Newbie Lessons - All your questions answered

[Sir Osisofliver]

Hi there.
Had a chance to read through " Stuff ".
I don't wish to add only that we are looking for a measurable set of conditions
So this can be tested.
It is not known whether the conditions chosen are indeed " correct " until placed into a formula which can be tested.

Yup - ideally against a set of data that can support a statistical significance. Ie between 500 to 2000 data runs.

T/H has suggested a low volume rise could signal a change of sentiment.
Tech would suggest that Shorts would be un wound in selling volume not buying volume.
So I would expect any turn to com after some exhaustion of selling.
All of these hypothesis have to be tested against like stocks past data.

Yup but we know where to find that data.

Experience has also shown me that prolonged down moves rarely " v " bottom and are likely to rally then fail once again.
Consolidation --- sideways tends to pre cursor sustained up moves.

A few questions for you on the above.
Rally then fail. Is the rally worth it? IE does the rally give us a beneficial win/loss with a high expectancy?

I've shown in your thread one of the things I do in relation to Hard pivots and Soft pivots to manage ongoing trade positions. At the moment in this system we've spoken about what we are looking for, what we might measure it against, what we might use to trigger...but we're yet to discuss under what conditions we will exit.

So we have the situation where a change in trend has occurred (albeit from a descending one to a neutral one) - what's our downside risk? Failure to result in a V pattern emerging means what to our bottom line?

Mean reversion in my experience works best in corrective up moves--- unless your adding or entering shorts.

In the end it will work or not in the formula tested.

Want to give the Chart the Tech/A onceover?

Cheers

Sir O

 

[sinner]

From what you've said then, you're simply looking at an increasing price movement, (which would appear at the change in trend point from a descending trend pattern. What's the advantage of using your metric as opposed to a Std Dev break? I assume you find it easier to scan for?

Simplicity is not a substitute for robustness but often an ingredient of it. I'm not discussing here what I use in my own systems, rather the simple and robust concepts which are easy to test, with a goal of keeping the discussion inclusive.

Hmm... I don't like to encourage the use of a bad indicator. Using a 5/20 SMA....not as good as using a cross period like a 12/26 SMA, precisely because a 12/26 doesn't correspond to a week/month. But hey, this is your system, use what works for you!

Like I highlighted in red, 5/20 is only an example! The suggestion was not 5/20 specifically, but to use 'logical' parameters (e.g. ones that correspond to a larger unit of time) as a starting point to convert a trading statement into code. You've given 12/26, if this is a robust signal then you'd expect similar performance from a "two week avg/five week avg" crossover, right?

Right, so you're creating a lagging signal that shows the change from the downward trend. Presumably you can then finetune the N value in your testing phase. I like it.

Personally, I don't use a fine-tuned N, as my testing shows this is actually not the most robust signal. I use an adaptive N, or ranked aggregate of Ns, depending on the market and timeframe I'm measuring trend changes in. But yes, my trend signals lag.

"...then it's probably safer"...to me at least, is an emotional "feel", not a statistical statement.

Yep fair enough. I might be getting hung up on "rapid increase in prices" thing.

 

[Sir Osisofliver]

Hi All,

Will be a very busy day for me today - lots of stuff happening - and I won't have a chance to look at the thread until late this afternoon.

In post 627 I asked a number of questions about our measurement tools that we will use in the system. We need to have a definitive set of rules...would someone please have a go and post their interpretation of the rules set. For each rule provide justification. (this is so that if any adjustment to our rules occurs, we can look to see what our original justification was instead of wondering...why did I do that?).

This needs to occur before we move onto Entry trigger, which we have already put some thought into. We need to define and rank our entry criteria.

Cheers

Sir O

 

[Sir Osisofliver]

Like I highlighted in red, 5/20 is only an example! The suggestion was not 5/20 specifically, but to use 'logical' parameters (e.g. ones that correspond to a larger unit of time) as a starting point to convert a trading statement into code. You've given 12/26, if this is a robust signal then you'd expect similar performance from a "two week avg/five week avg" crossover, right?

Yup very similar.

Personally, I don't use a fine-tuned N, as my testing shows this is actually not the most robust signal. I use an adaptive N, or ranked aggregate of Ns, depending on the market and timeframe I'm measuring trend changes in. But yes, my trend signals lag.

Sounds intriguing - would you be willing to share and discuss?


Cheers

Sir O

 

[burglar]

Hmm... I don't like to encourage the use of a bad indicator. Using a 5/20 SMA....not as good as using a cross period like a 12/26 SMA, precisely because a 12/26 doesn't correspond to a week/month. ...

Cheers

Sir O

I can see what you are saying here
(about a crossing over of a short trend indicator and a long term indicator)
but I cannot see what it is you are trying to avoid by the finnessing!

 

[tech/a]

I can see what you are saying here
(about a crossing over of a short trend indicator and a long term indicator)
but I cannot see what it is you are trying to avoid by the finnessing!

Agree
The M/A is hardly going to move with the "finnessing"

 

[tech/a]

A few questions for you on the above.
Rally then fail. Is the rally worth it? IE does the rally give us a beneficial win/loss with a high expectancy?

