LTTF and Volume, Volatility and RS.

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rajivm
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LTTF and Volume, Volatility and RS.

Post by rajivm » Tue Dec 21, 2004 10:54 am

Dear Friends,
I have been trading stocks short term quite succesfully for some time. I use 5 variables in my short term analysis -
1. Closing Price
2. Volume
3. Volatility
5. Market Direction
6. Relative Strength

I am using Wealthlab and I see that it is fairly easy to design 35%+ annualized return systems ( with 35%-40% Drawdown) using just Closing Price Based Moving Averages. I am using using just simple 7-8% pct Position Sizing. My systems have Avg Bars Held ~ 100.

But when I try to improve the System Performances using other variables like Volume and volatility and RS I find that performance does not improve ( It mostly goes down). Market Direction seems to hold some Value.

I want to request other Traders to share if they think Volume, Volatility and RS are real Value ADDS in designing Long Term Trend Following System. Is it worth researching further or not on volume and Volatility and RS.

Thanks a lot,
Rajiv

rajivm
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Post by rajivm » Tue Dec 21, 2004 10:56 am

I meant I am using Wealthlab for coding Long Term Trend Following Systems.
Thanks,
Rajiv

-w.
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Post by -w. » Wed Dec 22, 2004 5:31 am

Personally I have found that designing LTTF-Systems for Stocks can be quite challenging if you use too much input/experience from "traditional" approaches.

Usually, TF buys/sells breakouts (price and/or volatility). One way I have used RSI (and Momentum) in traditional stock trading was to try identifying divergences to potentially spot false breakouts. Eg, if new Hi/Lo is not confirmed by RSI and/or Mom, this negative divergence often (no, make this sometimes) is an indication for a weak breakout not resulting in a sustained trend. So it might make sense to test that idea and find out whether one will be able to reduce false signals. Same obviously holds for volume (a breakout on high volume is "better" than one on low volume - or is it?)

As for Systems Trading I do believe in a "Simple is Often Better"-approach, though. While incorporating additional parameters such as those above and many more might make your backtested results more attractive, I suspect that it would make your systems less robust as well.

-wojo

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