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System design should follow some logic: evaluate your "signal strength" first.
Please know I work in the Min or smaller timeframe my experience is limited and very one-sided. I do things "my way" and try to ignore tradition. The only things I have learned from "other systems" are coding techniques. You won't find the perfect system or the HG anywhere. Sorry to burst your bubble :-) In trading you have to do your own work or work in a group. Whichever way, to attain above average results takes hard and innovative work. The following is jmo.
Since you may end up testing hundreds or even thousands (yes!) of ideas you need to be efficient. Getting drawn into advanced system concepts, fancy stops, money management and creating fancy charts before you have a validated the basic signals is a waste of time.
By fiddling with all the above you increase the chance of 1) curve fitting and 2) drawing profits from what are essentially Random signals. It is actually possible to take random signals and add so many "shock-breakers" to it that it becomes profitable (Tharp?). This, to me, is a totally "non-fun" way of developing systems, all you are doing is increasing your statistical odds to draw a little money out of the market.
The Popularization and Commercial Exploitation of TA encourages this approach. Looking at fancy and colorful chart gives us ( I've been there! ) a feeling of accomplishing something important. But are we really? Just go to your local bookstore and browse through some books or browse the web for TA software and you'll see what i mean. Tons of stuff out there that looks impressive but won't make you any money.
Try to focus on what is important. The backtests I perform to validate price patterns are:
- Exit at the Entry bar's Close (one-bar trade) or at the Next Bar's Close (two bar trade).
- If the system makes money I start testing intrabar exits during those two exit bars.
- Test 1-10 minute time frames.
- If the system looks profitable I add some code and run a Short test.
- Run it over a watchlist, how many stocks are profitable characterizes the system as selective or common
- Any kind of fancy stuff, like stops and MM "masks" the true signal performance, make it a very last step.
I have developed some standard code modules and placed them in my indicator space so that i can drag them onto my code under test and to plot trade prices, signals and equity. With this setup you can test hundreds of ideas a day.
Always look at the equity curve and try to get as many trades as possible - thousands if possible. Numerical Stats don't mean a lot since they can be distorted by a single big loss or profit. If this happens and the equity curve is good otherwise you can study the single event and add code to exploit, or protect against, it.
Best regards,
herman
-----Original Message-----Herman
From: amibroker@yahoogroups.com [mailto:amibroker@yahoogroups.com]On Behalf Of kris45mar
Sent: Saturday, March 11, 2006 9:49 PM
To: amibroker@yahoogroups.com
Subject: RE: [amibroker] Short system advice?
Your replies and experience are appreciated.
So one could look at placing a time stop into the system, rather than leaving this to discretion. Previously you said: "the significance of a signal fades quickly" : interesting thought: in designing a system then I would need to work out my preferred time frame, expected duration of the effect of the signal and then factor in an appropriate time stop.
It is valuable to see "why" and "how" others' trading systems are designed, philosophically: to see what is capable of being done, and then seeing if there are parts of others systems or ideas that converge with one's own ideas. Better than starting the whole learning curve from scratch and so that is why appreciate your input and that of others in this forum.
Long way to go still.
Regards
ChrisB
Herman van den Bergen <psytek@...> wrote:I simply try to trade price patterns based on a handfull of minute bars... I expect profitable conditions to exist early in the trade, not near the end. If a trade doesn't behave as expected soon i feel like gambling, or trying to get lucky, and I rather get out and wait for another opportunity.While this may sound easy it isn't and a lot of work goes into peripheral code to trade patterns automatically.best regards,herman-----Original Message-----Herman,
From: amibroker@yahoogroups.com [mailto:amibroker@yahoogroups.com]On Behalf Of kris45mar
Sent: Saturday, March 11, 2006 10:41 AM
To: amibroker@yahoogroups.com
Subject: RE: [amibroker] Short system advice?
thanks for the reply.
Presumably one would have a high win ratio (% of winners) with these short term systems, and smaller pay off ratios?
When exits are based on price action or price targets alone, and they do not reach the profit target, would you use a time based stop?