Not normally a quick check of this chart will show you that the surges to the upside have been a day or 2 at best---come and gone before you see it.

I've shown in your thread one of the things I do in relation to Hard pivots and Soft pivots to manage ongoing trade positions. At the moment in this system we've spoken about what we are looking for, what we might measure it against, what we might use to trigger...but we're yet to discuss under what conditions we will exit.

Need to look closer and then comment.

So we have the situation where a change in trend has occurred (albeit from a descending one to a neutral one) - what's our downside risk? Failure to result in a V pattern emerging means what to our bottom line?

This is unknown until we get some structure in the consolidation.
It is a little known chartist art---reading consolidation. If you read it correctly you can place yourself in front of a positive move. read it wrong and at best youll be stuck in a sideways move or worse cop a loss.

Want to give the Chart the Tech/A onceover?

A techical summary OR
A look at those points I have raised relative to the chart
OR
Ill bet BOTH!

 

[Sir Osisofliver]

I can see what you are saying here
(about a crossing over of a short trend indicator and a long term indicator)
but I cannot see what it is you are trying to avoid by the finnessing!

5/20 SMA corresponds to a weekly/monthly...and there is slightly greater volatility in the Australian Market at the beginning of the week as we react to overseas markets. End of month is simliar for similar reasons. By making an indicator that is across that natural time period you smooth out this slight volatility. 12/26 on a weekly chart. IME it's just a more stable time period to use.

You could just as easily make it a 6/14 where you wanted a more nimble crossover. Or a 3 minute 8 minute on a minute chart.

It makes bugger all difference really...but small differences in the short term become big differences in the long term.

Cheers

Sir O

 

[Trembling Hand]

I just never get the idea of two MA crosses. What the F are you trying to do?

Does it come from some stupid idea that after a certain move you have "confirmation"? Becuase everything i know about trading is waiting = larger stops, smaller winners; therfore no profit.

If you want a MA as a signal why not just use price crossing one MA?

Has anyone EVER made a system work with MA crosses?

 

[tech/a]

I just never get the idea of two MA crosses. What the F are you trying to do?

Does it come from some stupid idea that after a certain move you have "confirmation"? Becuase everything i know about trading is waiting = larger stops, smaller winners; therfore no profit.

If you want a MA as a signal why not just use price crossing one MA?

Has anyone EVER made a system work with MA crosses?

I dont know of one with a crossing of an M/A as a stand alone system.

But used as an adjunct they can be useful.
I have used a price cross of a 180 day EMA as a successful exit criteria.
I also have as part of an entry criteria that price must be above a 40 day ema.

Short term forget it.
Working just on the bars and volume best.

 

[burglar]

... there is slightly greater volatility in the Australian Market at the beginning of the week as we react to overseas markets. End of month is simliar ...

Cheers

Sir O

Clear!

 

[Joules MM1]

no disrespect to the OP.....

2c worth on this

theory threads always interest me mostly cause theyre about confidence, mostly m/a's and similar ideas are about confidence to take transactions and with less work, a kinda short-cut.......they tend to say upfront, i dont know what's going on so i'll use something external to price, afterall, all the information you need is always going to exist in price, price doesnt lag anything, doesnt present itself in guise unless the traders at that time decide to trade to set-up a scene for the weaker trader or to attract stronger trade flow in their direction and sometimes trade is just flowing......you can call all those things; volatility, consolidation and trend.....

think about this; if you use a m/a or a m/a xover to enter and then refer to the price bars and then use the same or different m/a to exit what was the point in looking at the bars in between? then, inversely, you could simply use the bars to enter and to exit, , the extraneous nature of m/a's is aloof to the information within the bars because theyre historic......and we know that m/a's get proven in hindsight because of the changing game in price even if the instrument is the same, new liquidity (sell or buy) changes the personality of pricing leading to statistical black spots which is another reason traders attempt to box price discovery with an ideal m/a or m/a xover to get less triggers and smoother results and what they get is a watered down version of business.... business is limited to (and eroded by) looking adrift to a m/a and not finding the cause of price movement

there's nothing wrong with using m/a xovers as such if youre willing to settle for much less of a positive result and you are prepared to be totally disciplined to the message within the regime of m/a's......it's a lot of hard work for lesser results........youre also giving permission to extraneous stuff to distract from what's really going on in the price.....m/a's do not ask you to think of who is present in the trade as it is happening and serve to leave feeling educated and confident you can be hit with minimal downside and abundant upside - that is, until they dont and then the trader goes full circle figuring out which m/a's are going to work in which phase of play and to know which phase of play you have to watch ......price

at the end of the conversation this one thing must be true and is a good stepping stone to education, anything outside of price that attempts to summarise and give a cause and effect way to trigger is also an avoidance of finding the knowledge required to transact price in the present with understanding

m/a's and m/a's xovers are clearly about loose ideas of likelyhood.....they do not tell a trader when liquidity has changed hence multiple crosses erode capital and i suspect a lot more times this has happened than people let on because far more often i read the same sentences such as "i once used" or "i used to use" which implies the m/a's or xovers have been abandoned even if it's only due to the frustrating work involved for the limited upside outcome......

