Dump it Here

[ducati916]

At one level, yes. But there are invisible forces which have a far greater influence on profits than the system ever could.

[edit out qldfrog - different systems]

An interesting reply in that it is an answer without an answer.

I will clarify my position:

A backtested system is simply a time series of stock prices [or any prices] to which trading rules are applied, looking for a positive [profitable] outcome.

Clearly the selection of the time series is crucially important. Data should be used from the 1929-1933 debacle, the 1969-1975 period, the 1987 crash, the 1997 currency crisis and the 2008 experience. Of course how that data is aggregated with longer timeframes will have an impact.

At the end of your testing you have a model of how your system [hypothesis] will perform through past historical events, based purely on a price time series. It is a valid exercise because if going forward in real time there is a significant deviation from the model, you can say the model is falsified.

The prices incorporate every event that actually happened that had an effect on the data [price/time series].

Essentially what your answer implies, is (a) for any given event, there are multiple alternative pathways that could have pertained, but didn't, but could the 'next time', or (b) there will be a new event that has not once happened in the existing time series.

With regards to (b), I'll cite the Bible to you, "there is nothing new under the sun".

With regards to (a), a much more interesting proposition and one with which I agree. You could have the same type of trigger [event] with a totally different reaction through prices [human reaction]. In other words, an alternative history plays out.

But: because your outcomes [price time series] are fixed to only 4 possible outcomes, up, down, sideways or complete failure [bourse closes with 100% loss], my question is: do alternative paths make any practical difference?

You may of course in your answer be considering something completely different, which is why enigmatic answers can create misunderstandings.

jog on
duc

 

[Sir Burr]

At one level, yes. But there are invisible forces which have a far greater influence on profits than the system ever could.

I see shapes in the clouds sometimes.

 

[Joe Blow]

@Joe Blow Does this forum have the facility for the OP to edit the first post in a thread so that links may be placed to the start of topics?
eg.
Link to Skate's ebook download.
Link to start of discussion on the Hybrid mechanical system.
Link to backtesting results of the Hybrid system.
Link to the start of discussion on the CAM mechanical strategy.
Link to the start of the MAP mechanical strategy.
Link for important info for beginners (also in the ebook).

Hi Peter, I can add any links (or additional text) to the first post in a thread at the request of the OP. Just contact me via PM and let me know what you would like added. I'm happy to do this at the request of any ASF member who has started a thread and would like the first post modified in some way.

 

[debtfree]

I'm comfortable knowing that all contributions from skate are in the one thread. I also understand that if we're wanting to look for something in particular then it becomes very time consuming loading pages and scanning all the posts until we find the start of the topic of interest.

@Joe Blow Does this forum have the facility for the OP to edit the first post in a thread so that links may be placed to the start of topics?
eg.
Link to Skate's ebook download.
Link to start of discussion on the Hybrid mechanical system.
Link to backtesting results of the Hybrid system.
Link to the start of discussion on the CAM mechanical strategy.
Link to the start of the MAP mechanical strategy.
Link for important info for beginners (also in the ebook).

If this is not possible @peter2 everyone can create their own links using their bookmark list. If they create too many or one they don't really want any more they can easily delete it.

If I like a post that I want to keep I bookmark it, a box comes up, I put a description in the 'Note:' section that I can quickly understand what it's about so I can find it with ease when looking in my bookmark list.

I do the same if it's the start of a section within a thread that has caught my attention. Bookmark that post and title it in the 'Note:' box, such as 'Discussion Hybrid Mechanical System'. Now it's in your bookmark list, your private library of favorite post, threads or part threads, it takes you back to that post in the thread so you can keep on reading thereafter.

When you title it be aware you only have about 35 spaces to put in your title/description.
Yes I understand that this is alright moving forward and doesn't solve the problem of finding it at a later date.

Edit: Just seen Joe's post

 

[Gringotts Bank]

With regards to (a), a much more interesting proposition and one with which I agree. You could have the same type of trigger [event] with a totally different reaction through prices [human reaction]. In other words, an alternative history plays out.

Sort of what I was getting at. Even the best system will be affected in a pos/neg way by the human involvement. It will show up as something like eg. your internet connection drops out at 4pm when you're due to place a group of trades. Looks like random chance, but I don't think it is. I think we all create our own realities via some sort of link between mind and so-called 'external reality'. And I think this even operates when a system is fully automated. Two companies running the same auto-system will not get identical profits.

 

[JimmyJames80]

If this is not possible @peter2 everyone can create their own links using their bookmark list. If they create too many or one they don't really want any more they can easily delete it.

If I like a post that I want to keep I bookmark it, a box comes up, I put a description in the 'Note:' section that I can quickly understand what it's about so I can find it with ease when looking in my bookmark list.

