Traders' Roundtable

Faulting Monte Carlo by saying that it cannot account for correlation is like faulting Calculus because it is limited to single variables. That's an incorrect claim. Correlation can definitely be accounted for in Monte Carlo analysis. There are standard techniques of accounting for correlation and ...

Hedge fund managers have to please their clients, the majority of whom seem to prefer a steady stream of returns rather than absolute returns. Look at Toby Crabel's performance - great in risk-adjusted metrics, not so great in absolute returns. The net result is that his is one of the bigger hedge ...

Here's an equity curve comparison for one system, with ATR measured as 1. a simple moving average (SMA); 2. an exponential moving average with smoothing factor 1/n (Wilder's EMA), and 3. the traditional 2/n smoothing factor (Traditional EMA). Wilder's EMA and the simple moving average provide ...

Thanks to everyone for their answers.

In my opinion, it seems reasonable to relate the smoothing factor to the length. With a simple moving average, the length is a necessary ingredient, and exponential moving averages are typically expressed in terms of length, 10-day, 50-day, 100-day, etc., so I ...

I use average true range to measure volatility for setting stops, position sizing, etc. I use both Trading Recipes and Tradestation, and have learned from doing comparison tests that the two programs calculate ATR differently. TR calculates ATR as an exponential moving average (the same way Welles ...

[MODERATOR'S NOTE: This posting and the two that follow were split from another topic on the "Top 10 Trading Systems of All Time"]

>I won't be too harsh judging mechanical systems performance from the >last few years, especially 2005. From the 2005 public funds return
>(futures mag, same issue), a ...

I personally am not a big fan of fixed-ratio position sizing either. Just for fun, I thought it would be an interesting exercise to update Mark Johnson's test in Trading Recipes. Attached is a comparison chart using the same 89-13 channel breakout system, with the same portfolio that Mark Johnson ...

From http://today.reuters.com/investing/financeArticle.aspx?type=bondsNews&storyID=2005-10-20T205909Z_01_N20537083_RTRIDST_0_FINANCIAL-REFCO-ROGERS-UPDATE-3.XML

NEW YORK, Oct 20 (Reuters) - A commodities fund backed by investor Jim Rogers said on Thursday it was unlikely to allow clients to ...

From -
http://www.theglobeandmail.com/servlet/ArticleNews/TPStory/LAC/20051010/RHEDGE10/TPBusiness/Canadian

"The U.S. Securities and Exchange Commission has also begun an informal inquiry into allegations that the U.S. brokerage arm of Man Group PLC, one of the world's largest hedge fund companies ...

I closed my Refco LLC account Friday morning, and it took until Monday afternoon for them to wire my funds. I spoke with client services Monday morning, and they told me that they were deluged with withdrawal requests and were backlogged. I wonder if there will be any Refco customers left after this ...

I don't recall Tharp making the claim that exits are more important than entries in his PP course, but somewhere in either PP or his Trading System Development course he shows backtest results for a random entry system with traditional trend-following exits that shows profits consistent with other ...

I found the Peak Performance home study course to be very useful.
In addition to the psychological/discipline information, Tharp does some NLP modeling of two traders - one succesful anonymous discretionary trader (who seems a lot like Larry Williams), and one successful systems trader (who seems a ...

Correlation can be handled using Monte Carlo simulation. Most decent Monte Carlo software packages, such as Crystal Ball and @Risk, allow for correlation.

The following reply to Van's post is also illuminating:
http://mastermindforum.com/phorum/read. ... 929&t=5833

Peter Aan has done some research in this area and it's published in the documentation for his "Mystery System." The optimized version of the Mystery System is asymmetric. [I have no relation to Peter Aan other than being a satisfied customer of his relatively cheap [$95] research report on the ...

Actually, Chris, the topic you've brought up is treated very extensively in mathematics and it's called the "theory of runs." Your example is the following: if the probability of a winning trade = 0.5, then the probability of three losses in a row in three trades is 0.5^3 = 0.125. You then seem to ...

Kiwi,
There are ways to generate correlated random numbers in a Monte Carlo simulation. Two Excel add-ins, @Risk and Crystal Ball, have this capability built in. Or if you're a do-it-yourselfer, you can implement the Iman-Conover or the Lurie-Goldberg algorithms.

Hi Forum Mgmnt,
What you've described is a form of Monte Carlo simulation - sampling from a histogram based on historical data, even one modified to account for fat tails, is just as much a form of Monte Carlo as is anything else.

Also, it is possible to perform correlated (i.e., non-independent ...

One possible way to determine the best possible portfolio for a trend-following system is to choose only the markets that trend well. Has anyone tried this? As far as I can tell, this idea was introduced in a "book" that Bruce Babcock put out years ago called Trendiness in the Futures Markets. He ...