For example, lets say you are trying to create a trend system in stocks. A primary part of the system is the stock selection, and let’s say you scan for certain stock characteristics, such as RS ranking, tech/sector, volatility breakout patterns, volitility, volume levels, ect. Obviously, this list of trading stocks will change over time.
Conceptually, I am having a hard time seeing how this would be tested without introducing a hindsight bias, ie, picking the stocks to test on that worked, rather than what was available and met your criteria at the time the trade would have been taken. I have contacted a few data vendors that create RS rankings ect, and they say "our stuff is for using, not backtesting".
My question is, for those who have made market or portfolio selection a primary part of your system, how did you incorporate this into your system testing, did u learn anything in this process. Is there some software or programs that make this easier than others, or did you need to create your own program. Do some data vendors keep things such as relative strength, earnings, ect, in a backtesting format.
backtesting dynamic portfolio system.
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shakyamuni
- Roundtable Knight
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I used a trend stock system as an example,
but the general question of markets fits my overall concept of trading or how i view the markets at this point. Basically, looking to follow the money, and having clear cut, defined ways of doing that.
ie, don't want to be, "doing my thing in XYZ portfolio, cause i backtested on it" while some great social, economic, or technological changes are creating fortunes in another sector or market complex. SirG tought me alot about this idea, as did an interview i read with jim simmons. Basically, viewing the system trading process as opportunity seeking, realizing that it is great markets that create great trades, perhaps much more offten than it is that great systems do. (though, as we are disucssing here, this element can be brought into the system) Is new life being breathed into a market or sector, or is it slowly dying, or is it static.
Bernd, i will private message you with regards to your questions. Thank you to all who have contributed.
this is slighty different from my original topic, so those not intereted in a tangent/ramblings, this that is the warning to stop reading ; )
today i was considering this issue just from a theoretical standpoint. Basically, the bias traditional investors/people have is for markets/stocks/situations they can "gague" or get a fix on in terms of stability, value, return, cash flows, ect. So, they don't want to deal with "speculative" stocks or markets.
They use language such as various price to xyz ratios, ect ect ect, to express this desire for certainty over uncertainty, perhaps even deriding the values found in more "uncertain" markets.
Then, i was realizing that it is largely due to the uncertainty factor, that the volitility and price swings can be so large. (and conseqently, trading opportunities). this is obvious. such markets are near impossible to gague in an intellegent way, for one reason or another, so expectations and soforth can not only swing rapidly, but false ideas can exist for larger than "normal" amounts of time, because there are fiew traditional reference points that have relevence. greed, ect has a much larger playing field in which to operate, because their are less restrictions on the emagination. this "unknown" or imaginary future also creates opportunities for the promoter, who in a sense just adds more fuel to the system.
IN a positive sense, high capital values in uncertain stocks help to allocate capital to those things such as tech that make our lives better. or, in an inflationary time, the rising prices of metals ect, is basically a force that if continued to logical conclusion would be the remonitization of metals, which, is in fact benificial given that the future is not known, and that in hindsight only, u see that that was not neccisary and inflationary forces were brought back under control. IN a related fashion, spec markets send signals to governments as to when they are getting out of hand and monitary stimulation must be brought under control.
My point is not exactly clear. but basically, it is that as a trader, perhaps we are rewarded for seeking out this uncertainty, the moments where values and valuations are flying all over, where no one "understands" what is happening, ect.
I find this relevent, because if u are not opportunity focused, it is so easy to get swepped up in the sentiments of the masses, of things being "too hight, Too low" or even nonexistant, ie, no "valid" fundamentals. Conseptually at least, i see this as being where the system trader has his/her biggest edge.
perhaps it is largely due to the presense or extent of these factors, that large speculative profits are possible. after all, if fundamentals are truelly known, the price would already be there, and no profit would be possible and speculation would be pointless.
ie, don't want to be, "doing my thing in XYZ portfolio, cause i backtested on it" while some great social, economic, or technological changes are creating fortunes in another sector or market complex. SirG tought me alot about this idea, as did an interview i read with jim simmons. Basically, viewing the system trading process as opportunity seeking, realizing that it is great markets that create great trades, perhaps much more offten than it is that great systems do. (though, as we are disucssing here, this element can be brought into the system) Is new life being breathed into a market or sector, or is it slowly dying, or is it static.
