Dump it Here

[Skate]

HI Skate (and all) Im just getting back into trading after a 20 year break and spent hours reading this thread on the weekend - very interesting, thanks. Its probably been mentioned, but when backtesting, what 'group' of ASX stocks are you using? eg ASX300, mid caps etc. I dont see any top 100 stocks in your lists (BHP, CBA etc), so interested to know your grouping/s of stocks you consider to trade and back test cheers Marty

Hi @martyjames welcome to the ASF community, a 20-year break is quite a sabbatical. Thank you for reading & making your first post in the "Dump it here" thread.

Question #1
"Its probably been mentioned, but when backtesting, what 'group' of ASX stocks are you using?"
In a nutshell, the "All Ordinaries" index (XAO). The All Ordinaries for me has the right risk/reward combination for good growth, the volatility is a bit of a roller coaster but the rewards are larger with the corresponding disadvantage of higher risk but the risk/reward combination is well suited for the Action Strategy.

Question #2
"I don't see any top 100 stocks in your lists (BHP, CBA etc), so interested to know your grouping/s of stocks you consider to trade and backtest"
In answering your second question I should make a comment about "Filters" & in particular the "Price Filter" parameter that trades in a low tight range between ($0.05 to $10.00) inclusive. Another deciding factor is the "PositionScore" that ultimately decides which trades should be entered by ranking them in numerical order. The PositionScore used in the Action Strategy is proprietary which limits what I can say. However, the Action Strategy ranking system uses an extreme look-back period of the average volatility, using this method means short term minor volatility blips become less relevant in the selection process. The two companies (BHP, CBA) you mentioned are displaying wild volatility swings at the moment but measured of volatility over longer "nPeriod" they don't even rate, volatility normally goes hand in glove with lower returns, something I'm not striving for with the Action Strategy so it's unlikely "larger stocks" will ever be included.

XAO
The All Ordinaries (XAO) comprises of the top 500 companies by market cap & it has a mix of safe, stable & aggressive companies that enjoys a mix of volatility. Indexes above the All Ordinaries have nail-biting volatility & it’s akin to hanging on to a cliff's edge just by your fingertips, meaning trading an Index above the All Ordinaries you’ll require nerves of steel or at the very least you need to be a very hardened punter. The "Action Strategy" is a Weekly system trading the "All Ordinaries" - Turnover, Volume, Acceleration, Momentum & Price are some of the filters used to select the best of the best represented in the XAO index. The "Action Strategy" jumps on confirmed trends riding them as long as possible & jumping off when they lose momentum.

An idea
We all have opinions of what works & what doesn't when it comes to trading but always find it difficult to have the confidence in putting our money on the line trading an idea. After reading @ducati916 posts I set about coding a new strategy that on paper has the ability to make it. The idea coded up well & the strategy has backtested with pleasing results. The new strategy has only a few conditions when to buy & sell.

Markets always bounce around
Hopefully, the Action Strategy can withstand a bit of stress, a bit of turmoil. Periods of high volatility will always come and go, always has and always will. It doesn’t matter what system you are trading the best way to handle volatility is to just accept it by not jumping at shadows, just roll with it & "Dance-to-the-music-being-played".

Skate.

 

[Nina4]

I would like to offer my many thanks to Skate for the effort he has put into this thread.

With the recent down-turn I had time to examine my processes with the aim of getting into a trade earlier.
I had sold my portfolio on the 4th March 2020 as my market filter (Thanks peter2) was looking grim and I was going to be away from my computer for an extended period of time.

Starting with a clean slate, I found inspiration within the excellent contributions of "ducati916" in the "Trading the Bounce" thread. Thank You.

Being a discretionary trader, I put together a weekly system that I was happy with.

As my market filter was still red, I had time to investigate turning my new system into a mechanical one.
I had been hearing Skate "banging on" about mechanical systems long enough that I thought I should at least check it out.
My testing went well and showed positive expectancy. My major requirement.

For uniformity I decided to trial a 20 position, $1000 (including brokerage of $6.60) position size account.

A paper trade for the week starting May 11 is currently sitting at a profit of 5.51%.