I do the same if it's the start of a section within a thread that has caught my attention. Bookmark that post and title it in the 'Note:' box, such as 'Discussion Hybrid Mechanical System'. Now it's in your bookmark list, your private library of favorite post, threads or part threads, it takes you back to that post in the thread so you can keep on reading thereafter.

When you title it be aware you only have about 35 spaces to put in your title/description.
Yes I understand that this is alright moving forward and doesn't solve the problem of finding it at a later date.

Edit: Just seen Joe's post

Personally I like all of skates stuff in one thread, reading posts will trigger a memory of what I have previously read so I use the search feature to find the previous post by skate to read again.

I see shapes in the clouds sometimes.

I searched for a quote from skate about shapes in the clouds, I knew I've read that one, so I posted it below.

Charts - easy to interpret
This why we see cute little Bunnies or faces in cloud formations, seeing patterns is in our DNA, it's an inbuilt survival mechanism to quickly distinguish friend from foe.

 

[Skate]

Hi Skate , your dump it here is getting quite big, any thoughts about opening a new thread about your systems mainly instead of general stuff that you started dump it with?

Hi @willoneau

The 'Dump it here' thread was started back on the 17th December 2018 & the thread was designed to educate newbies starting out on their trading journey being a one stop shop (as to say) - a repository of my ideas & keeping my posts in one spot is an advantage for me.

Searching
If you use keywords in the search feature & include "posted by" Skate, you will find what you are looking for without too much frustration.

The Educational side
The 'Dump it here' thread lacked traction early on as there was a lack of input from other members so I just kept punching out ideas as they come to me, at one stage I thought I was wasting my time as it had little value to others. The 'Dump it here' thread has had 58,568 views to date with 1,886 post (mainly mine)

Talking about strategies
Shifting focus from a bunch of educational posts to talking about the strategies I trade & about system development the thread started to come alive so I persisted in this vein. I no longer post other than to update my weekly trading results of the CAM strategy & to answer questions when asked.

An oldie but a goodie
No one reads yesterdays news, meaning most members only read [Recent Posts] without revisiting older posts. Just for you I'll revisit & update a good strategy developed by Richard Donchian.

Donchian channel breakout strategy
I've traded a modified version of the Donchian channel breakout strategy with great success. Unfortunately I no longer trade the Donchian Breakout strategy, not that's it's not a good strategy, it’s because I’ve got better ones & I can’t trade them all. Richard Donchian was a true pioneer of technical analysis. The fact is that a lot of trading strategies he developed forms the basis of so many other systems used today is an excellent indication of the value of his method.

His rules were surprisingly simple
1. Buy when the current price exceeds the highs of the previous four full calendar weeks.
2. Exit when the current price falls below the lows of the previous four full calendar weeks.

Looking for perfection
For those looking for the perfect strategy, there isn’t one, so in the meantime why re-invent the wheel – pick an idea that’s been backtested, proven to work & modify the idea to suit the job you want it to achieve.

UPDATE
I'm posting a recent backtest update of the "Donchian Strategy" for the last financial year with results & charts to show its no slouch.

The Donchian Weekly Strategy Backtest Results
Backtest Period: 1/7/2018 to 30/6/2019
Capital Allocation : $100,000
Positions in the Portfolio: 20
Position Size: $5,000






Questions about the strategy
There is no need to ask any questions about this strategy as my previous post on the "Donchian Strategy" can be found here: https://www.aussiestockforums.com/posts/1012251/

Skate.

 

[willoneau]

Thanx Skate, you just keep on giving which i admire greatly.

 

[Wyatt]

https://www.aussiestockforums.com/threads/dump-it-here.34425/page-86#post-1026888

Update for those interested following on from post #1711

When trend followers post backtests, don't for a moment consider it some form of competition between participants. The only real competition or major challenge as I see it in system trading, is between each individual's ears. Although @Skate is a shining light of strength in this area.
Staying on the systematic path all of the time is just not easy, despite what the casual observer might think.
BTW This is for 20 x 5% positions and 1/1/19- 5/8/19

 

[Skate]

With the recent, sharp drop in the share market, I thought it would be a good time to revisit risk management. Break-even Stops / Whole Portfolio Risk. The question is, is there a way of mitigating this? I don't believe there is (for the average, vanilla investor), but I'm interested to hear your thoughts.

I want to make a few comments
I've hijacked a passage from @Zaxons "risk-management" thread to make a post about panicking. I've also lifted a passage from @peter2 "p2-asx-weekly-portfolio" thread to reinforce my point of view.

Here we go..
We have all had a great run from January this year & after a few down days we have a new thread talking about risks & break even stops. Some how after losing a few bucks we start talking about modifying a perfectly good strategy disguised as a trading strategy improvements. The development stage of a system is when these measures are crafted & certainly not after the horse has bolted.

