Set up and trigger accuracy

[It's Snake Pliskin]

How important is setting up a trade and pulling the trigger for you? How much emphasis is placed on accuracy?

There will be some that state managing the trade and exits are important, but...

Realist will say that buying cheap and cheaper is best, so I expect no comment from him. (thanks)

For those mechanical boys and girls, how accurate is mechanical trading? Are your buys forcing you to sell? Can it match discretionary entries? What filters help at the entry stage?

Analysing the market is not an exact science, so I contend that discretionary entries make trading work well, providing all elements of a trade are managed without bias over the other elements, particularly exits.

I`m interested in your thoughts. Also the discretionary gang as well.

 

[tech/a]

Snake.

For me its purely numbers.
I know that when I have the funds I can take ANY entry signalled by the method and I will have on average a 35% win rate.
My return is 8 times risk on average.
My average Hold will be a year
I could have up to 9 straight losses (4 is the most in 4 yrs)

I have 2 eyeball filters (Montecarlo analysis tells me that the Deviation from best to worst portfolio result is quite a bit.(Over 50000 portfolio tests there was not 1 losing portfolio over the 8 yr test period.))

(1) The trade must be in an obvious up trend
OR obviously breaking a longterm dowmtrend.
(2) The trade must be in a stock which isnt longterm ranging unless the trigger is a breakout from that resistance.

Accuracy I cannot judge at the time of entry so it would only become an issue if I had 9 straight losses.

For those mechanical boys and girls, how accurate is mechanical trading?

If your talking accuracy of each component---this is the wrong way to veiw mechanical trading.

If you veiw it from the Blueprint Of trading numbers about the methodology which we can tabulate then for the 3 mechanical methods I use in the last 4 yrs its proven to be 100% accurate.
All are designed to trade long and all do very well in bull markets.

There is good arguement and initial testing seems to cionfirm that a switch to turn the method off during less bullish times could be benificial to the methods. That switch could be an index or an equity curve or advancers/decliners--- Testing is still being carried out and when I get back I'm employing Kaveman to help using Amibroker. Testing thoroughly takes a great deal of time and I just dont have it.

Analysing the market is not an exact science, so I contend that discretionary entries make trading work well, providing all elements of a trade are managed without bias over the other elements, particularly exits.

The problem is that all discretionary trades are a singular entity.
You simply dont know the numbers.You dont know winners v losers,nor maximum run of losers,nor average win to average loss. With discretionary trading there is no blueprint.

Ypou could trade it for x trades or X months or years and record these results but the disadvantage is that it will take x time to get the numbers and if the discretionary element is mostly different each trade will mean nothing.

Snake I'm off for 5 weeks as of Midday so sorry I cant discuss further.
See you then.

 

[It's Snake Pliskin]

Snake.

For me its purely numbers.
I know that when I have the funds I can take ANY entry signalled by the method and I will have on average a 35% win rate.
My return is 8 times risk on average.
My average Hold will be a year
I could have up to 9 straight losses (4 is the most in 4 yrs)

I have 2 eyeball filters (Montecarlo analysis tells me that the Deviation from best to worst portfolio result is quite a bit.(Over 50000 portfolio tests there was not 1 losing portfolio over the 8 yr test period.))

(1) The trade must be in an obvious up trend
OR obviously breaking a longterm dowmtrend.
(2) The trade must be in a stock which isnt longterm ranging unless the trigger is a breakout from that resistance.

Accuracy I cannot judge at the time of entry so it would only become an issue if I had 9 straight losses.

If your talking accuracy of each component---this is the wrong way to veiw mechanical trading.

If you veiw it from the Blueprint Of trading numbers about the methodology which we can tabulate then for the 3 mechanical methods I use in the last 4 yrs its proven to be 100% accurate.
All are designed to trade long and all do very well in bull markets.

There is good arguement and initial testing seems to cionfirm that a switch to turn the method off during less bullish times could be benificial to the methods. That switch could be an index or an equity curve or advancers/decliners--- Testing is still being carried out and when I get back I'm employing Kaveman to help using Amibroker. Testing thoroughly takes a great deal of time and I just dont have it.

The problem is that all discretionary trades are a singular entity.
You simply dont know the numbers.You dont know winners v losers,nor maximum run of losers,nor average win to average loss. With discretionary trading there is no blueprint.

Ypou could trade it for x trades or X months or years and record these results but the disadvantage is that it will take x time to get the numbers and if the discretionary element is mostly different each trade will mean nothing.

Snake I'm off for 5 weeks as of Midday so sorry I cant discuss further.
See you then.

Thanks Tech/a.

So a run of more than 9 losses may constitue a failing of the numbers/system.

Enjoy the trip!

 

[Bobby]

Analysing the market is not an exact science, so I contend that discretionary entries make trading work well, providing all elements of a trade are managed without bias over the other elements, particularly exits.

I`m interested in your thoughts. Also the discretionary gang as well.

Hullo Snake,
As every trade has a trilateral possibility of direction, the discretionary entry may well do better then the spoon fed rabbits approach :

I'm working on the evaluation of a discretionary entry based on ebbs & flows of just pure sentiment.
I've found it possible to draw a primitive formula to measure this.
In doing so by specifying values, a hypotheses of repeatable serendipity of feel is identifiable.

