How do you determine the "trend" aside of a 20-day

How do you know when a trend has started? Ended? This forum is for discussions about trend indicators and signals.
verec
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Post by verec » Sat Jan 31, 2004 11:30 pm

billpritjr wrote:There are other things such as risk management, market selection, volume action, but sometimes simple is better in the markets.
I'm not sure whether I'm going to be nitpicking or whether, indeed, you meant what I understood, but I think it is not proper to oppose "simple things" (which you seem to relate to simple MA crossovers) to "risk management", "market selection" and "volume action".

Those concepts are "orthogonal" to each other in that excellent money magament is not going save a simple system that systematically enters counter-trend, or good market selection is not going to save a system that over trades because of poor money management, ...

A good trading system is made of good entries and good exits and good portfolio selection and good money management. If anyone of these dimensions is sub-par the resulting system will be a poor system, no matter how excellent or simple any of the other components grades on your preferred scale.

billpritjr
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Verec

Post by billpritjr » Sat Jan 31, 2004 11:33 pm

No Verec, we are on the same page. I agree with your post and I personally (not speaking for the entire world, but for me) SUPPORT simple methods such as MA crossover and N-day breakouts.

Stan Weinstien, William O'Neil, of course c.f.' site and files, Livermore, Nick Darvas, are all sources I continue to re-read

verec
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Post by verec » Sat Jan 31, 2004 11:44 pm

Excellent! We agree to agree, then :D

BigBrad
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MA Crossovers

Post by BigBrad » Sun Feb 01, 2004 11:01 am

I'm playing around with an MA crossover system to just trade the Dow 30 stocks. The main thing I've found is that the fewer the days in the MA the more trades/more signals and you don't get enough movement to overcome slippage/commission.

I've also not seen a "go short" strategy that's worked over a period of 10+ years on the DOW stocks using multiple MAs. Not to say it doesn't exist, just I haven't found it yet.

Now when you extend out the number of days in the MAs you start to get the opportunity to see some very high R value trades and create an expectancy of about 2 or greater, win percentage about 35% with average holding days around 60, easily overcomming the cost of commission/slippage. The down side is you might only do 20-30 trades a year, but if my Math is correct that would be a return of approximately 50% a year:

if Expectancy is 2 and my % risk is 1 per trade then my average total return per trade is 1.02? (Correct me if I'm wrong!!!)

If I trade 20 times a year then 1.02^20

Total return for the year 1.4859 or 48.59% return.

Of course with equities we don't have as much leverage and risking 1% per trade you could only have about 15-20 positions at a time, which some would argue is too many. I haven't played around with limiting risk to say 4 or 6 positions at a time yet.

Today (around the superbowl and giving a flying lesson) I'm trying to put together the Tharp "Marble Game" to see how it trades and also work some Monte-Carlo analysis.

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Post by gms » Sun Feb 01, 2004 3:54 pm

The problem you're describing is whipsaw or false breakouts, an inherent problem with MA crossovers. Your solution is to use wide parameters for the MAs, but I suggest that you keep the MAs short and instead change your trading timeframe down. It's a simple thought, really. MA crossovers work best in trends, not ranges. If you're getting whipsawed, it's because you're in a trading range. If you're in a trading range, then the way to turn that into a trend so as to work with the MAs is to scale down so that you're working on the last leg of the range, which then becomes a trend.

Another thing to do is to see if the MA supports the price first before taking the signal. In other words, if the price had been trading under the MA and the price crosses up, then the lagging MAs crossover, see if they become support for the price first before entering.

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Post by BigBrad » Sun Feb 01, 2004 5:07 pm

I can understand what you mean by WhipSaws and testing the MA as support. What I do is use a 1 - 3 ATR as a stop loss( the tighter for the smaller MA period), mainly to define my R value. I'm still not sold on the shorter time frame of the MAs to produce enough volitility to make trading worthwhile under the assumptions that I'm using.

I've had one system that came up with 54% winners and the average trade only lasted 2 days. The problem was that without factoring any slip the expactancy of the system (about 300-400 trades a year) was 0.02R which isn't worth the risk of trying it out in real money.

Also, with 1% risk only 7-10 total positions could be taken, not the 15-20 that I mentioned in a previous post.

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