I decided to jump in the deep end and go live for the week starting May 18 and had 15 of my 20 orders filled.
Unlike Skate, I use Stop Limit Buy orders. (Thanks to the little black duck that pops in now and again for that idea.)
These were 20 newly scanned symbols.
I have 5 orders in today to hopefully complete the 20 positions. (Edit 3 have filled.)
This account is currently showing a profit of 3.82%.

Several interesting facts have emerged.
The biggest one being stock selection.
I too trade the All Ords universe and of my now 38 scanned stocks NOT ONE matches Skates selection.

So, to recap.
We trade the same universe of 500ish stocks but have totally different selection criteria.
We have different order placement methods. Pre-Market Premium and Stop Limit Buy.
No doubt we will have different exit strategies.

My successful stock selection rate is not much better than 50/50.
I do not rely too much on indicators preferring to focus on price action. (Thanks to Captain Black).
I think that with a positive expectancy trading plan you could almost throw darts to make selections and be successful.

Thanks to all the contributors on these forums for some truly unique ideas.
You only need to find a couple of gems to get started.

My biggest problem now is what to do with my newly acquired free time if I continue this journey.

 

[Skate]

I would like to offer my many thanks to Skate for the effort he has put into this thread. I had been hearing Skate "banging on" about mechanical systems long enough that I thought I should at least check it out. The biggest one being stock selection. I too trade the All Ords universe and of my now 38 scanned stocks NOT ONE matches Skates selection. No doubt we will have different exit strategies. My biggest problem now is what to do with my newly acquired free time if I continue this journey.

@Nina4, what a great post, it was a pleasure to read on many fronts, squeezing in a few "thank you's" along the way, a very nice touch. I've cherry-picked your post & condensed your words into a few & attached them above. Why? because it gives me a reference to respond.

"Banging on"
First off, I agree, I do "bang on" about most things & I do have a habit of not knowing when to stop.

The benefits of trading a mechanical system
Let me reinforce the benefits of trading a mechanical system. The consistency of signals adds to your confidence which lets you keep pulling the trigger even at times of indecision. Some traders find it difficult to understand let alone take the time to learn as you have done. Trading a mechanical system can be a simple endeavour if you are disciplined at following the rules & sticking to your trading plan. When the appropriate signal shows up, place your order & carry on, it couldn't be any simpler.

Stock selection
Focusing on price action is another way of entering a trend & getting into a trend isn't hard at all. There are multiple entry points in a trend & within a trend to choose from each & every week, they come along with such regularity. Buying into strength is critical, price action allows you to do that, sorting the "wheat from the chaff" is a little more difficult to achieve with accuracy that's why PostionScoring the signals is so important, this alone can make or break a strategy.

Timing the exit
Getting into a trend is easier than most traders think especially at the moment. Timing the exit is another matter, that takes finesse & as you say "No doubt we will have different exit strategies", yes, I believe that's a given. I would also like to say, traders who are not taking advantage of the markets at the moment should be re-evaluating their trading plan to understand why they missed a great trading opportunity. Sure, I'll be first to admit trading has been bumpy at times but putting every dollar to work instead of having them lying idle is not a recipe for trading success.

Relying on indicators
As you say "I do not rely too much on indicators preferring to focus on price action" which is a perfect a way to enter the markets. I use a combination of indicators to enter a trend as sometimes it allows for a better entry point. No matter what we use as our guide in entering the markets implementing it consistently is the key. One problem frequently encountered by traders is the "difficulty" in following a system which can result in their "emotions" ruling the day, a path to disaster.

What to do in your free time?
I've got a suggestion or two. What about making a few posts about the transition from being a discretionary trader to a mechanical system trader, by explaining the process. This would not only be educational but helpful to others by sharing the information. Another suggestion, many members contribute by reporting their ongoing trading. @Saqeeb directly posts the progress of his MAP strategy, I'm posting the weekly results of the Action Strategy both in my opinion adds value to the thread & with your involvement, I'm sure it will add further value automatically. We are all trading differently desiring the same outcome.

Skate.

