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Re: [amibroker] Re: TESTING THE UNIVERSE ?



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Hi, Gosub:
 
I've written on this subject before in this forum. There are several ways 
you could approach the problem of defining efficient stocks. A stock has to have 
some non-random movement to be predictable.  Perry Kaufman calls this the 
"fractal efficiency ratio" or FER.  It's the total change in price over a 
given period divided by the sum of the absolute values of all the daily changes 
in price.  If a stock has too small a directional component, then it's a 
poor candidate for any system, regardless of how many filters or refinements you 
add.  You're better off using all that firepower on a better target. So, 
using Kaufman's FER is one way. Another is Van Tharp's efficiency index (EI), 
which he introduced about a year ago on his forum. It is simply the difference 
in closing price between today and x-periods ago divided by the ATR over the 
same period (note how similar in principle it is to Kaufman's). He uses several 
periods to define his efficiency rating. Although he never defined it 
mathematically, I figured it out and coded it in afl. There are basically 2 
efficiency index periods, short term and long term. You may change these in 
whatever way you want and use them however you want. I'm just showing an 
example. Here is the exploration code: 
 
Filter=1;//filter on all stocksEI20=(C-Ref(C,-20))/MA(ATR(1),20); //he 
uses a simple ma of the true range rather than Wilder's 
ATREI45=(C-Ref(C,-45))/MA(ATR(1),45);EI90=(C-Ref(C,-90))/MA(ATR(1),90);EI180=(C-Ref(C,-180))/MA(ATR(1),180);ShortTermEI=EI20+EI45;//short 
term sum of EI20 + 
EI45AvgEI=(EI20+EI45+EI90+EI180)/4;AddColumn(EI20,"ei20",1.2);AddColumn(EI45,"ei45",1.2);AddColumn(EI90,"ei90",1.2);AddColumn(EI180,"ei180",1.2);AddColumn(AvgEI,"AvgEI",1.2);AddColumn(ShortTermEI,"ShortTermEI",1.2);
 
The AvgEI should be > 0 (perhaps as high as 15, but you can play with 
this). The ShortTermEI can be set to whatever you want, also. Obviously, you can 
optimize these terms. In your "price volatility" definition, this is the 
antithesis of an efficient stock as defined above. Your "overall market 
volatiltiy" is closer in line with the above discussion. This whole idea of 
"personality" of stocks is why I am a believer is optimizing a system on a 
stock-by-stock basis rather than over an entire watchlist of stocks. The latter 
may give you an indication of overall robustness, but the parameter values 
derived from such an optimization are influenced by bad personality stocks as 
well as good personality stocks. Why should your system be influenced by stocks 
that don't behave well? You're not going to trade all 100 NDX stocks anyway nor 
certainly those that are poor performer to begin with. Probably the max number 
of stocks you will trade is a dozen or so, probably less. So, why not optimize 
on each of those dozen stocks separately? As long as the system is robust for 
each stock, that's all that matters. Just my opinion. 
 
If you make any progress with further refinements in stock personality, 
please post as this has always been of interest to me. 
 
Al Venosa
<BLOCKQUOTE 
>
  ----- Original Message ----- 
  <DIV 
  >From: 
  gosub283 
  