Losing is part of the game
Traders need to remember losing money is part of the game & if you can accept this, you are half way there. Heck you may even eventually become a successful trader if you can handle severe down days. It pays for you to be the best loser you can possibly be as a trader.

A tweet or a quote
The markets are emotional that’s a given because humans are the emotional drivers of the markets & these emotions never seem to change. I hate when rational people go out of their way to constantly make irrational decision, I find it a battle just to keep up with them let alone Trump, Xi Jinping or what's going to happen with Boris & Brexit.

We all make up a story when under pressure
Losing open profits is very painful, so "when is it really our money"

Reality check
Open profits is not your money & thinking this way will muck you up quick smart!

It's well worth remembering
Open profits & loses = Belong to the Market
Closed Profits & loses = Belong to you

If you can accept that mindset (which a lot of traders can't) it will serve you well when the volatility impacts your account as in the last few days.

If you are a system trader
Hang tight, remember you have one job to do as a system trader & that one job is to take your signals without question, don't let your "Lizard Brain" drive your emotions.

Skate.

Words from an experienced trader

How will weekly system traders handle this huge one day selloff? The experienced will say there's nothing to do until the weekend. The inexperienced will panic sell. The active traders like myself will do a bit of both (lol). Our portfolios will definitely take a hit and we'll lose some of our open profits. But first, let me say I love the selloff. It was exactly what the markets needed. This selloff will show us the strength of the overall demand and it will show us which stocks are strongest. I expect to see this demand by the EOW. /QUOTE]

 

[myrtie100]

Absolutely Skate, well said and well timed.

 

[qldfrog]

And the system self insure itself lately via gold miner exposure
This is today result for my system 1
Total Holdings $53,559.40
So a profit of $469.19 today via gold exposure
Just following blindly my signals

 

[Zaxon]

I want to make a few comments
I've hijacked a passage from @Zaxons "risk-management" thread to make a post about panicking.

Hijack away

Here we go..
We have all had a great run from January this year & after a few down days we have a new thread talking about risks & break even stops. Some how after losing a few bucks we start talking about modifying a perfectly good strategy disguised as a trading strategy improvements. The development stage of a system is when these measures are crafted & certainly not after the horse has bolted.

Very true. But I don't think it hurts to use bad events to focus your attention in on a particular area. So that was the purpose of my thread. It's like if your neighbour has their house broken into, it's probably a good catalyst to have a discussion with your partner about your own security and insurance levels. I've used this recent market downturn to revisit and "sure up" our understanding about risk management.

Losing is part of the game
Traders need to remember losing money is part of the game & if you can accept this, you are half way there. Heck you may even eventually become a successful trader if you can handle severe down days. It pays for you to be the best loser you can possibly be as a trader.

I quite agree with this. But I'll broaden out the context a bit. To me it always comes back to being able to put your money in an index fund as the benchmark. Because we hold a more concentrated portfolio than the whole market, by definition there will be tracking risk, so you're bound to underperform the market for a few weeks or months. Where it become more problematic is if you start underperforming the market for years or even decades. Your strategy may recover (or may not) in the long run, but it starts to become more like a "religion" where you believe in your strategy, despite long term evidence to the contrary.

Exactly where the line is between allowing for tracking error and where your approach is genuinely an underperformer, is hard to say for sure.

If you are a system trader
Hang tight, remember you have one job to do as a system trader & that one job is to take your signals without question, don't let your "Lizard Brain" drive your emotions.

But "V" (the SciFi series) has taught us that many seemingly innocent people really are lizards inside

 

[investtrader]

Most (without being 100% positive,but from experience) systems spend a lot more time in drawdown that at equity highs. That is normal. Drawdowns are normal, just the length and severity vary. It is the price you pay to get superior returns.

 

[Calmside]

Hi all. Not so new to investing but very new to posting online which isn't something I normally do but wanted some feedback about a company.
I've recently been throwing around some money at small caps and have been looking at a company called CropLogic Ltd (ASX CLI). It's got a tiny market cap but I came across this article just the other day.

https://smallcaps.com.au/croplogic-deal-supply-hemp-biomass-large-scale-manufacturer/

Agriculture is not an area I have much expertise in but looking at this recent announcement it seems like the share price could really run from here. Also it seems that the only thing that held the price down the last couple of days was the market drop caused by the US China trade war escalation.

I was just wanting to get others thoughts on this. Especially those with experience in agriculture investment.

Thankyou.

 

[Skate]

Hijack away

Okay, Thanks !

Hijacked post

Yes. It's "how long is a piece of string" territory.