 

[martyjames]

Hi Skate (and everyone)

Many thanks for the detailed reply. I have always been a mainly discretionary trader using (in the past) metastock to search for my setups (breakouts from bases and price dropping back to support etc) and use real time data for my entries and exits. I purchased Amibroker 2 weeks ago and know it has excellent backtesting capabilities, hence the newly formed interest in 'systems'.(bit of a learning curve though!)
I was not aware of 'Positionscore' and will now research it. Im assuming that if several stocks indicate a buy on the same day and funds are available. positionscore ranks the candidates by those with the greatest historical price movements / period of time, so whereas BHP may move 20% in one year, many smaller stocks historically may have moved 100 percent, in which case you pick that stock (the 100% mover) - is this the idea?
I did some playing with volatility and OBV and got similar signals to your earlier posts (on a daily t/f). I'll try throwing in a chandelier type exit and see how it goes over the next few days.

Thanks again for the info.

cheers
Marty

 

[Warr87]

If you don't assign a value to PositionScore in AB, my understanding is that the positions will be chosen at random (but I'm not 100% with that).

You can make your PositionScore unique if you want. If its a long term uptrend you could make it the ROC (rate of change) over a certain period, or you could do linear regression value, if some people rely on RSI for signals, they can even do the RSI as the sole ranking factor. If you have an indicator, or anything that includes a number, it can become a factor in the PositionScore (i.e. RSI * 200day MA).

The skys the limit (but therein lies the problem, as well. With so many options to chose from, finding the most effective can be difficult at times).

 

[martyjames]

Hi Warr87

I was just reading up on positionscore and saw the RSI example. You are right there are a myriad of options but trying to keep it all logical and as simple and robust as possible.

cheers

 

[Lone Wolf]

If you don't assign a value to PositionScore in AB, my understanding is that the positions will be chosen at random (but I'm not 100% with that).

According to the amibroker knowledge base, if you don't define a position score, symbols will be selected based on position size, then alphabetical order.
http://www.amibroker.com/kb/2015/09/28/symbol-selection-when-positionscore-is-not-defined/

If you want a random selection from a pool of eligible symbols you need to force it with the random function.

 

[ducati916]

1. I would like to offer my many thanks to Skate for the effort he has put into this thread.

2. Starting with a clean slate, I found inspiration within the excellent contributions of "ducati916" in the "Trading the Bounce" thread. Thank You.

3. Being a discretionary trader, I put together a weekly system that I was happy with.


4. My testing went well and showed positive expectancy. My major requirement.

5. Several interesting facts have emerged.
The biggest one being stock selection.
I too trade the All Ords universe and of my now 38 scanned stocks NOT ONE matches Skates selection.

6. I do not rely too much on indicators preferring to focus on price action. (Thanks to Captain Black).

7. I think that with a positive expectancy trading plan you could almost throw darts to make selections and be successful.

So after reading your post there were some interesting points raised, which I have responded to below.

1. I agree, this thread has become a valuable resource.

2. You're welcome.

3. As a fellow discretionary trader, what finally pushed you to mechanical?

4. A good start.

5. Potentially indicating good breadth in the market.

6. As indicators are derivatives of price, they actually contain very valuable information: specifically 'divergence' and 'comparative confirmation/denial'. I am always interested when an indicator indicates a divergence or a comparative indicator confirms/denies the information contained in price, as these tend to be the strongest signals. I have also found that there is a time lag in both (highly predictive) before that effect is realised in price, which allows one plenty of time to take advantage of it. How this could be coded is a further issue for Mr Skate to address.

7. Possibly a contentious statement. Care to elaborate?

jog on
duc

 

[qldfrog]

If you don't assign a value to PositionScore in AB, my understanding is that the positions will be chosen at random (but I'm not 100% with that).

You can make your PositionScore unique if you want. If its a long term uptrend you could make it the ROC (rate of change) over a certain period, or you could do linear regression value, if some people rely on RSI for signals, they can even do the RSI as the sole ranking factor. If you have an indicator, or anything that includes a number, it can become a factor in the PositionScore (i.e. RSI * 200day MA).

