Duc,
Do you believe that there i no positive bias in the indexes??
Do you believe that if you had bought the basket of stocks that represented the indexes in the '20's or '30's and held until now, your performance would have been the same as the index over that time???
If I'm so wrong, could you please give examples using real numbers??
brty
I have a system with a simple index filter, that doesn't allow new entries when the market filter is "off". It also tightens stops considerably when the filter is "off" on already open positions.
The difference in MaxDD and Absolute return is huge.
Try this code Metastock
(Mov(C,220,S)- Ref(Mov(C,220,S),- 55))/ATR(25)>3
LLV(Mov(C,50,S)*Mov(V,50,S),50)>500000
ATR(10)/Mov(C,10,S)>0.01 AND
ATR(10)/Mov(C,10,S)<0.1
Care to elaborate / be more specific? The tightening of the stop in "unfavourable" conditions is a particularly interesting idea which I'd love to backtest in detail.
It's basic, simple, non curve fitted and works.
The index filter is a simple moving average filter, where trades will be taken or rejected depending on whether the market is trading above a certain moving average. The moving average you use doesn't matter, as long as you use the same for all stocks.
Rejecting trades when the market is trending down (or just starting a move up) seems to increase performance for the particular system. The average holding time is 7 days so i want the market to be moving upwards when i take trades. I don't need to "pick bottoms" or "turns" in the market because of the short holding time.
I had the idea of tightening stops when the market moves under the same moving average filter because it seemed strange that i was not accepting entries, but still leaving the stop fairly wide on open positions. Instead of using an X day lowest low trailing stop, i tighten it to a 1 day lowest low. This means that i can potentially stay in a trade while the market is moving down, as long as the stock is moving upwards. Using a 1 day lowest low will tend to force positions closed very fast, but what i'm doing is instead of liquidating all positions when the filter goes "off", i'm letting the market take me out instead.
You can use any moving average you like. I use a 40 day simple moving average, but i don't think it would matter too much, since holding time is so short.
Brad
Try this code Metastock
(Mov(C,220,S)- Ref(Mov(C,220,S),- 55))/ATR(25)>3
AND LLV(Mov(C,50,S)*Mov(V,50,S),50)>500000
AND ATR(10)/Mov(C,10,S)>0.01
AND ATR(10)/Mov(C,10,S)<0.1
I have a system with a simple index filter, that doesn't allow new entries when the market filter is "off". It also tightens stops considerably when the filter is "off" on already open positions.
The difference in MaxDD and Absolute return is huge.
I would have to say backtesting and forward testing is an integral part of any trading system.
Automated System I'm working on, still needs a bit of work.
11% Max Drawdown.
2003 to 2009 Tested Period.
I think the 2 different opinions i've heard here so far are:
1) test on all the data - strategy should be able to cope with the different market conditions
2) test on only the past *** months of data as too far back is not representative of the current market (but how far back???)
what does everyone think?
cheers
-daniel
Polar Bear I think you are trying to make a short term system? If so you may be on a search for something that will break as soon as it works.
I cannot see how something that works on a short term basis in the equity futs 5 years ago would work now. Same something that worked in 08 just doesn't work now. People say yeah yeah markets are always the same but that is BS. The micro patterns, ranges, and trends on small time frames 1- 5 min are constantly changing in nature. Some times month to month but certainly year to year.
I've trader equity futs on a discretionary basis fulltime for the last 5 years. And have had to cycle through 5 different markets because of the continually changing conditions.
You are on a tough task, especially if you have a need to be right
Nah that's besides the point. The OP from memory is trying to find a short term fut trading system. Anything that trades more than 5 to 10 times a day will constantly be aiming at a moving target.Accepting you scalp.
Those that don't and trade for more than 10 secs to 1 min have some truisms to follow.
Buy low sell high---sell high buy back low.
Cut losses--let profits run.
Find a trend and hop on.
Test your plan to ensure its profitable.
Understand Risk and Positive expectancy.
TH, yes i'm trying to make a short term system. My goal is something that trades maybe once or twice a day that can consistantly make around 4 points profit per week.... that's the dream anyway.Polar Bear I think you are trying to make a short term system? I
how to establish what kind of time frame you would test back to into the past to verify a strategy that you want to start live trading in the market.
how to establish what kind of time frame you would test back to into the past to verify a strategy that you want to start live trading in the market.
Polar Bear,
Exact time vs conditions presented are two different things. To explain, say I tested a long/short weekly trend based system.(actually used one) The system showed a short entry December 2007 on the s&p 500 and then closed out the short a few months ago and went long. Someone looking at the system would think it's the holy grail because it picked up the huge downturn profit and then went long and still long having picked up the move after the bottom was put in. If the market instead had gone sideways it would have seen little gains and little losses and pretty much be a flatline.
The point I hope I've made is that in developing this type of system, it was tested using quite a bit of data that incorporated trending, non trending, downtrending, sideways, volatile, non volatile, useless chop etc. What this did was provide useful information as to what results would be when it didn't get what it wanted. What hypothetically would have been the drawdowns. Also understand, there are conditions that have not yet happened an therefore have no way of testing.
Some have mentioned that why would I test a trending strategy during non trending periods? First I never predict what the market will do, only react and manage risk. Quite often the start of a huge trend might look the same as another that might have started only to fail and move down. This testing also helped develop filters to stay OUT of trades when the conditions weren't quite there and perhaps use a different strategy or simply do something else until things got better.
I think I also mentioned in my original post about survivorship bias.
I think the point was made about different stocks being in indexes over the years. Recently I was helping someone develop a short entry/exit strategy. They were running a backtest using the current S&P Index going back a number of years. They were a little disappointed in the results. The problem was that their backtest did not get credit for shorting Bear Stearns at $80 and riding down to $0. Didn't get Lehman Brothers, Enron. The reason was that those stocks are NO LONGER in the index and thus were not included in the test. This is why it is referred to as survivorship bias as only stocks still in the current index are tested on most platforms.
Monte Carlo was also mentioned and important. Say you have a system that tested extremely well especially on the equity curve. But what if all the losses occurred first instead of some wins? The curve might not have been all it seemed it was cracked up to be. For those unfamiliar with this feature in backtesting, it shuffles the order of the trades.
Before you start designing the perfect system, think about what type of trader you are. How often do you want to trade? Do you want to get signals every couple of minutes or once or twice a year. In other words, what time frame should you pick? What is your money management plan?
System development and testing for many traders can be more fun than actually trading. So have fun with it and good luck!
Monte Carlo was also mentioned and important. For those unfamiliar with this feature in backtesting, it shuffles the order of the trades.
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