The expectation of such could be tainted by ones own hyperbole?

Have Fun
Bob.

 

[It's Snake Pliskin]

By Bobby
Hullo Snake,
As every trade has a trilateral possibility of direction, the discretionary entry may well do better then the spoon fed rabbits approach :

An interesting way of putting it.

I'm working on the evaluation of a discretionary entry based on ebbs & flows of just pure sentiment.

Interesting stuff.

I've found it possible to draw a primitive formula to measure this.
In doing so by specifying values, a hypotheses of repeatable serendipity of feel is identifiable.

Sounds like Thomas Edison versus Bill Gates.
Sounds good.

The expectation of such could be tainted by ones own hyperbole?

Yes.

Care to elaborate Bob? Pretty please with sugar on top

 

[mit]

Snake,

I trade mechanically mostly. My system gives me a buy signal but I don't take it as buying tomorrow but just here is a list of buys.

So for the actual entry I like to finese the entry as every penny counts. I did a short study at intraday buying/selling and found that it is usually best to buy just before 4 so I tend to hold of to buy until then. If it is a market big up day I'll tend not to buy. If it is a market down day. I might buy if one of my signals is actually up or flat. I trade around 100 stocks a year so having a good entry can make an excellent contribution to the bottom line.


I'll also try not to buy more than one stock in a day.


MIT

 

[It's Snake Pliskin]

Snake,

I trade mechanically mostly. My system gives me a buy signal but I don't take it as buying tomorrow but just here is a list of buys.

So for the actual entry I like to finese the entry as every penny counts. I did a short study at intraday buying/selling and found that it is usually best to buy just before 4 so I tend to hold of to buy until then. If it is a market big up day I'll tend not to buy. If it is a market down day. I might buy if one of my signals is actually up or flat. I trade around 100 stocks a year so having a good entry can make an excellent contribution to the bottom line.


I'll also try not to buy more than one stock in a day.


MIT

Hey Mit,

Thanks for your info.

So you might have a time lag between system confirmation and actual buying. Does that mean your buying from that point is discretionary in order to be as accurate as possible?

If that is the case do you percieve human judgement to be more accurate than system fed information, or numbers as Tech says?

 

[mit]

Yes there is a lag although I trade pretty quickly if I have cash and a signal. Again I trade over 100 times a year. I hold for a maximum of 49 days (dividend system). I use volatility based position sizing and if I could in theory get an extra 1/2 ATR on every entry it would make a huge difference to the bottom line. Over time I think you get a feeling for the ebb and flow of the day to know when or whether to buy (I'm actually a frustrated day-trader )

I think Linda Raschke had a similar comment that she puts her outperformance on managing the entry day and exit day.

MIT

 

[Bobby]

Interesting stuff. Care to elaborate Bob? Pretty please with sugar on top

Ok Snake you got me with the sugar

Its early days but what I'm trying to do is segment sentiment from feelings to generate a distribtion of design functions so as to form a theorem that can be tested.
This being only useful in short time intervals.

Bob.

 

[MichaelD]

For those mechanical boys and girls, how accurate is mechanical trading? Are your buys forcing you to sell? Can it match discretionary entries? What filters help at the entry stage?

My current answer to this is as follows;

Currently I believe that almost all discretionary entry techniques harm system performance and that near random entry generally does better. It is my contention that inherent in discretionary entry is the fallacy that you are able to predict future price outperformance based on past price outperformance.

I have to date tested and traded the following "popular" entry techniques;

1. Buying outperforming stocks in outperforming sectors.
2. Price/volume breakouts.
3. Buying shares only in long term uptrend (12 months)

All of these methodologies performed profitably, but worse than my current entry strategy which is to buy with the following filters only;

(ASX300 universe)
a. Close above long term moving average
b. Close>Open
c. A bullish 3 candlestick formation of higher highs

This system has several interesting characteristics which would surprise some TAs;
1. It will happily buy all the way down a bear market/crash (just different stocks - the ones resisting the downtrend is where the money eventually ends up).
2. It is fully invested all the time

 

[mit]

Michael,

Interesting, what are your exits? Is it a long or short term system?

MIT

 

[MichaelD]

Interesting, what are your exits? Is it a long or short term system?

The exit is simply a 6.5 ATR trailing stop. It is a long term system (as you'd expect from the wide exit). Average winning trade hold time is about 300 days.

 

[happytrader]

Although I rely on a fairly mechanical system more often than not I have received insights when things don't look right and to get out. I used to find it really annoying because here I was trying to go with the signals. I have since learnt this is likely to be the reticular activation system at work and not to ignore it. After all we all take in information consciously and unconsciously and for good reason.

Cheers
Happytrader

 

[blinkybill]

Yes there is a lag although I trade pretty quickly if I have cash and a signal. Again I trade over 100 times a year. I hold for a maximum of 49 days (dividend system). I use volatility based position sizing and if I could in theory get an extra 1/2 ATR on every entry it would make a huge difference to the bottom line. Over time I think you get a feeling for the ebb and flow of the day to know when or whether to buy (I'm actually a frustrated day-trader )

I think Linda Raschke had a similar comment that she puts her outperformance on managing the entry day and exit day.