The skys the limit (but therein lies the problem, as well. With so many options to chose from, finding the most effective can be difficult at times).

Technical note
Position scoring is definitively one of my weakness, as i understand it, if not defined, AB is not random but chooses the packet with the more units(shares).
I was looking at this a while back after trying to understand a backtest where the position score had been removed
It is not random by default

 

[qldfrog]

Technical note
Position scoring is definitively one of my weakness, as i understand it, if not defined, AB is not random but chooses the packet with the more units(shares).
I was looking at this a while back after trying to understand a backtest where the position score had been removed
It is not random by default

Forget my post, @Lone Wolf gave the answer already

 

[Nina4]

@Nina4, what a great post, it was a pleasure to read on many fronts, squeezing in a few "thank you's" along the way, a very nice touch. I've cherry-picked your post & condensed your words into a few & attached them above. Why? because it gives me a reference to respond.

"Banging on"
First off, I agree, I do "bang on" about most things & I do have a habit of not knowing when to stop.
Skate.

Thanks for the kind words Skate.

Only after I posted did I realise this comment may be taken out of context.
I hope the casual reader will understand it was nothing more than an Australian back-yard BBQ setting good natured type jab.
I do concede that the written word does not always convey intent, even with the obliqitory smiley.
Thanks for being a good sport.

To answer your question, transitioning from discretionary to mechanical for me required only one thing.
Stop micromanaging during the week. I'm a fiddler.

No programming changes were necessary. Rather than cherry picking from the ordered scan results list stocks I believed had the best chance of advancement, I took the trades in order.

I scan for stocks after the week's close and place orders for the next week's start if needed.
If orders are not filled on the first day they are abandoned, and a new scan is performed next weekend. Rinse and repeat.

If anyone wonders why I initiate new scans to fill my quota and don't just select from the previous list, the answer is simple.
In this week’s example, only 3 of my 5 orders were picked up. If two of my top ranked 5 did not go on with the job, why would I try the 6th and 7th selection next week?
No. A new scan with the current relevant information will be required.

I believe this type of thinking is needed for a successful mechanical strategy.
No if and or but with signals or I may as well continue with a discretionary plan.

As for reporting ongoing trading results, I'm reluctant to publish stock codes. I would never buy a stock just on the recommendation of someone else or a list I had seen. I hope others feel the same.
Generate your own list that meet your criteria before risking your money.

The percentage gains I mentioned yesterday show positive movement, which is pleasing but are for the most part meaningless until sell signals are generated and the money, if any, is in the bank.

Lets see how long I can sit on my hands.

I do hope I've been a good mechanical trading student.
Cheers.

 

[Nina4]

So after reading your post there were some interesting points raised, which I have responded to below.

1. I agree, this thread has become a valuable resource.

2. You're welcome.

3. As a fellow discretionary trader, what finally pushed you to mechanical?

4. A good start.

5. Potentially indicating good breadth in the market.

6. As indicators are derivatives of price, they actually contain very valuable information: specifically 'divergence' and 'comparative confirmation/denial'. I am always interested when an indicator indicates a divergence or a comparative indicator confirms/denies the information contained in price, as these tend to be the strongest signals. I have also found that there is a time lag in both (highly predictive) before that effect is realised in price, which allows one plenty of time to take advantage of it. How this could be coded is a further issue for Mr Skate to address.

7. Possibly a contentious statement. Care to elaborate?

jog on
duc

3. As a fellow discretionary trader, what finally pushed you to mechanical?

Easy. Skate’s passionate comments and examples.
20 stocks with $1000 position sizes along with my trading plan makes mathematical sense to me. Skate has done all the testing for us and its not something I would have thought of.

4. A good start.

Positive expectancy yes but this may just have been a lucky week.
Only time will tell. The money is not in the bank yet.

6. As indicators are derivatives of price, they actually contain very valuable information…..

I should have worded my statement more carefully.
Theories such as Elliot Waves, Fibonacci and the like I don’t use at all.
Excessively lagging indicators I avoid and tend to stick with volatility and volume.

7. Possibly a contentious statement. Care to elaborate?

If a trading plan, not necessarily mine, included the following.

