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Ken,
Multiple sub-signals as it were have long been around and are
typified by Ultra Systems software. If you think about it even
simple systems like RUTTR use this principle in that the MACD &
Stochastic must agree. This concept can be used a lot of different
ways. It can be used as a voting system like RUTTR does where there
must be a unanimous vote before taking action or it can be used to
decide to what level one should be invested i.e. 25%, 50% 100% etc.
--- In amibroker@xxxxxxxxxxxxxxx, "Ken Close" <closeks@xxxx> wrote:
> Multiple Sub Signals: - here is a real world trading approach that
I
> have never seen mentioned here. I would like to get some reaction.
> This is based on some real world trading that is happening on
another
> platform that I am helping port over to AB.
>
>
>
> The idea is to have signals for multiple subsystems and then take
your
> trading signal when a majority of the subsignals "line up".
>
>
>
> For discussion purposes, visualize a mov avg cross over AND
>
> A volume oscillator AND
>
> An advance decline curve AND
>
> Perhaps a VIX type signal.
>
>
>
> If you let each one be a buy or sell, and call each S1, S2, S3, S4
>
>
>
> then your buy statement could be
>
>
>
> Buy = S1 AND S2 AND S3 AND S4.
>
>
>
> This might be a little too stringent, so perhaps you code it to
give a
> buy if 3 of the 4 signals are a buy and you do not care which ones.
>
>
>
> In the work that I am doing with this approach, I am seeing that
each
> S(i) has a return and a dd over a long period of time, but as you
add
> combinations of the signals, the return increases a little bit but
the
> dd seems to drop and drop quite a bit. An example might be returns
for
> each one individually of say 8-10% CAR and 13-15% dd, but when 3
out of
> 4 are combined as I describe above, the resulting return might be 9-
12%
> CAR and 6-9% dd. These are not barn burners, and those seeking or
> actually trading 50-100% CAR systems will laugh as they hit delete,
but
> for some folks who are risk adverse, or managing retirement
portfolios,
> or whatever, this kind of approach might have some appeal.
>
>
>
> In the work I have done so far, there has been NO OPTIMIZATION of
the
> parameters within the subsystems. Any In sample period compares
> favorably with OOS periods. The results look steady over 12 years
of
> data, with variations due to changing market conditions. (I am not
sure
> "IS and OOS" apply when no optimization has been done, but what I
mean
> is that breaking the total time period up into sections shows no
real
> degradation or "blowup" of one period relative to the other.)
>
>
>
> The details of the subsystems are not the issue here-what I am
raising
> is the question of the drawdown dampening effect of the
combination. Is
> this a mathematically correct thing to expect? Does moving in this
> direction promise dd reduction? Assuming you select subsystems
that
> are not highly correlated, should you not expect improvements in the
> combination that are not possible in the single subsystems?
>
>
>
> Any comments? Build-upons? What?
>
>
>
> Ken
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