Cats out of the BAG LTTF VS SWINGING

Discussions about the testing and simulation of mechanical trading systems using historical data and other methods. Trading Blox Customers should post Trading Blox specific questions in the Customer Support forum.
RedRock
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Cats out of the BAG LTTF VS SWINGING

Post by RedRock » Tue Apr 03, 2007 5:04 pm

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Forum Mgmnt
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Post by Forum Mgmnt » Tue Apr 03, 2007 5:33 pm

I define a swing trade as one that is designed to capitalize on multi-day trends. A good swing trade might last 3 to 7 days.

RedRock
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Post by RedRock » Tue Apr 03, 2007 5:47 pm

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danZman
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Re: Cats out of the BAG LTTF VS SWINGING

Post by danZman » Tue Apr 03, 2007 6:20 pm

RedRock wrote:On Way of the Turtle Blog, c.f. says this"Some may think that as a Turtle, I would be largely in the camp of Trend Followers and Systematic traders. This is not true. In fact, I believe that Trend Following is probably not the best starting place for most people who want to trade, and that swing trading is where I would recommend most people start their trading careers."

Ok then. As we are all going longer and longer and longer term, It seems our fearless developer has alternate thoughts.

I would love to begin a discussion on successful swing trading concepts. c.f. goes on to say " I am sure that you will find, as I have, that both approaches have their merit and can be the basis of a successful trading career, and that success using either approach comes down to the same core principles: trade with an edge, manage risk, be consistent, keep it simple. "

I have been hard pressed to discover such simple methods to extract the shorter term swings in a mechanical way. How would swing trading be defined? Holding period less than a week, month...? intraday on Min bars?? With the addition of intraday :shock: bar potential into Trading Blox... This is a subject which I suspect we may be hearing more of.. hmmmm
I believe there was a bit of a hint in c.f.' book concerning the max favorable excursion ratio (notice the first few days after a breakout, the performance was not so good). Selling breakouts, and buying breakdowns is yet another system idea...

D

RedRock
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Re: Cats out of the BAG LTTF VS SWINGING

Post by RedRock » Tue Apr 03, 2007 6:45 pm

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Algonquin
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Post by Algonquin » Tue Apr 03, 2007 10:07 pm

From Ed Seykota:

"As trading frequency increases, the profit potential per trade decreases, while the transaction costs remain the same . . .

You can find optimize your system for trading frequencies by back-testing.

You are likely to get fairly severe profit roll-off for frequencies above once / month.

To get a gut feel for the effect of transaction costs, try month-trading your house a few times."

I think it is beyond dispute that short term opportunities are (1) more susceptible to changes in market dynamics, (2) more heavily impacted by slippage and transaction costs, and (3) more reflective of statistical noise.

Forum Mgmnt, given the above, what is the basis for your opinion? Is it that shorter term swing trade systems are easier to trade emotionally? Just curious. Thanks.

Ted Annemann
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Post by Ted Annemann » Wed Apr 04, 2007 9:43 am

It ain't what people don't know that hurts them; it's what they know that ain't so (Will Rogers, Josh Billings, Mark Twain)

First let's admit the obvious: it is possible that Ed Seykota could be wrong. All successful daytraders would say he's wrong. Brett Steenbarger would say he's wrong. Toby Crabel would say he's wrong.

My experience is that trading systems can be very profitable while holding trades an average of "only" 3-10 days. But if all you've ever worked with or thought about or worst of all, read about, is long term trendfollowing, you're going to have to forget some old things and learn some new things.
  1. Forget what somebody has told you about the "correct" amount of slippage to use in testing. Forget Larry Williams, forget c.f., forget Ed Seykota, forget the Market Wizards books, and yes, forget Ted Annemann. Go make some trades yourself and measure the slippage you actually experience. Measure the slippage on Stop orders. Measure the slippage on Limit orders. Measure the slippage on MOC orders and on MOO orders.
  2. Expand beyond Chicago and New York. Some of the best moving and lowest slippage futures contracts are in Europe and Asia and Australia. Explore new exchanges, explore new markets, especially those which ONLY trade electronically. Homework problem: compare London vs NYC on gold, copper, sugar, coffee.
  3. Ignore the temptation to use intraday data. EOD data is cleaner (fewer errors), cheaper, and available on many more markets. There are tons of truly excellent trading systems that only place one entry order per day, never exit on the same day they entered, and always go flat between trades (they never "reverse"), so they can operate just fine on daily bars. They don't need fudgepacking approximations like "Bouncing Ticks" or "Entry Day Retracement (%)" or any other baloney.
  4. Get a new broker. Once you see how small slippage really is, you'll start to appreciate just how crucial commissions are. When you've got a half decent 3-10 day system, simulate the effects of commissions at $25, $20, $15, $10, and $5. It's astounding.

