Neil methodology of the Pocket Pivot Strategy (Enters off support)







# The 1st Green Bar CAM Strategy (Enters on a confirmed Breakout)




Skate.

 

[Skate]

Thanks for sharing this project on "pocket pivots". I was interested in how you were going to code the pocket pivot (PP) The PP seems to be a better entry into a trend than the regular break-out of horizontal resistance.

The Entry
"The "Pocket Pivots" seems to be a better entry into a trend than the regular break-out of horizontal resistance", Pete you nailed it..

Talk is cheap
We are all conditioned to believe when starting out on our trading journey to "Buy low & Sell high" & on face value the statement resonates with most - having merit - "but" - they never explain "how to do it". Shame on them.

Summing up the differences
(a) The "Pocket Pivots" Strategy someways goes to rectify how to "Buy low & Sell high" by calculating Pivot Points that form Support & Resistance areas on a chart. O'Neil's novel way of entering was off "support" giving him the "Buy Low" part of the equation whereas selling positions off the Resistance gave him the "Sell High" part.
(b) All Breakout Strategies - "buy high & sell higher", well that's the plan.

FYI
Over a 7 year period O'Neil's Trading Strategy made an average of "110% per annum" proving the worth of trading a "Pocket Pivots" Strategy.

The PPs are easily seen in hindsight but coding them was difficult. Some PPs are the same as a BO-HR bar, some are indicated by the CAM blue or green bars and others are marked by the MAP and P2 alerts. As mentioned, some of the PPs are the BO-HR bars while others appear in the first shallow price pull-back that tests the prior BO.

@peter2 gave alternative views how "Pocket Pivots" can enter a position making a direct reference to the "blue & green bars" of the CAM Strategy. It's noteworthy to understand O'Neil entered multiple times after the initial entry using the (consolidation period method). Pyramiding into current positions (on pullbacks within the trend) had a multiplying factor on his returns.

The PPs that provide the best RR form below the HR and "before the BO" (MAP, CAM-blue). Your Hybrid system with its triple setups probably finds a lot of PPs and this contributes to its overall success.

O'Neil knew
"The "Pocket Pivots" provide "the best RR" form below the HR and "before the BO" - Pete, you nailed it again..

Skate.

 

[rnr]

Hi @Skate,

If you don't mind me asking, how did you deal with O'Neil's volume requirement used to define his "Pocket Pivot"?

Cheers,
Rob

 

[Newt]

Warr87, I see you provided MEGAN and Expectancy in your results. Skate has spoken on these before, but I have to confess I'm yet to "get it". Is MEGAN relevant to this currently thread direction about comparing backtest performance over historically difficult periods? Tried again today, but need more caffeine perhaps:
http://traders.com/Documentation/FEEDbk_docs/2009/01/cagigas.html

I suspect backtesting is a bit like strategies - there is obviously no one perfect metric that encapsulates all aspects of performance. Over a long period we gradually learn which backtest metrics provide insight into aspects of our strategy that were built in to match our goals and personality. I'm fairly sure there will always be something new to learn about Amibroker. My current level of knowledge leads me to emphasise these aspects in backtests I suppose:

1. What is the risk of going broke? (e.g. in a Monto Carlo run how often, hopefully never, does the strategy go broke, or exceed a max acceptable DD level)
2. What is the risk of losing faith (failing to continue following strategy signals) - %DD and length of DD typically very important here
3. What is average CAR over an extended period of poor and excellent momentum trading time periods?
(4. What is performance over GFC)
5. How smooth is equity curve, what is ratio of average profit/loss
?????

Incidentally, Amibroker is insanely helpful with backtest reports. Depending on your directory and backup structure, you probably have ever single backtest report you've even run if you do looking for the directly.

Looking at what I was doing in the first 6 months of owning Amibroker, I now just shake my head - wish I could go back and slap myself over the noggin.....

 

[Skate]

Hi @Skate, If you don't mind me asking, how did you deal with O'Neil's volume requirement used to define his "Pocket Pivot"?
Cheers,
Rob

@rnr, when reading my answer bear in mind O'Neil was trading in a different era not to mention a different market. Translating the "Pocket Pivot" codes came down to: "horses for courses".