MIT

mit

i assume you realise the 45 day rule for divs only comes into play if you buy within 45 days before an ex-div date and you want to receive the next div. otherwise the 45 day rule has no affect on how long you should hold a parcel of shares.

 

[BSD]

I use volatility based position sizing

MIT

MIT, a couple of questions.

Where possible (ie an ETO market exists), do you use implied volatility or simply stick to historic? Have you tested this?

Do you adjust annualised vol numbers to reflect your shorter average hold?

Has the recent large uptick in vol seen your positions reduced somewhat? To what extent (rough guess) would you say you lines have been reduced?

How prescriptive are you in this? Do you have a 'wiggle factor' ?


I trade a lot of small-midcaps and without some faith (which I have), using your strategy would have been forced to seriously reduce buy sizes and holdings in the face of the immense increase in trailing short term volatility.


From my position, I strongly agree with discretionary entry of positions, in most stocks ex-Top 50.

In my view, the success of this entry will depend on the liquidity of the stock in question, your parcel size and the amount of time you have available to monitor the trading and working on getting your line set.

 

[It's Snake Pliskin]

Ok Snake you got me with the sugar

Its early days but what I'm trying to do is segment sentiment from feelings to generate a distribtion of design functions so as to form a theorem that can be tested.
This being only useful in short time intervals.

Bob.

Bobby,

...sentiment from feelings? :guitar:

 

[Bobby]

Bobby,

...sentiment from feelings? :guitar:

Yep it sounds funny, could say .... segment sentiment from the more commonly used generating functions being (1) Gamma & beta (2) Binomial coefficients & hypergeometric (3) Indicator ....... to generate.............

:nuts:

Bob.

 

[mit]

MIT, a couple of questions.

Where possible (ie an ETO market exists), do you use implied volatility or simply stick to historic? Have you tested this?

Do you adjust annualised vol numbers to reflect your shorter average hold?

Has the recent large uptick in vol seen your positions reduced somewhat? To what extent (rough guess) would you say you lines have been reduced?

How prescriptive are you in this? Do you have a 'wiggle factor' ?

Sorry I meant volatility in a general sense rather than the technical version of volatility. All this means is that I put my stop a certain number of ATRs behind the buy point so that the loss to stop is always 2% of my capital. This is opposed to those who buy a standard dollar amount for a share. (ATR is just the moving average of the "True Range" which is the amount the share moves in a day). Nothing to do with ETOs. When I have time to do some paper trading I'll start looking at these. For now I'm a boring old share trader.

Backtesting shows that it makes a large difference to the system drawdown and thus the shape of the equity curve.

Although you do have a point. When I actually size my trade I look at the ATR line for the last six months or so and may reduce position size if I think the current volatility looks like it has just hit a temporary low, I'll never do the opposite, as I'm leveraged, I'll always trade profit for a smaller drawdown.

MIT

 

[It's Snake Pliskin]

Currently I believe that almost all discretionary entry techniques harm system performance and that near random entry generally does better. It is my contention that inherent in discretionary entry is the fallacy that you are able to predict future price outperformance based on past price outperformance.

Michael,

I have pondered your post and find the following curious:

What is near random in your interpretation?
Why does near random generally do better?
Is prediction the only part of the fallacy?


Some thoughts by D. R. Barton, Jr. Van Tharp Institute

Is your entry technique consistent with your strategy’s market concept? When I speak of your system’s “market concept,” I’m talking about the beliefs upon which your strategy is built.

Do you have to get in now? This is a great question for folks who follow long-term newsletter recommendations and those who take trades based on fundamental data. For those trading on a shorter time frame or following a technical system, in most cases, you should take entries as they occur.

Cheers
Snake

 

[Freeballinginawetsuit]

Thought I might add my two bits worth to this thread, I am a new member to this site so probably not up to speed with you guys.
Over the last few months I have been adjusting my trading rules to the current market situation.

Previously I had a bullish bias and would enter stocks I had charted focusing on MACD, set my trigger just above volume confirmation and move up my stop/loss to my pre-determined POR.

In the current market I have been closely watching the stocks that have strong initial breakout after a market turndown, or even breakout on mildly bad market days.I then chart their POR and enter only in a bad market, ride them through the channel and above their last spike. Even when momentum is positive I exit at this point. The next time I enter this stock is when the SP falls just above the point of resistance of the prevoius channel and I repeat the process.

I have done this on 4 occassions with KZL in the last 3 months, 6 occassions with PDN, 6 occasions with ZFX, 4 occasions with SMY, 3 occasions with BSG
2 occasions with BPT and 3 occasions with ROC. Average return has been approx 15% per trade. I only do this with sound fundamentals stock.

In the current unpredictable volitile market this is the only entry/exit strategy that I feel confident in and free's up cash for the envitable next down spike. Its crude, basic and not all that technical but its low risk and has certainly worked since May.