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Post by RedRock » Wed Apr 04, 2007 10:26 am

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nickmar
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Post by nickmar » Wed Apr 04, 2007 10:53 am

Ted,

What's your approach to measuring slippage on MOO and MOC orders?

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Post by LeapFrog » Wed Apr 04, 2007 12:58 pm

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Ted Annemann
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Post by Ted Annemann » Wed Apr 04, 2007 1:46 pm

I like to see a system work over a long period of time and a large number of trades. I like to generate equity curves that last for decades of trading and look for periods of unpleasantness, misbehavior, failed edge, etc. (Cheerfully I admit this is not "real world", e.g., no taxes or living expenses are deducted, but my major goal is to find out "is this a good system", so my tests focus on that.) I also like to apply systems to as many simultaneous markets as I possibly can, to get the twin benefits of diversification and additional compounding. While Corn is "out", Tokyo Rubber is "short" and New Zealand Bank Bills are "long". More opportunity to make/lose money.

Here's a test on my favorite short term system. I had to write some program code to calculate c.f.'s new "R-Cubed" statistic, and it might still have bugs. So I had the code print the intermediate results (5 worst drawdowns) and checked it by hand. I think it's okay but of course c.f. is the final authority.
Attachments
tedequity.png
equity curve normalised to 1.0 on start-day
tedequity.png (15.58 KiB) Viewed 20674 times
the_stats.png
performance statistics incl new R-cube
the_stats.png (9.41 KiB) Viewed 20674 times

nickmar
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Post by nickmar » Wed Apr 04, 2007 4:06 pm

The reason I brought up the topic of slippage determination for MOO/MOC orders is that some traders compare their fills for these types of orders to the actual open/close of the day. I contend that this approach is incorrect - especially when trading in size and/or in illiquid markets.

When a trader compares his MOO fill to the open, he does not take into account the influence that his order had in determining the open (somewhat akin to the observer effect the c.f. describes on page 153 of his excellent book).

This approach is fine when the trader's order is a small fish in a vast sea of liquidity. Conversely, if the trader's MOO order represented a large percentage of the aggregate number of contracts traded on the open, it is likely that his fill price would be equal to the opening price (indeed his order would have heavily influenced the opening range and as a result the opening price).

As a result, examining raw time and sales data is likely the only viable way to determine actual slippage when trading size on the open or on the close.

TK
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Post by TK » Wed Apr 04, 2007 4:17 pm

nickmar wrote:The reason I brought up the topic of slippage determination for MOO/MOC orders is that some traders compare their fills for these types of orders to the actual open/close of the day. I contend that this approach is incorrect - especially when trading in size and/or in illiquid markets.

When a trader compares his MOO fill to the open, he does not take into account the influence that his order had in determining the open
viewtopic.php?p=18613#18613

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Post by nickmar » Wed Apr 04, 2007 4:37 pm

Thanks TK - one of the few threads on the forums that I must have missed.

RedRock
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Post by RedRock » Wed Apr 04, 2007 4:42 pm

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Post by budonk » Thu Apr 05, 2007 9:46 am

Ted, are you trding this in real time, and if so, does your equity curve approximate the backtest?

Congrats if it even comes close!

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Post by RedRock » Thu Apr 05, 2007 1:07 pm

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nickmar
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Post by nickmar » Thu Apr 05, 2007 10:14 pm

jankiraly - I never meant to imply that one should always trade on the open.

Hiring traders or purchasing/outsourcing to/leasing an Algorithmic trading solution to minimize market impact costs is easier said than done. It is akin to allocating a portion of your capital to a high frequency trading overlay (suddenly competing with the RenTecs of the world).

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Post by BARLI » Thu Apr 05, 2007 10:46 pm

RenTecs? what is that? Why it'd be difficult to hire students to execute trades at the open just like Mr Jones did with short term Tom Demark's systems....

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Post by nickmar » Thu Apr 05, 2007 10:58 pm


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