Nuances
There are a few nuances that O'Neil uses that doesn't transfer over well into our market (the "All Ordinaries") in particular Volume & Liquidity compared to the US markets. Volume & Liquidity was one of his primary objectives, going into great detail explaining that his "Pocket Pivots" Strategy was only suited when Volume & Liquidity volumes exceeded the average - also these few bullet points added to his overall results:

(a) Only trading in a trending bull market,
(b) Trading only the most liquid of stocks (meaning the top stocks by market capitalisation),
(c) Volume & Liquidity had to exceed their previous levels over the last nPeriods (meaning they had to be trading in excessive of their average) &
(d) Discretionary calls for taking positions, O'Neil by "my definition" was a "cafeteria trader" - picking & choosing which position to enter & which positions to pass by.

Liquidity & volatility
With all this being considered his methodology wouldn't work in our markets because the liquidity & volatility is lacking in our top stocks. (without volatility you have nothing)

There was a fine line
I understand where O'Neil made his money trading a "Pocket Pivot" strategy - let me quickly explain how

How?
(1) By trading large cap (long & short)
(2) Pyramiding into a trend using pullbacks (something I'm not a fan of)
(3) Excessive Volume & Liquidity was also a requirement (O'Neil's sizing model fails to translate into our markets)

I did my best
I coded O'Neil original idea from the book, using all the filters that are applicable to our markets being of the garden variety type: a Price Filter, a Turn Over Filter, a Volume Filter, a Rate of Change Filter & now the all important addition of a "Strength Filter". The concept of my "Pocket Pivot" strategy is as close to O'Neil's ideal as possible. My final "Pocket Pivot" strategy is now tuned to our markets. The backtests results of my "Pocket Pivot" strategy are impressive - but - at other times it can suffer a series of disastrous trades because of the strength of a trend at times. The "Pocket Pivot" strategy performs at it's best under strong trending markets. It's similar to having a thoroughbred that prefers a wet track (when racing or trading you don't get to pick the ideal situation that suits your "race horse" or "your strategy")

What I have found
If you follow O'Neils exit rules it's a surefire way to disaster

Here's the rub
Trading O'Neil's "Pocket Pivot" strategy without modifications or my StaleStop exit you would need "nerves of steel" or at least have a heart as big as "Phar Lap"

Final observation
"The premise of the pocket pivot is simple, buying the bottom of a constructive base could offer optimal, low-risk entry points to begin taking a position, particularly if the stock is a proven market leader. The pocket pivot can give an investor a head start where standard breakouts are more often “fake outs” the pocket pivot buy point technique can get an investor into a stock at a lower-risk price point and thereby make it more possible for the investor to sit through a pullback if the all-too-obvious new- high breakout buy point fails initially and the stock retrenches, corrects, or sells off"

Skate.

 

[Warr87]

Warr87, I see you provided MEGAN and Expectancy in your results. Skate has spoken on these before, but I have to confess I'm yet to "get it". Is MEGAN relevant to this currently thread direction about comparing backtest performance over historically difficult periods? Tried again today, but need more caffeine perhaps:
http://traders.com/Documentation/FEEDbk_docs/2009/01/cagigas.html

I suspect backtesting is a bit like strategies - there is obviously no one perfect metric that encapsulates all aspects of performance. Over a long period we gradually learn which backtest metrics provide insight into aspects of our strategy that were built in to match our goals and personality. I'm fairly sure there will always be something new to learn about Amibroker. My current level of knowledge leads me to emphasise these aspects in backtests I suppose:

1. What is the risk of going broke? (e.g. in a Monto Carlo run how often, hopefully never, does the strategy go broke, or exceed a max acceptable DD level)
2. What is the risk of losing faith (failing to continue following strategy signals) - %DD and length of DD typically very important here
3. What is average CAR over an extended period of poor and excellent momentum trading time periods?
(4. What is performance over GFC)
5. How smooth is equity curve, what is ratio of average profit/loss
?????

Incidentally, Amibroker is insanely helpful with backtest reports. Depending on your directory and backup structure, you probably have ever single backtest report you've even run if you do looking for the directly.

Looking at what I was doing in the first 6 months of owning Amibroker, I now just shake my head - wish I could go back and slap myself over the noggin.....

I think @Skate would be better explaining the importance of the MEGAN ratio. I added it as a standard to all of my backtests.

I am also very interested in points #1 & 2. I don't find AB's MC to be entirely useful, including the risk of ruin. This is something particularly useful for evaluating a system. I also didn't think of adding #2. That would also be a good metric to add in the evaluation of a system.

