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Dear Jim,
I was informed by various authors that macd crossovers may
give a nice, low-profile trading system. You will never catch
highest high (macd is lagging, as you know), you will never
buy at lowest low (the lag again), but you will have some secure
profits, if you follow the system all the time and with discipline.
You can find similar suggestion everywhere.
I had some doubts.
So,I selected a blue chip, a bank, with excellent fundamentals etc.
and scanned with
buy=cross(macd(),signal());
sell=cross(signal(),macd());
buying and selling at close, the same day of crossover(a bit
impossible, you know the crossover occurence tomorrow, but this is
not the point), with 1% commission.
I hit backtest to see this "low profile but safe" gain.
The result, for a 19 months period, was a loss of -16,40% !!
O. K. we say "low", but it was very "low".
(I tested the result trade by trade.)
My doubts about this trading system, as you understand, increased.
If you know another way to be informed about this subject, except
backtesting, please let me know.
Best Regards
Dimitris Tsokakis
--- In amibroker@xxxx, jvarn359@xxxx wrote:
> Jim:
> > 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.
>
> TJ:> I wish other people on this group speak up about their
> > proposals so we can find something useful. Maybe a poll would
> > be useful?
>
> Are you 'sure' you want people to speak up? You might want to
> reconsider after I give my opinions :=) What I'm about to say
might
> be unpopular but I'll take a risk and speak anyway.
>
> I believe mechanical backtesting is "mostly" spurious and I don't
> think it is wise to rank AFL's by backtesting results.
>
> As proof consider well-known swing trader Gary B. Smith. He buys
> breakouts over trendlines. I've modeled his simple system and it
> generates poor returns.... but Mr. Smith's trading has made him a
> millionaire. I'm no millionaire but I've turned in some good
trades
> lately using simple divergences. These too fail under backtesting
> but the profits in my account are no less real.
>
> Here's why backtesting underperforms a good trader: stock
selection.
> I think Smith and I use the same approach. I use Explorations to
> generate a short list of candidates to trade. I put the results
into
> a watch list, select the first stock, then use the down arrow to
flip
> thru the charts. If I see a price and volume pattern I "like" then
I
> buy. Patterns I "like" are based on accumulated experience from
> numerous trades over the years. When I use AmiBroker I never
> backtest... I have no need or desire to have little white and red
> arrows cluttering up my charts!
>
> The problem with backtesting is that it buys every candidate, even
> the ones with bad charts. Traders outperform the computer because
> the eye and brain are very good at visual pattern recognition and
> integrating other factors such as how the major indexes "feel",
> economic events, sector rotation, etc. Compounding the problem is
> that pattern recognition and external data integration are updated
> daily by my brain, whereas the mechanical system holds the stock
> until a rigid exit is triggered.
>
> If one is serious about mechanical backtesting then there is no
need
> for a charting program. Just use a database or spreadsheet with
the
> trading algorithms (see the Mechanical Investing threads on Motley
> Fool). Let the database or spreadsheet to tell you when to buy and
> sell. No need to ever look at a chart again.
>
> To sum up: backtesting tests the *computer* as trader not the
*human*
> as trader.
>
> Ranking AFL's by backtesting scores can mislead people. A negative
> return system could generate positive returns in the hands of a
good
> trader through careful chart selection. Conversely, a system that
is
> labelled the "best" may do poorly in the hands of some traders.
>
> Now that I've said that, I don't mind if AmiBroker has backtesting
if
> most people want that feature. Good programs come with a full
chest
> of toys and its up to each user to decide which toys to play with.
> But I hope that the focus of AmiBroker stays primarily with
charting.
>
> Regards,
>
> Jim Varney
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