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Thanks Dimitris , trader and others who had a quick look at that simple but
effective system ..
As I stated it was for a long term trader ( not my type of trade )
As I'm sure most of you would have heard or read a million times
the entry to a trade is only 10 % of a system, the flip of a coin can yield
just a good results ..
Money management , risk and position sizing and exit timing are where the
money is made
But it was good to read other ppls idea's and observations
Regards David
----- Original Message -----
From: "DIMITRIS TSOKAKIS" <TSOKAKIS@xxxx>
To: <amibroker@xxxxxxxxxxxxxxx>
Sent: Friday, July 06, 2001 5:16 AM
Subject: [amibroker] Re: winning system ?
> Dear Trader,
> Let me please express some thoughts for your reference.
> Divergences never promised entry and exit points.
> Their role is to consult about future possible movements or
> to complement other signals. Of course you may miss an
> entry, when you follow stochd()<=30 and the day of divergence
> AAPL has stochd()=30.01.
> Here is exactly the interesting point with Positive Divergence Issues
> (PDI). You may miss AAPL,but if the same day 50 stocks of the group
> that AAPL belongs to,diverged their stochd() and the group counts 60
> stocks, then you have some indication that this group may follow an
> uptrend the next days.
> Something, not coincidental, forces the 80% of this group to present
> a stochastic divergence.
> Look a few days before. If the 85% was stochastic oversold (stochdOSI
> got maximum values) and (above all) if YOU consider stochastic
> divergence as a reliable criterion, then you may pay attention to
> this group, NO MATTER IF AAPL MISSED THE CONDITION FOR 0.01/100.
> This is the purpose of Breath Indicators in general. To consult that
> something is "moving" in the market.
>
> Dimitris Tsokakis
>
> --- In amibroker@xxxx, traders10@xxxx wrote:
> > --- In amibroker@xxxx, "David Holzgrefe" <dtholz@xxxx> wrote:
> > > Maybe a few other could run it on there indexes to see if
> performs
> > the same ?
> > >
> > > an give me some feed back as the results seem a little to good ..
> > >
> > >
> > > Thanks David
> > >
> > > prevclose = ref( close, -1);
> > > signl = iif( close > prevclose , 1, 0 );
> > >
> > > BUY = CROSS(bbandbot(close, 15, 2),close) AND RSI(14) < 35 AND
> > signl = 1;
> > >
> > > SELL = CROSS(bbandtop(close, 15, 2),close) AND RSI(14) > 70;
> >
> > > an give me some feed back as the results seem a little to good ..
> > >
> > >
> > > Thanks David
> > >
> > > prevclose = ref( close, -1);
> > > signl = iif( close > prevclose , 1, 0 );
> > >
> > > BUY = CROSS(bbandbot(close, 15, 2),close) AND RSI(14) < 35 AND
> > signl = 1;
> > >
> > > SELL = CROSS(bbandtop(close, 15, 2),close) AND RSI(14) > 70;
> >
> > The major problem with this simple system is the huge drawdowns
> > between those "winning" trades. Look at the last few months for
> > AAPL, Apple Computer.
> > The system did its last buy in late May 2000 at ~45, the stock then
> > went to 14 in Dec 2000 before rallying. No one should or could
> live
> > with a drawdown like that....
> >
> > The problem is one that is commonly seen in a simple indicator
> based
> > system. You get the initial trade entry and then the exit
> conditions
> > are not satisfied for months or years. Meanwhile the price goes
> > wrong and you are still in the stock. Sure it backtests "well"
> with
> > nice profits and a hit rate in the 70-90% area, but it is a bad
> > system.
> >
> > The thing that most back tests is not telling you is the maximum
> > drawdown (maximum adverse excursion) during the trade. Usually you
> > are provided data that lists the drawdown from the entry point.
> > While this is a useful number in its own right it can mislead you
> > drasticaly.
> >
> > In the AAPL example, price got up to the 63 and change area. If
> you
> > had bought at the 45 price and exited at 55-60 you would have had a
> > nice trade. However, once the price got to 63 it went to 14.
> > Maximum drawdown for this trade was 63-14 = 49, really ugly....
> >
> > With this system there is no assurance the price will exceed the
> > upper BB with an RSI above 70. Now that may be a good exit point
> but
> > it may never be reached. So, the system needs to have other exits
> > added to it until you are guaranteed there will be a timely exit
> that
> > controls the max drawdown.
> >
> > As an aside, I have not looked at the work done recently by
> Dimitris
> > but I suspect the same problems may be there as well. Several
> years
> > ago I did a lot of work with divergences. They can provide really
> > nice entries, but will miss some entries because there may not be a
> > divergence. Even worse, they will miss exits because the
> divergence
> > may not occur. So you have to also include fixed exit levels or
> > trailing stops or some other exit that will signal for "every" exit
> > required. Again I have not had time to look at his work but I
> would
> > look for this possibility.
> >
> > Bottom line, back testing is a tricky business and one should
> always
> > examine the signals applied to the chart to see if the
> signal "makes
> > sense" by not missing entries or worse, missing exits. Take care
> of
> > the big drawdowns and the system profits will usually be fine.
> >
> > If you have questions on this, feel free to ask....
> > Trader
>
>
>
>
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>
>
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