Select only liquid stocks from the All Ordinaries.
Select within a price range.
Select what appear to be upwardly moving stocks with volume and volatility.
Avoid companies that have released recent damaging announcements.

Use strict buy orders. Use pips and not percentages when determining prices. This ensures no surprises as the top and bottom limits are absolute.
No getting in at the open that has surged 10% from the previous close only then to nosedive. No getting in at open 10% lower than the previous close then fall further.

Only buy stocks rising above the previous close within a selected pip span or not at all. Never chase.

Avoiding percentages also eliminates the need to use floor, ceil and round functions to determine prices as was recently discussed in the forum.
A few dollars variation from your ideal price either way adds up.

Do not risk more than a set percentage of the account per stock.
Say 1 percent.

Ruthlessly cut losses and allow winners to run.

With the above in mind and the average selection win rate of about 50% a dart used on qualifying stocks seems as good as any other method for selection.

The dart comment may have been foolish but I believe positive expectancy and a rock solid trading plan is more important than the selection process.

Nothing I have written is new. Everything has been mentioned by others before. I pick ideas that appeal to me and incorporate them in my trading.

Cheers.

 

[Skate]

The percentage gains I mentioned yesterday show positive movement, which is pleasing but are for the most part meaningless until sell signals are generated and the money, if any, is in the bank.

@Nina4 passage condensed
Open profits = Belong to the Market
Closed Profits = Belong to you

So it's a timely reminder
"Open profits belong to the market, closed profits belong to you" If you can accept that mindset (which a lot of traders can't) then that will serve you well when volatility impacts the Action Strategy.

Before we exit we need a few confirmations
For the Action Strategy to exit a position we need a few confirmations that the momentum has slowed, stopped or reversed. The major issue with any "confirmation" is that "you will never enter at the start of a trend" or exit "at the top of the trend". The "exit confirmation" guarantees you will give back a proportion of your open profits.

A chart for visualization of giving back open profits
There are two winning positions displayed on the chart below but both "winning positions" gave back some open profits before exiting.




Skate.

 

[Skate]

I've got a confession
I don't know if it's just me, the current content or lack thereof but I'm spending less time on the forum.

Adding a bit of content
I've had the grand idea of only posting when there was something important to say but I'm reconsidering this idea. After consideration, there is two ways of posting, (1) In a measured way or (2) just shoot from the hip & post what I'm thinking. I've decided to go with option (2). The next few posts will be haphazardly constructed with no rhyme or reason so no one will know what's coming next. My mind jumps all over the place & sometimes it's incoherent even for me.

Why post
To give others something different to read. It's important to point out that it's unhealthy to read the views of one person only but at times it's the best we can hope for when posters are in short supply.

Skate.

 

[Skate]

I'm on my Soapbox
When I start one of my posts with the "Soapbox" graphic it's a way to warn you that I'm about to express an opinion or get a few things off my chest. For a better word, I'll just be "banging on".

How we think anchors how we act
What's happening with the markets at the moment is anyone's guess. I'm amused that the media can express with conviction exactly what is causing each & every fluctuation not only in our markets but markets around the world. It's a pity they aren't clairvoyants, it would make my trading much easier.

We are beginning to understand
With the advancement in psychology & cognitive neurosciences, out of it has come an evolutionary explanation as to why our minds generate our beliefs & why we are prone to accept & spread those beliefs. Science also gives us an understanding of how we can alter our behaviour by changing a few of these beliefs or ideas. To survive as a trader our mind has to accept the impossible & at times create it by being a free thinker.

Skate.

 

[Nina4]

I'm on my Soapbox
When I start one of my posts with the "Soapbox" graphic it's a way to warn you that I'm about to express an opinion or get a few things off my chest. For a better word, I'll just be "banging on".

 

[Skate]

We have lost the art to memorise
With the passing of time & the availability of the internet, we have lost the art of memorising important information. Once upon a time, there was no way of recording other than memorising information passed down through the generations sometimes from father to son, mother to daughter. If I want to know something I'll research it but in the process, I'll make notes, bullet points of important information, but that's just me. Recalling information is difficult at best, that's why I want to explain "CHUNKING" & the advantages of doing so.

