Ideas u consider or learn when testing.
Posted: Tue Oct 26, 2004 3:27 pm
One thing I feel I have learned, and this is opinion, is that technical indicators add no value. Almost every phenominon defined by a technical indicator can be more easily defined by referencing by ohlc directly. channels, deviations, ratios.. Im not saying they can't work, but i for one do not think they help. for every system I tried to use an indicator on, i saw that the results improved considerably when I canned the indicator and based the system on a more simple relationship or measure.
Worse, by exessively abstracting from the data, it makes it difficult to get a feel for what is happening, or what the nature of the price movement is, so it is harder to build on a concept in a useful way. (at least for me).
I have recently been testing reversal ideas, in stocks, testing a basic entry with various profit target/stop points, and or time based exits. I was first testing this on Bond futures data for a bond system, but, tried it out on stocks too.
basic procedure being to:
1. test entry with time stops alone of various lengths
2. Test with equi distant profit - stop targets of various sizes, both
and symetrical and assemetrical.
3. Test combinations.
A random entry is used as a control.
I found that:
-testing on a basket of 100 stocks some amazingly simple reversal (long only) entries work quite well when combined with short holding periods.
-the small average profit per trade means that large gains are created by fast turnover. Smaller margins and high turnover mean the systems are more sensitive to transaction costs.
-many systems did theoretically much better than buy and hold over last 15 years, with skyrocketing returns since 2000.
- Based on the limmited work i have done, I would rather use a time stop than a price stop on a stock market reversal system .
-A small profit target combined with a short time stop created very good results.
-Like many good trend systems, a good reversal system is often elegant rather than complicated.
-I found that the logic of a a successful short term system is very different from a long term trend following system. Fast gratification seems to be better with a short term reversal system. (at least, based on the systems i created). Get your profit and bail, so u can free your capital up for other trades.
-It may be true that more technical sophistication is needed to overcome the issue of transaction costs, due to low profit per trade. However, buying into a decline does create possibility of positive slippage, so perhaps this mitigates part of the problem?
-After considering results of reversal systems and considering them in relation to trend systems, and how such traders are often on the opposite side of trades, I had a realization: they need eachother for liquidity. Both have a place in the markets, and i that is why both are viable concepts to work with.
If u have any free roaming ideas u have considered when testing, or results that were not what you expected, maybe u can tell us aobut htem here.
Worse, by exessively abstracting from the data, it makes it difficult to get a feel for what is happening, or what the nature of the price movement is, so it is harder to build on a concept in a useful way. (at least for me).
I have recently been testing reversal ideas, in stocks, testing a basic entry with various profit target/stop points, and or time based exits. I was first testing this on Bond futures data for a bond system, but, tried it out on stocks too.
basic procedure being to:
1. test entry with time stops alone of various lengths
2. Test with equi distant profit - stop targets of various sizes, both
and symetrical and assemetrical.
3. Test combinations.
A random entry is used as a control.
I found that:
-testing on a basket of 100 stocks some amazingly simple reversal (long only) entries work quite well when combined with short holding periods.
-the small average profit per trade means that large gains are created by fast turnover. Smaller margins and high turnover mean the systems are more sensitive to transaction costs.
-many systems did theoretically much better than buy and hold over last 15 years, with skyrocketing returns since 2000.
- Based on the limmited work i have done, I would rather use a time stop than a price stop on a stock market reversal system .
-A small profit target combined with a short time stop created very good results.
-Like many good trend systems, a good reversal system is often elegant rather than complicated.
-I found that the logic of a a successful short term system is very different from a long term trend following system. Fast gratification seems to be better with a short term reversal system. (at least, based on the systems i created). Get your profit and bail, so u can free your capital up for other trades.
-It may be true that more technical sophistication is needed to overcome the issue of transaction costs, due to low profit per trade. However, buying into a decline does create possibility of positive slippage, so perhaps this mitigates part of the problem?
-After considering results of reversal systems and considering them in relation to trend systems, and how such traders are often on the opposite side of trades, I had a realization: they need eachother for liquidity. Both have a place in the markets, and i that is why both are viable concepts to work with.
If u have any free roaming ideas u have considered when testing, or results that were not what you expected, maybe u can tell us aobut htem here.