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MovingAverage said:
I’m missing the point here—brought bought ?
Click to expand...
Brought & bought are two words that are often confused, both in pronunciation & spelling. I understand your confusion as the error is on my end for not proofreading. I should have used bought as it implies an economic transaction whereas brought means transporting something.

Skate.
 
Capturing momentum in a breakout is trend trading
@MovingAverage raised an interesting topic of using the overbought indicator as part of his buy condition. His backtest report indicated the value in doing so. With trend trading, it's all about capturing the momentum of a breakout. First, I should say there are many ways in which to use these bands. One such way is to use it as described to keep you out of some signals to increase your chance of profitability.

Overbought & oversold are upper & lower price bands
When reference is made to the overbought or oversold zone it's an upper & lower price band. How you use these points or fluctuation between two points is up to you to work out. Movement between these two bands is what I try to use to capitalise on, whereas @MovingAverage uses the overbought as a confirming indicator.

To reiterate
There are so many ways you can use this indicator to add value to your trading but as far as I'm concerned its value is lacking in what I'm trying to achieve. I’m not saying you can’t capitalise on the movement from one zone to the other but my preference is to use better indicators to capture this movement, the momentum.

Skate.
 
There are many ways you can go about defining an overbought area
Different applications or methods will produce varying results, although they attempt to catch the same market behaviour. It’s because of this differentiation the backtest results of @MovingAverage & mine are at odds. I take the view when a position is overbought, it means the price has bullish momentum a confirmation to take the signal.

Buying pressure gets it to the overbought level
Now, while this might not be the whole explanation, of why the market moves as it does but the point is this "should this indicator" be used as it was suggested to keep you in or out of a buy signal. How you use this indicator is not the point. The point I wanted to get across was to explain in order to make money in trading, the only thing we need to know is whether something works or not.

Skate.
 
I have more to say
Instead of leaving it there, I feel I should also make a few more comments. There are quite a few different methods to define when a market has become overbought. RSI & Bollinger Bands are other indicators that are often used to define this area (overbought). I'll concentrate on just using Bollinger Bands as an example. Bollinger Bands are simply the upper & lower band of a moving average. Both bands are deviations from the moving average that are as variable as you wish to achieve the result you are looking for. The upper Bollinger Band can be referred to as an overbought area.

Volatility moves the market
One benefit of using Bollinger bands as an overbought area varies quite a lot depending on the volatility. This means that a volatile market would have to move higher to issue a signal, while the opposite applies to a market with low volatility. Usually, this means a signal becomes more accurate when volatility is used to generate this signal. Using Bollinger Bands in this way can have a distinct advantage when used correctly in your trading strategy.

Being close to an overbought level doesn't automatically mean the move is over
When a position has a bullish bias, it will often ignore any overbought levels, & just continue to go up. In that sense, you could say that overbought levels usually don’t work that well as an indicator annexed to a buy signal. This bullish bias helps push prices higher & not the reverse.

I should also say
Reading alternative views is beneficial to what we learn. As with trading, there are so many variables. How I use an indicator can vary from the way someone else uses it. It's those variables that bring an indicator to life for your application. Now I'm done.

Skate.
 
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It's hard to explain something in a few words
Sometimes repeating something can be exhausting. Now my mind is wandering trying to think of a joke to explain the point I'm trying to make.

I have the joke
I asked the bartender if he would like to hear a "blonde joke?"
He said before you do, you should know I'm blonde as well as four other staff members.
Okay, then I won't, as I haven't the time to explain the joke five times.

Skate.
 
Here is another joke
How to take advantage of a situation.

Joke
Upon seeing someone steal three cream buns & putting them in his pocket, I told him there is an honest way to get those buns without stealing.

He said, how?
Let me show you.

I walked up to the counter & asked the server "do you want to see a magic trick"?
Sure, was the answer.

May I have three cream buns & I preceded to consume them in front of them both
The server said, "Where is the magic in that?"

I said
"Check the guy next to me & you will find he has them in his pocket".

Skate.
 
Skate said:
@MovingAverage & mine are at odds.
Click to expand...
While looking at our raw sim results in isolation you can be forgiven for saying "we are at odds". But you only need to scratch a little beneath the surface of your sims and mine sims to realize you might be a little premature in suggesting we are at odds--not suggesting we are not at odds I'm just suggesting you might be jumping to that conclusion too early without enough questions. Personally I think you are comparing apples and oranges: there are so many significant differences between what I did and what you did that comparing the two is like saying Toyotas are a **** car because they do not go faster than a Ferrari.
Here is why I think you are comparing apples and oranges--the major differences that do not make it a fair comparison:
--First you have no idea whether we ran our tests on the same universe of stocks--some indicators work better or worse depending on the characteristic of stocks it is applied to. No my sims were not simply run on XAO constituents.
-- Second your sims use a much smaller trade sample then mine (in fact your sims are only on about 20% of the number of trades my sims performed).
--Third, I ran my sims over the period 1/1/15 through to 24/6/2022--you only ran over a two year period.
--We probably used different overbought indicators--they are not all equal and some are much better suited to different stock characteristic. Don't assume I used RSI (which I'm not really a big fan of) or BB, which I don't necessary consider an overbought indicator anyway. I could go on for ages about why using a BB is as an overbought indicator is wrong but I'll leave that for another post.
Anyway, point I'm trying to make is before coming to a conclusion it is important to ensure we are comparing apples and apples and that Toyotas are great cars because they are reliable, cheap to run and easy to drive around the city.
 