  To: <A title=amibroker@xxxxxxxxxxxxxxx 
  href="">amibroker@xxxxxxxxxxxxxxx 
  Sent: Sunday, March 30, 2003 10:34 
  AM
  Subject: [amibroker] Re: TESTING THE 
  UNIVERSE ?
  Hi AL, (and everyone else)Great thread so far. 
  Thanks for all the replies.Al, does your definition perhaps describe 
  the perfectsideway's market ? Lots of steady price moves but nogreat 
  change in overall volatility?Your comment touches the real reason why 
  I posted"TESTING the UNIVERSE" in the first place.If it is possible to 
  somehow isolate and catagorizestock personalities or efficiencies, then 
  this is anarea where we could really benifit.(I realize this is easier 
  said than done).On the subject of efficiency, your definition 
  doesmatch earlier ones that I have seen. Volatility is the tricky 
  one.A stock's 1 month volatilty may look low, but that samestock may 
  have a very high volatility when looked atover 1 year. (I know I'm stating 
  the obvious) So, whentrying to define "personality" a timeframe must be 
  considered.I try to use at lease 1 year of data to judge a 
  personality.Anything less may be non-repeatable. Due to evolution 
  andcompany changes in size/volume/growth over time, anythingmore than 
  3 years may also be useless. Back to efficency for a moment....This 
  could be a very usefull filter.In an attempt to design one in the past, I 
  sent a questionto S&C magazine (it's in the Nov. 2002 issue) 
  Titled"Volatility Defined". They did not provide a satisfactoryanswer 
  to my question. You see, it's possible to have...A)a very high 
  Average True Range (ATR) value  while a stock moves in a FLAT 
  mode.  (What I call "price Volatility")B)it's possible to 
  have a very low ATR and have the stockmake huge gains/drops over a given 
  period.(What I call "Overal Market Volatility")Both describe high 
  volatility, but are quite diferent??(If you happen to have the magazine, 
  it shows extemeexample in charts. I'll try to fine .jpg copies)One 
  may suit a particular trading system more than another.Here's the 
  end....finally  :-0 (Yawning)I think "personality definition" is 
  a small niche that wouldhelp some trading systems to define better 
  targets. If anyone has more suggestions on this subject, pleasepost 
  them. By the way, this is as far as any other discussion got 
  onpersonality definition, then they stopped. It's possible thatthere 
  is no more than this. That perhaps, I'm suggestingthe catagorization of 
  randomness ? Soemtimes, my philosophicalmusings are killed by the pure, 
  cold reality of math and 
  chaos.Cheers,Gosub283--- In 
  amibroker@xxxxxxxxxxxxxxx, "Al Venosa" <advenosa@xxxx> wrote:> 
  Gosub, > > If I may butt in for just a moment. An "efficient" 
  stock in my mind is one that participates in large price moves with very 
  little concurrent movement in its volatility. It's not necessarily a low 
  volatility stock; it's the fact that the change in price of a stock 
  over a certain period is disproportionately higher than its 
  corresponding change in volatility. > > Al 
  Venosa>   ----- Original Message ----- >   
  From: gosub283 >   To: amibroker@xxxxxxxxxxxxxxx 
  >   Sent: Saturday, March 29, 2003 7:26 
  PM>   Subject: [amibroker] Re: TESTING THE UNIVERSE ? (for 
  GoSub)> > >   > >   
  >   -----Original Message----->   
  >   From: gosub283 [mailto:gosub283@xxxx]>   
  >   Sent: Saturday, March 29, 2003 5:28 PM>   
  >   To: amibroker@xxxxxxxxxxxxxxx>   
  >   Subject: [amibroker] TESTING THE UNIVERSE 
  ?>   > >   > >   
  >   Hi everyone,>   > >   
  >   Please bear with me on this subject 
  because>   >   it's one which I have not yet 
  found the answer>   >   and one which I am not 
  an expert. This question is based>   >   on my 
  current assumptions and is open to comment,>   
  >   correction, or debate.>   > 
  >   >   (This has been discussed before but, as 
  an onlooker,>   >   I did not see a 
  solution.)>   > >   >   Here 
  it is:>   > >   >   What is 
  the point of testing the whole universe>   >   
  of stocks with a trading system if it is generally>   
  >   understood that..>   >   A) 
  Some stocks are just not "system" tradeable>   
  >   B) Some systems are best suited to certain 
  markets.>   >   C) Some stocks have unique 
  "personalities" which work>   
  >      with some trading techniques but not 
  others.>   > >   >   It 
  seems to me that a test of the whole universe will give>   
  >   a squewed result because the performance of the 
  system>   >   will be lowered by the 
  "untradeables" and the ones with>   >   the 
  "wrong personality".>   > >   
  >   I have written filters which divide up the universe into 
  two>   >   personality groups.(Good ones on the 
  left...bad ones on the right)>   >   This 
  has helped to narrow down the basket a little.>   
  >   But maybe there's another reason to test the whole 
  universe>   >   that I m not aware of. Any 
  comments on this ? (for or against)>   > 
  >   >   PS: I think the focus should be on 
  devising ways to define>   
  >       and catagorize "personalities", then 
  go exploit them.>   >       
  (Definately easier said than done) ;-(>   > 
  >   >   Cheers,>   
  >   Gosub283>   > >   > 
  >   > >   > >   > 
  >   > >   > >   > 
  >   > >   > >   > 
  >   > >   
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