the thing is; you cannot imperically say in the present that a m/a xover is going to work at the time you decide to pull the trigger......there cannot be any proof because you and price are in the present and the m/a is not

if there were a solid EA based, on a m/a xover, that could be used and not have to be jigged for every phase of play, then you'd know by now because someone would advertise the equity curve and you could test it

back to the confidence thing; if your business gets eroded by elusive m/a's or xovers then how do you go from that to a stage of understanding what's going on inside price itself......

this is a newbie thread so i hope this pos makes a difference in how you might approach the whole gambit....very rarely could you make a case that a m/a or xover effects price, so, if that's true wouldnt you gain more by thinking about what is effecting price right now and proceed from that pov?



edit

price is always present and m/a's are always lagging, that must imply that you, the trader, is the forward looking indicator......you need to be one-step ahead in the planning stage, you are trading the next price level, you are not trading the last price level......even if price retreats to a previous level, wherever price goes to, you are trading that level and within that thinking resides the information you need, at least, there is information available for you to use that a m/a cannot give you and you retain control of the decision to trigger a trade rather than be imprisoned by the lack of information within a m/a

 

[burglar]

... this is a newbie thread ...

Wow!

I am not trying to trade on this info.
Just trying to gain some insight!!

 

[sinner]

I just never get the idea of two MA crosses. What the F are you trying to do?

Again, it was only an example. But from a momentum perspective which you can either fade at the 'tail' or follow from the mean, what you're trying to do (in this case) is to follow from an aggregate mean.

Does it come from some stupid idea that after a certain move you have "confirmation"? Becuase everything i know about trading is waiting = larger stops, smaller winners; therfore no profit.

The idea is to smooth out volatility in the time-series. If you run a simple MA trading strategy you can generally see that it successfully reduces volatility in the returns compared to buy and hold. Using MAs to do more than just smooth volatility (i.e. generate alpha) requires an understanding of how volatility effects the nature of returns in the market you're trading.

If you want a MA as a signal why not just use price crossing one MA?

Nothing wrong with that, but a trader generating a 'channel' of average prices (using multiple MAs/envelopes/bands/highs&lows) will be exploiting hysteresis in the time-series, it's not exactly the same thing as purely 'following' from the mean.

Has anyone EVER made a system work with MA crosses?

Yes. Ever bothered to look? Plenty of papers in journals and analysis in the blogosphere by respectable quants on the topic. Like I said, unless you think averaging the price will make you profit then it's about understanding how vol affects returns in your market(s). I use MA cross in two trading systems, one fades and one follows their respective cross.

 

[burglar]

... exploiting hysteresis in the time-series ...

Not to be confused with Hysteria. (lol)
Hysteresis is the dependence of a system not only on its
current environment but also on its past environment.

Getting back to it:

What I think we are doing here is ironing out the wrinkles
in the Share Price Action so that the trend becomes
sufficiently clear to avoid entering prematurely.

 

[burglar]

... price is always present and m/a's are always lagging, that must imply that you, the trader, is the forward looking indicator...... ...

So when the Black-Sholes calculator stops working,
(due to excessive volatility)
the trader reverts back to gut feeling.

 

[tech/a]

Not to be confused with Hysteria. (lol)
Hysteresis is the dependence of a system not only on its
current environment but also on its past environment.

Getting back to it:

What I think we are doing here is ironing out the wrinkles
in the Share Price Action so that the trend becomes
sufficiently clear to avoid entering prematurely.

The key is
In a bull market ANYTHING " works "

In more challenging market analysis needs
To be at the coal face.

 

[Trembling Hand]

Yes. Ever bothered to look? Plenty of papers in journals and analysis in the blogosphere by respectable quants on the topic.

Bahahahahahah :bad:

 

[Trembling Hand]

The key is
In a bull market ANYTHING " works "

In more challenging market analysis needs
To be at the coal face.

There ya go. That pretty much sums up my thoughts about them too. That being; a MA crosses is probably slightly more effective as the dart board come bullish periods. The other 60% they will have you chopped to bits.

But it still doesn't make sense why if you thought a MA has some effect to smooth out volatility OR as a trend channel why not just use one? To me its like having a chart with 3 indicators in the false sense that more is better, in effect what you will end up doing is having to wait LONGER for all indicators to give a signal in the false sense that that is confirmation. But there is no such thing as confirmation.

 

[tech/a]

But it still doesn't make sense why if you thought a MA has some effect to smooth out volatility OR as a trend channel why not just use one? To me its like having a chart with 3 indicators in the false sense that more is better, in effect what you will end up doing is having to wait LONGER for all indicators to give a signal in the false sense that that is confirmation. But there is no such thing as confirmation.

If anything it helps with a visual but as stated just made up of past Closes--highs or lows etc.

Many newbs fill charts with indicators all telling them the same thing. Understanding how an indicator is calculated should help users understand how best to apply it----if at all.

Using indicators in systems is entirely different as their continued use over a broad data base can be measured and evaluated.