If you have a way to add these metrics into your backtest results, let me know.

 

[Skate]

I think @Skate would be better explaining the importance of the MEGAN ratio.

@Warr87 to save me making another post I’ll hyperlinks a few of my previous posts on the subject for those who are interested.

https://www.aussiestockforums.com/posts/1052081/ & here https://www.aussiestockforums.com/posts/1052241/ & here
https://www.aussiestockforums.com/posts/1052249/

Skate.

 

[Saqeeb]

Week 3 weekly update on my MAP paper trading portfolio.

BUYS:
No buys for this week

SELLS:
2 sells this week - APD and MNY
This leaves my portfolio with just 2 open positions.

 

[Nina4]

I'm loving the conversations during this downturn.
Been tramping in NZ and won't be back for a few weeks.
Trying to keep informed when I have internet.
Thanks to all contributors.

 

[Skate]

I'm loving the conversations during this downturn. Been tramping in NZ and won't be back for a few weeks. Trying to keep informed when I have internet. Thanks to all contributors.

These last few weeks of trading have been significant and concerning & the longer it lasts the more market & economic damage will be done. Today's panic selling reinforces that most of us don’t know what the long term impact are going to have on the markets, let alone our market. It's this uncertainty that is having the greatest impact but "we may not have seen nothing yet" compared to interruption to global supply chains. The ongoing interruption & knock on effects to global supply chains may result in further corrections to not only our market but markets in general around the world. Combine all our current issues impacting us as a society the images I'm seeing on the TV & the markets are understandable. The longer it takes to contain the spread of the virus the longer it will take to restore confidence for markets to turn the corner & start to improve.



Skate.

 

[Skate]

Let's talk about something other than doom & gloom
We have a new member @jmbonni who recently started a new thread "djia-next-day-forecast" - on face value it appears to me to be an interesting topic. The charts posted in his thread are attempting to look into the future predicting a forward looking pattern.

So let's talk about patterns
While on the topic of patterns & pattern recognition it maybe the perfect opportunity to discuss the value they may hold. Machine Learning has been discussed in other threads & lightly touched on in "Dump it here" thread so a follow-up post maybe in order. The advances being made in the medical industry combining that with Neutral Networks this may be the future of trading as we know it. My apologies in advance - my comments below have already been made in the "djia-next-day-forecast" thread, but worthy of repeating to keep most of my posts corralled in one thread.

Trading applications
Pattern, chart patterns in particular & how they apply when it comes to trading plays a large part in how I trade. As a mechanical system trader I'm constantly looking for repeatable chart patterns that can be coded & backtested confirming the validity, profitability & if that pattern can be turned into a trading strategy.

Chart Patterns
Patterns are everywhere. Some Patterns are deadly leading us into making a poor or wrong decisions. In the picture below Knowing that these two tables are "EXACTLY" the same size - why won't our mind allow us to see it. Sometimes what we see our mind reality not align for us.



Stocks are just like people
Understanding traders past behaviour, may allow you to predict their future behaviour. Stocks are just like people, because that is who makes them look the way they do. The buying and selling creates an emotional ebb and flow pattern & just like people, stocks can be unpredictable, but certain emotions and behaviours do occur regularly. Chart patterns tell us a story of what happened in the past but unfortunately not will happen tomorrow.

We see patterns everywhere
Humans have a unique ability to spot patterns that has been fine tuned by evolution & we superbly adapted to understand the visual world. Pattern recognition is for our survival as a species & it's the very reason a cloud formation looks like a bunny or Elvis. Sometimes our mind deceives us presenting pattern when in fact there isn't any. We unconsciously take for granted how good we are we at making sense of what our eyes show us & sometimes we don't appreciate how tough sometimes being shown a new patterns without an explanation is difficult for our visual system to solve.

A few squiggles & the patterns needs no explanation
Looking at the squiggles below, you will start to see a pattern - your mind will be jumping to conclusions - trying to understand what the pattern is.

Is your mind guessing - what does the squiggles look like to you?



Skate.

 

[Saqeeb]

Is your mind guessing - what does the squiggles look like to you?

View attachment 101133

Skate.[/QUOTE]

Our mind is obviously tricked into recognising the pattern as the body of a zebra, but with a lot of effort and concentration you can also see a face within the squiggles towards the right side of the image. Our brains tend to assume the pattern from the larger picture unless we force it to look at the smaller details.