If not then one could assume we could use oscillators that will continue to oscillate and return a sell signal, even if price does not reach the target?
Or indicators that have a time based decay such as parabolic SAR?
ChrisB
Herman van den Bergen <psytek@...> wrote:Hi Chris,Yes i like to develop short term systems: the shorter the better, usually 1-10 minute trades. imo, The significance of a signal fades quickly. And yes, I meant ApplyStop() type stops where you set the position to close at a given % trade DD. Invariably maxloss stops make me "lock in Losses" and the price goes my way after I close the position. I don't use complicated stops and perhaps that is the problem. I find it better to develop system without and kind of profit/loss stops, just the basic system working on signals only. Almost always after i have that working adding profit stops will increase profits and adding Max Loss stops decrease profits.best regards,herman-----Original Message-----Herman
From: amibroker@yahoogroups.com [mailto:amibroker@yahoogroups.com]On Behalf Of kris45mar
Sent: Saturday, March 11, 2006 7:29 AM
To: amibroker@yahoogroups.com
Subject: RE: [amibroker] Short system advice?
Could I trouble you to expand on that briefly?:
by "max stop loss" I presume you mean an initial capital protection as per
Applystop(stoptypeloss,...,......) or similar.
or do you mean trailing stops as in
Applystop(stoptypetrailing,..., ..., ... ?
I appreciate your systems may be shorter term, rather than longer.
Only ask because this w/e I have been reviewing all my trades since Jan 2004 (ASX markets, stocks, long only, trend following) and found that it is my trailing stops (whatever volatility parameter), that curtailed my results, (together with emotions etc but that is another story). I might look at locking in the stop at breakeven, then only trailing when there is a pattern/retracement/consolidation above each successive R-multiple profit level, starting at 3R. This would have served me far better in the trending market we have experienced over the last few years.
I am beginning to think that for shorter term systems, initial Capital protection stops may prematurely halt the cyclical nature of whatever is causing the system to work, but need to get to grips with more coding and backtesting skills to confim this.
Your comments would be most appreciated.
ChrisB
Herman van den Bergen <psytek@...> wrote:stocks have "character" some work Long and some work short and some work both ways. Same wrt rhythmic and other characteristics...imho there is no reason why we should assume any characteristic to be permanent or common to a large population.When designing a system I try to find similar performance for Long and Short, this gives me more confidence that I won't go broke in a strong trend. Systems that only work Long or Short make me nervous as I worry that they will stop working abruptly. Sometimes, most of the time I should say... it is necessary to adjust parameters individually for long and short. I try to develop systems that give me thousands of trades (minute time frame) and produce a nice smooth surfaces on the 3D charts. I never trust systems that give me more than one significant hotspot.wrt indicator, I don't use any. I trade only very short term patterns - I am a skeptic on the use of traditional indicators. Never got any to work well - probably because I don't have the patience (or nerve) to sit through long trades and through major DDs.tips? don't use any max loss stops, imho they kill systems. Use profit stops instead. Design both Entries and exits individually, only rarely will an entry rule give same performance as an exit rule. The exception to this may be high speed automated reversal trading systems (50-100 trades a day) that are in the market full timejmo... from a developer's viewpoint, I enjoy development more than trading :-)herman-----Original Message-----I have some nice, well-tested long systems in place. I was surprised
From: amibroker@yahoogroups.com [mailto:amibroker@yahoogroups.com]On Behalf Of Brian
Sent: Thursday, March 09, 2006 2:12 PM
To: amibroker@yahoogroups.com
Subject: [amibroker] Short system advice?
when testing my discretionary systems, to find that none of my short
signals performed nearly as well as the long signals, in the
optimization/backtest/monte carlo simulations.
Is this common?
In addition, I am looking for some ideas around what indicators to use
as the foundation for building an adequate short system. Any ideas? I
did some searches on previous messages here, and did not find anything
of value. General rules of thumb, and bits of experiential wisdom, are
also welcome -- as they apply to short systems.
Thanks in advance,
Brian
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