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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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