Chunking
Information chunking is something we do automatically without realising it sometimes. To give you an example, when you repeat your phone number to someone else you will chunk it from memory by breaking it up in memory size bites like (02 6887 4072). A song is chunked, this is why we remember the words to sing along. Those who have read the Koran in English do so without realising it has been written in the style of a hymn as the Koran is designed to be memorised & sung.

My style of posting
I use chunking in all my posts to give someone a chance to comprehend the passage. Paragraphs act as a minor break to hold attention hoping you want to read on. Some of my posts are ambiguous, at times I won't explain the subject fully, which hopefully leads to a followup post so I can explain my way of thinking in more detail. Too much information at once is never fully understood.

Heading & paragraphs
With chunking, I also add a heading to the paragraph, it's a precursor to what is expected in the paragraph as a way of double reinforcement. Repeating with repetition is also another tool I use to reinforce a particular view.

Skate.

 

[Skate]

I want to explain why the decisions we make are so important
Life is full of decisions, making one after the other. We make important & not so important decisions to enhance our lives every day but for some life just sucks (that's a given) We all need to accept life is a struggle at times & everyone will have their fair share of ups and downs as no one is immune.

What is the purpose of life & does it hold intrinsic value?
What is life without objective meaning? The answer for some would be different to me, as it's been one hell of a ride, an exciting journey so far. It's hard for anyone to come to terms with the fact what has happened in the past can't be changed. We sometimes find it easier to recall bad memories dwelling on them too long which leads to negative reinforcement. The good news is that we can learn to control bad memories when they rise to the surface. We are all time travellers in our own minds jumping from the past to the present rarely living in the moment. Living in the moment allows you to have clarity of thought, something we very much need as a trader.

Our future can be different
We can't predict the future but we do get to write that story, by controlling the decisions we will make today, by knowing this, you can make those decisions count. Remember, every decision you make is important as it sets you on your life path.

Skate.

 

[Skate]

Acceptance is key to coping with whatever life throws at us
But here's the thing, some take it further by learning the secret to keeping frustration in check. Even small frustrations can feel like the end of the world at times. Whatever life brings you, good or bad, you have to embrace it, even the truly horrible "I don't ever want to think about it ever again moments". Challenges make your life so exciting & without them along the way, you would not have become the person you are today & your journey cannot be epic without challenges, big or small.

My definition of happiness
"Desiring what you have", by accepting this fact you will be at peace with a life full of happiness.

Acceptance is a mindset
Acceptance is making the best out of anything that happens. Treating each & every moment, no matter how challenging as something to be embraced

Obstacles are a part of life
So much of life is out of our control. You can't change the world or people you disagree with, often we can't even control what we're thinking at times. The only thing we can control is our deliberate thoughts & actions, so don't let your happiness hinge on what you can't control.

We can't control most things
But we can control how we feel about new challenges by changing our expectations.

We take pleasures for granted
We are frustrated & upset with some of the difficulties life throws our way, yet we readily admit difficulties are inevitable. While forgetting, pleasures must be worked for. We are all just passing through this life, experiencing a very unique & personal journey, a journey we only get to experience once. Accepting that there will be pain & sacrifices along the way is a fact of life.

Skate.

 

[Skate]

Trading Mistakes (investors)
Well, it's not really a trading mistake, but rather how an investor handles a minor setback or disappointment when one of their long term positions drops temporarily out of favour. Investors buy certain shares either for long term value, dividends or perceived safety. With the recent volatility, holders can become more focused on the recent selloff, than on their long term plan. If a decision was made to sell due to emotions, a quick rebound can easily take away all the rewards built up over many years.

Trading Mistakes (traders)
Another mistake made by less experienced traders is that they "resist selling" or "never sell" unless the share price recovers above the original purchase price. Why? because they can't bring themself to sell at a loss. No one likes to lose money, but it's an inescapable part of trading. There is no method that doesn’t lose money some of the time & on occasions being prepared to accept a few losses is how we all learn to stay in the game.

Skate.