Long Term vs. Short Term Strategies

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.
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Jimmy
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Long Term vs. Short Term Strategies

Post by Jimmy » Sun Apr 20, 2003 10:46 am

Hi all,

It is apparent from different posts that some people are mixing long term and short term trading systems to diversify and smooth out equity curves. This seems like a very interesting concept that I would like to understand further. As a person still at the beginning of my trading learning curve, I have some simple questions regarding the combining of different time frame strategies. It will be interesting to see people’s different thoughts to the following questions.

1) What is the threshold when a short term system becomes long term? Is this determined by average expected length of trade or some other measure?
2) If one is trading a long term trend following system, would a short term system just be a condensed version of the long term trend following system or a different strategy all together?
3) Once you know what your long and short term systems are, how does one determine what mix of the time frame strategies to implement?

I look forward to and appreciate all responses from everyone. I apologize in advance if these questions are too simplistic or vague in nature.

Regards,
Jimmy

Robert Nio
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Post by Robert Nio » Sun Apr 20, 2003 12:10 pm

Jimmy,

I want to highlight just one element of short-term vs. long-term trading.

The shorter the time frame the more random the movements. The "significant" moves are the ones, which last at least a few weeks and sometimes much longer. REAL money is made with the significant moves over the long run. In the short-term, you can be lucky being a day-trader.

There is an interesting anomaly when it comes to price movements. They start out to be "very" random and that fades away with time but then at a certain time within the life of a security you will see the randomness re-appear. Executing statistical test on any mature security will reveal this.


Hope this helps :-)

Robert

bloom
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Post by bloom » Thu Apr 24, 2003 4:07 am

If you believe the market are fractal in nature and self-similar across timeframe, which is to basically saying the statiscal properties of the market is the same across all timeframes, then there shouldn't be any difference between longterm or shorterm trading and we should favor short-term trading because it gives more oppununity to apply our edge.
To make REAL money, you don't need bigger or longterm moves, just use more leverage in your short term system. :)

But of course, we know that's not accurate because there is commission and slippage problems in the real world. I think in most day-trading system, these trading expenses makes more than 30-50% of the net profit. My own results in three yrs of acutal trading is around the 40% mark.

It's not impossible, it just mean you need a very significant edge to overcome the slippage and commission.

kmulford
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Trading multiple systems

Post by kmulford » Mon Jun 23, 2003 9:02 am

A new topic?

Using two or more different trading systems, each with positive expectancy, should provide a trader with more opportunities to trade and, thus, realize on the positive expectancy of the systems.

Has anybody had any experiences they would like to share regarding the construction, testing and trading of multiple systems methods?

How does one go about picking the systems to trade in conjunction with one another? What characteristics of the second system are most useful in complementing (offsetting) the first? Long term and short term?

How many systems can/should be optimally traded?

Are there any practical limitations (e.g., brokers becoming suspicious and balking, capital requirements, bookkeeping, etc.)?

Does it work?

Ken

rs

Post by rs » Wed Jul 30, 2003 4:28 am

Hi,

I had a question regarding the definition of a short term system.

Does it mean that one continues to use daily charts to determine risk and entry points and simply exits earlier based on a shorter moving average than they would normally use, for example?

Or does it mean trading on sixty minute or 15 minute charts rather than daily charts?

Thanks

rs

Chris Murphy
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Post by Chris Murphy » Wed Jul 30, 2003 9:21 am

I consider the difference to be based on the number of trades in a given time t and the average length of each position held. For example. If in 360 days you place 30 trades with each trade lasting on the average 4 days that would be a short-term swing trading system. Swing trading just means that you hold positions overnight and the average holding period is generally only a few days. A long-term system will generally have fewer trades per time t ( maybe 15 ) and will have a longer holding period per trade as well ( 14 days ). The definition is loosely defined. The real variables are how often are you trading and how long are you holding positions for. Hope this provides a framework for you.

Chris

jimsta
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Long or short term.

Post by jimsta » Sat Aug 02, 2003 1:14 am

The original post started of with the premise of randomness in short time frames. When the amount of information to be gathered is small its statistical integrity cannot be guaranteed. There is clear rules about sample sizes.
A popular measure is the moving averages, you need longer time frames for them to be more reliable. Trouble is that cuts off the ends of the data and widens the range that you have to work in. On the other side of it when the time frame is shorter, the "noise" ,ie , the random short term variation can swamp the signal. Both have good and bad points.
What is the difference between a Swing trader holding for one hundred fifteen minute bars and an EOD in there for four months. The range. Short term trading involves a high turnover of small profits with constant monitoring. Long term trend following means only jumping in and out when you have to avoid losses, otherwise sitting back and watching when it goes your way.
I have two systems, both on EOD, one holds for up to one hundred days (the short term one) and the other converts to a type of weekly which can hold on to some stocks for years (its only used only on stocks). Both make about the same returns, but have different curves. They both use similar ideas but the longer time frame includes the use of volume, where as volume was unusable in short time frames.

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Doubts are healthy.

rs

Post by rs » Thu Aug 07, 2003 8:00 am

Thanks for the comments.

So one could trade both a short term and a long term system at the same time to smooth the equity curve, as has been suggested elsewhere on the forum.

This might involve taking a signal for both the long term and the short term system at the same time but simply exiting one before the other. Example - both systems enter on a 20 day high, exit ST system on close below 20 day moving average and exit LT system on 50 day moving average.

Is this what is meant by operating a short and a long term system at the same time?

Thanks for any feedback

rs

Kiwi
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Post by Kiwi » Thu Aug 07, 2003 8:07 am

Generally Id be looking for different entry and exit criteria for short vs long although either might take place at the same time. Also the short term is more likely to have a target exit instead of a trend following trailing stop or MA.

John

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