Skate said:
That reminded me of a comment my wife once made to me
"I love you & my new Doona for the bed, both keep me warm at night but one doesn't talk $hit".

I reminded her
"I have feelings you know"

Mrs Skate replied
"That's debatable"

Skate.
Click to expand...
We need to put the fun back into taking a dump
 

There is no right or wrong in this thread
There are just alternative views. Each reader I'm sure will take something different from each of our posts. It even might be the catalyst for them to think about the topic you raised on a deeper level, it might even encourage them to do a bit of their own research.

But in saying this & to put the fun back in this thread
I'm confirming I'm the winner of this exchange as I've taken fewer words to say the same thing.


Summary
When others read both of our "quotes" I'm sure they will agree - I'm the winner.

Skate.
 
BTW @Skate...I'm a big fan of the saying "the numbers don't lie".

Look back at my sim results. The logic I had behind applying an overbought indicator was to not take those trades that are often at the end of a longer term trend and would often have that final push up only to immediately have the sell off (trend exhaustion)--breakout traders are often caught out by these trades. Below chart illustrates what I was trying to filter out.

Coming back to my sim result, my expectation before running the sims is that the filter would reject certain overbought entry signals which would ultimately have a marked reduction in my losing trades. You can see that the number of losing trades experienced approximately a 10% reduction with the filter (down to 258 from 291). A subtle but important point is that this filter is NOT about picking winning trades, but instead about rejecting losing trades so my expectation going into this was the filter would not dramatically increase winning trades, which it did not as you can see from the number of winning trades. So to me the logic would appear sound.

 
Skate said:
Summary
When others read both of our "quotes" I'm sure they will agree - I'm the winner.

Skate.
Click to expand...
You win But devil is always in the detail when it comes to system trading and you can't put that into a few words. Folks who don't have an attention span to read my posts probably shouldn't be thinking about system trading anyway
 

MovingAverage said:
But [the] devil is always in the detail when it comes to system trading.
Click to expand...

Okay, okay
You win, but only because you prosecuted your case, better than I did.

Skate.
 
After a while, I've become nonchalant when it comes to trading
I've done the hard yards & now I take the view that sometimes you lose, sometimes times you win. There are days when trading goes against everyone, even the best have bad days, but the level of your trading funds & how they are geared depends on how drawdowns will affect you.

Skate.
 
The power of watching YouTube videos
I just finished watching a video that explained "how to get rich", the title got me hooked as a moth to a light. I tend to watch these types of videos to understand the power of click-baiting. Most often they are comical & a pleasant way to understand the methodology of their madness. I also enjoy the religious shows where they promise you great personal wealth, not through the power of prayer but rather by giving a donation, the more you give, the greater the wealth will be for you. I just don’t understand how some can be so gullible.

The hyperlink below is a must watch
Back to the video, Scott Galloway ponders everyone's favourite question: How do you get rich? I don’t want to give away too much of the content which was highly entertaining & educational BTW.

Spoiler alert
For those who don’t have 10 minutes to watch this top video, I’ll supply the answer to the question: "How do you get rich?" the answer is (slowly). But that’s not the only thing that will resonate with you.

Scott touches on an important subject of "time in the markets versus timing the markets"
So what is better? "time in the markets or timing the markets" I’ve previously done a few posts on this subject, but a refresher wouldn’t go astray so I'll do another post on the subject in my next post. I would also like to say that there is nothing more liberating than expressing my point of view.

Discipline pays off
Purpose drives discipline & without discipline, you will never reach your full potential or financial freedom. Life is making one decision after another. Trading is similar to playing pool, it's not about sinking the ball, but more importantly "lining up the next shot".

Just watch the video
There is a mathematical formula for how to "get rich", & if you want to know the formula, watch the video, you won't be disappointed.

The Algebra of Wealth | The Prof G Show - YouTube

Skate.
 
Timing the markets versus time in the markets
It's often said that timing the market rarely works, however trading this way can be profitable. There is also an alternative that can be just as profitable "over time". I'm saying, having a combination of both can smooth out your returns. Staying invested instead of trying to time the market, particularly for those looking for long-term returns is a proven & effective option to grow your wealth. The biggest benefit of staying fully invested alleviates the pressure to consistently time the market. Timing the markets during difficult times is a big ask & nearly impossible to do all the time.

Staying invested is less stressful
Historically, over time the markets tend to rise, generating better than shabby returns. Being always invested means you can ride out the downward volatility of market corrections as quality companies tend to shine after periods like those at present. I’m not saying that you can take your eye off the ball but rather you can enjoy capital appreciation without worrying about every gyration the market throws at you to shake you out.

Traders sell when investors hold
Investors may be tempted to sell stocks during downward volatility where traders generally do, which in the long run may not be in a trader's best interest. While selling during downward volatility can reduce stress & hopefully avoid deeper losses, could mean locking in losses & missing the market’s inevitable rebound. Whether you elect to invest or elect to trade is one of those personal decisions. Personally, I tend to do both.

Skate.
 
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