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Hi Guys,
I just felt compelled to deliver my sixpence worth of comment on the Buy and
Hold issue.
Firstly every different system delivers a different Buy & Hold performance
and if I had to choose between the following the choice is obvious.
1. B&H return over 5 years = 700% - System return = 250%.
2. B&H return over 5 years = 100% - System return = 150%.
Secondly I don't have enough money to hold an equal amount per stock over a
period of 5 years in any substantial volumes. This could be eliminated by
buying into mutual funds I agree, but what are the chances of the next 5
years being the same as the previous 5. Many market analysts swear by cycle
trends, which in some ways are true, but measuring these with any long term
precision would have made the whole world rich by now.
Thirdly Ami doesn't support any interest calculation in Automatic Analysis
which would even out the playing field a bit more, but then again dividends
for the B&H scenario would have changed the picture back into B&H's favour
again.
The best systems I have written and other well known systems I have tested
on the Dow Jones and Nasdaq100 combined, could not beat the B&H scenario for
the past 5 years.
Investment objectives play a major role in deciding how you will invest. If
you are willing to leave your money on the market for long enough (10 to 20
years) in blue chip stocks you will earn excellent returns without the
hassle of trading on a frequent basis.
To be totally honest and with all due respect to TJ the B&H figures in the
AA testing is worthless to me as it changes with every system you test. The
best way to measure your system on a B&H scale is to assign a index value to
the all the stocks you are testing from the start date of testing and last
day of testing. You can't make any meaningful comparison in the long term
with something that is always relative to itself. This being the reason that
RSI is an excellent indicator in a system, but quite useless on its own.
Most Mutual funds are driven by Fundamentals and not technical analysis,
although I am a firm believer that fundamentals and sentiment are already
built into stock prices to some extent and fundamentals consists of even
more guess work than technicals. Psychology = fundamentals as the technology
we have for media through the IT industry have levelled the playing field
for all parties concerned and it is impossible to profit on any news
announcement in the short term as the price would already reflect the
reasonable expectation.
I could keep you guys busy for weeks on this subject, but you probably know
this already.
Regards.
Jaco Jonker
----- Original Message -----
From: "Tomasz Janeczko" <tj@xxxx>
To: <amibroker@xxxxxxxxxxxxxxx>
Sent: Saturday, July 07, 2001 10:31 PM
Subject: Re: [amibroker] System Development Questions
> Hello Jim,
>
> Thank you for your very interesting e-mail.
>
> > [...]
> > In general, I've found that the backtest results can vary greatly
> > depending on how these formulas are used. In fact of all the systems
> > that have been posted in the list over the last 6 mos. I've yet to
> > backtest ANY that give results close to that of BUY&HOLD when tested
> > on the stocks comprising the DJIA/NASDAQ100/SP500 US markets over the
> > last 10-20 years w/o even including the effect of stops and drawdowns.
> Well, US markets are in fact very specific. We had very nice long-term
trends
> there in a bull market that made Buy&Hold strategy working well.
> It is quite the oposite for other markets - in Poland for example B&H
strategy
> does not work at all (maybe except the years 1993-mid 94).
>
> Therefore it is important to backtest your system on different markets
> to see how it performs not in bullish market.
>
>
> > I'd like to hear from the backtesting and system development
> > experts...
> >
> > Should a system be developed and tested over an entire market or
> > tailored to fit an individual stock?
> It depends, but generally speaking overfitting the system to one stock
> is dangerous because it may never work so well in the future.
>
>
> > Should a system be developed to fit both bull and bear markets or
> > just the recent trading time period?
> I would advise to test every system on both because you never
> know what the future will come.
>
> > Should a system be able to beat the buy & hold results as AMI
> > calculates them or is this just a relative best-can-do benchmark?
> Of course it should, otherwise there is no reason to use the system at
all.
> I have written systems that outperform B&H by quite nice margin.
>
> > Should a system be developed and tested with or without a STOP?
> Generally speaking you should use stops (at least stop loss). On the other
hand
> studies on using *profit target* stops show that using them generally
> spoils the performance of the system.
>
> > Should I just give up and buy a good indexed mutual fund? I hope
> > not! :-)
> Well, it depends on various factors - it is certainly easier and less time
consuming
> just to invest in funds, but:
> - you can use technical analysis also to choose the best fund at a time
> - it may happen that there is hard to find the fund that matches your
preferences
> and objectives
>
> > TJ, you mentioned earlier summarizing the system backtest results in
> > the library...
> Yes, I am considering several enhancements in the AFL library.
> I would like to define some standarized markets that we (as a community)
> will use for backtesting so we can very quickly compare the performance
> of various systems in various circumstances. This will be a great
time-saver.
> I hope that AFL Library will grow to become a very valuable resource
> for trading system developers.
>
> > I'd like to suggest that the user community establish a standard that
> > these systems are backtested to for the purpose of including these
> > results in the AFL library. Here's some thoughts...
> >
> > Standard US and/or non-US market.
> > ->30DowStocks
> > ->Other Non-US
> > Standard time frame to include all market types.
> > ->1980-to-Present
> > ->Other
> > Standard Entry/Exit
> > -Next Day Open
> > -Other
> > Standard results such as...
> > ->Return
> > ->Return vs. Buy/Hold
> > ->Max Drawdown
> > ->Win Rate
> > ->Profit Factor
> > ->Other
> Yes, your proposals are in line with my thoughts, I wish other people
> on this group speak up about their proposals so we can
> find something useful.
> Maybe a poll would be useful?
>
>
> > Finally, it was suggested earlier on the list that the Drawdown from
> > the Backtester Report is the entryprice-to-trough rather than the
> > peak-to-trough. Is this correct?
> Yes, currently back tester reports entryprice-to-trough drawdown,
> but peak-to-trough will be added.
>
>
> Best regards,
> Tomasz Janeczko
> ===============
> AmiBroker - the comprehensive share manager.
> http://www.amibroker.com
>
>
>
>
> Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
>
>
>
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