Forum members often quote "how long is a piece of string" & if you google the expression there are a multitude of answers. As with trading, the length of a piece of string is pure mathematics - I'll give you a simple answer if you are ever asked the question.

How long is a piece of string?
It's not that hard to answer - Get the piece of string, fold it in half, measure it, then just double it.

Endless piece of string is harder to measure
A piece of string that's had the ends cut off is more difficult to measure because cutting off the ends makes the string endless & difficult to measure.

I'm a big fan of 20 as well. They say 15-30 positions is ideal. And it's said that any more than 30, and you may as well just own an index fund.

Index Fund
Holding the top 50 securities verses the bottom 50 of the All Ordinaries is not the same as holding an Index.

A picture paints a thousand words
Let me display a backtest result from my Hybrid Strategy using 5, 10, 15, 20 & 40 positions & let you be the judge. The backtest has been posted before & is from 1 July 2017 to 30 June 2018. On the far right of the chart is the equivalent of buying & holding the All ordinaries (XAO)





Right or wrong
Whether your right or wrong or whether you agree with the view expressed isn't important – what’s more important is that the ‘Dump it here’ thread gives others the ability to express their point of view & if you have an alternate point of view feel free to 'Dump it here'

Skate.

 

[qldfrog]

About the number of stocks to hold in a system, there is of course also the total value of your portfolio and your universe
To use extreme examples
With 10k to play, better not have 50 stocks or your brokerage will kill you
If you have 3 millions, it could get hard to fill positions of 100'000 dollars...just my 2c
But i like Skate replay about 50stocks vs index

 

[Zaxon]

Index Fund
Holding the top 50 securities verses the bottom 50 of the All Ordinaries is not the same as holding an Index.

I'm glad you've focused on that, because things are often said as "standard wisdom", but they need to be tested to see if they're actually true.

The statement "if you hold more than 30 stocks..." oops, I forgot where I was. Reconfiguring my thoughts into the 'Dump it Here' formatting standard

Statement under question
"If you hold more than 30 stocks, you may as well just hold an index fund" is one of those "accepted as fact" statements quoted by financial commentators. So let's tap into what I think they mean by that statement, because I believe it encapsulates two separate ideas.

Idea 1: concentration = performance
If you're going to be a stock picker, then presumably you're doing so because you believe you can outperform the market. If you don't believe that, then stick your money in an index fund. Now, we know intuitively that the more stocks you hold, the closer will be your performance to the index. The "stop at 30" idea is based on allowing each stock to be a high enough percentage of your portfolio, that its performance matters. You hold stock "XYZ" and it doubles in price. Amazing! But if it's just 1/50th of your portfolio, you're not getting much bang for your buck.

Idea 2: diminishing diversification
The more stocks you have, the harder it is to manage them. Overhead. You need to separately track them, calculate their capital gains tax, set stop-losses, move up the stop-loss each day (depending on your system). The "stop at 30" idea is based on the belief that by 30, you're probably diversified enough in your portfolio to have reduced stock-specific risk. Beyond 30, you're getting diminished returns of diversification relative to the effort you'll put in.

A picture paints a thousand words
Let me display a backtest result from my Hybrid Strategy using 5, 10, 15, 20 & 40 positions & let you be the judge. The backtest has been posted before & is from 1 July 2017 to 30 June 2018. On the far right of the chart is the equivalent of buying & holding the All ordinaries (XAO)

Results Summary
Interesting results. So to sum up what you found, is the more positions you held, the better you did. However, holding 500 of them (XAO) performed the same as holding just 5. I think what we're seeing here is a selection error or bias. I'll use a thought experiment to explain.

Thought Experiment
If you were only allowed to buy 1 stock in Jan-2000 and held it for 10 years, and you had today's knowledge, you could cheat by picking the best performing stock for that decade. Easy. Likewise, you could pick the worst performing stock for that decade. So what we've learned is that a single stock, and by extension a small number of stocks, inherently has a selection bias in them. So if 5 stocks outperformed 50, or 50 stocks outperformed 5, both seem feasible to me. It depends on which specific 5 stocks you chose.

Conclusion
Whether 30 is the right upper limit will depend on the individual. Cautious individuals may want more. High flyers may only want to hold 5 stocks. At this stage, I'm happy enough that it's reasonable number as "general advice" (although I'm not specifically wedded to the exact number of 30).

 

[kid hustlr]

Skate, as well as posting your weekly update can you post the p&l by day for this week

 

[IFocus]

Zaxon, holding and trading just to separate these two terms.

Skates method is the hold the strongest cull the weakest making your money work ever day. The higher number of positions raises the probability to find the strongest (obvious but a revelation to me thanks Peter 2)

Holding a large number of stocks with out churning to find the strongest will possibly get you similar results as the index.