Bernd, i will private message you with regards to your questions. Thank you to all who have contributed.
this is slighty different from my original topic, so those not intereted in a tangent/ramblings, this that is the warning to stop reading ; )
today i was considering this issue just from a theoretical standpoint. Basically, the bias traditional investors/people have is for markets/stocks/situations they can "gague" or get a fix on in terms of stability, value, return, cash flows, ect. So, they don't want to deal with "speculative" stocks or markets.
They use language such as various price to xyz ratios, ect ect ect, to express this desire for certainty over uncertainty, perhaps even deriding the values found in more "uncertain" markets.
Then, i was realizing that it is largely due to the uncertainty factor, that the volitility and price swings can be so large. (and conseqently, trading opportunities). this is obvious. such markets are near impossible to gague in an intellegent way, for one reason or another, so expectations and soforth can not only swing rapidly, but false ideas can exist for larger than "normal" amounts of time, because there are fiew traditional reference points that have relevence. greed, ect has a much larger playing field in which to operate, because their are less restrictions on the emagination. this "unknown" or imaginary future also creates opportunities for the promoter, who in a sense just adds more fuel to the system.
IN a positive sense, high capital values in uncertain stocks help to allocate capital to those things such as tech that make our lives better. or, in an inflationary time, the rising prices of metals ect, is basically a force that if continued to logical conclusion would be the remonitization of metals, which, is in fact benificial given that the future is not known, and that in hindsight only, u see that that was not neccisary and inflationary forces were brought back under control. IN a related fashion, spec markets send signals to governments as to when they are getting out of hand and monitary stimulation must be brought under control.
My point is not exactly clear. but basically, it is that as a trader, perhaps we are rewarded for seeking out this uncertainty, the moments where values and valuations are flying all over, where no one "understands" what is happening, ect.
I find this relevent, because if u are not opportunity focused, it is so easy to get swepped up in the sentiments of the masses, of things being "too hight, Too low" or even nonexistant, ie, no "valid" fundamentals. Conseptually at least, i see this as being where the system trader has his/her biggest edge.
perhaps it is largely due to the presense or extent of these factors, that large speculative profits are possible. after all, if fundamentals are truelly known, the price would already be there, and no profit would be possible and speculation would be pointless.
perhaps i
was being to vague.
I was not suggesting that some method could be created that could eliminate all "missed opportunities".
For me Specifically, what i was thinking of was 2 things.
1, backtesting screens on stocks. People say this or that is good, and I have many ideas of my own. I would like to be able to discover and veryify/reject these things.
2. I have tested quite a few short term patterns in a simple way using spreadsheets, much of this partly inspired by crabel's book, and party my own observations. Now, in this testing i have seen that volitile markets seem to work better.
One approach to this, and what i am capable of now, it to simply screen for these types of volitile stocks/markets, and then trade the systems that seem to take advantage of these conditions. However, this is grafting two things together that have not in fact been tested together in an integrated way. It also raises issues with regard to using rear view mirror thinking/hindsight bias. Perhaps other forum members know more about this than i do, which is why i made this topic.
I was not suggesting that all oportunities in the world could be unlocked.
I was not suggesting that some method could be created that could eliminate all "missed opportunities".
For me Specifically, what i was thinking of was 2 things.
1, backtesting screens on stocks. People say this or that is good, and I have many ideas of my own. I would like to be able to discover and veryify/reject these things.
2. I have tested quite a few short term patterns in a simple way using spreadsheets, much of this partly inspired by crabel's book, and party my own observations. Now, in this testing i have seen that volitile markets seem to work better.
One approach to this, and what i am capable of now, it to simply screen for these types of volitile stocks/markets, and then trade the systems that seem to take advantage of these conditions. However, this is grafting two things together that have not in fact been tested together in an integrated way. It also raises issues with regard to using rear view mirror thinking/hindsight bias. Perhaps other forum members know more about this than i do, which is why i made this topic.
I was not suggesting that all oportunities in the world could be unlocked.