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Many of us approach trading system development with blinders on. What
I mean by that is that we instinctively limit ourselves to our own
poorly constructed preconcieved ideas, or we are leashed to
"conventional wisdom" (which can be a real killer). When shackled by
blinders, we do not use AmiBroker to its full capabilities.
EXAMPLE:
Earlier this week Jayson replied to a sample trailing stop post I
made. Jayson pointed out that the fixed stop level of the previous
days Low minus .50 would probably work better with a variable amount
based upon the Tickers underlying price. For the record, I've
backtested many variable level stop loss systems and the best single
stop loss level I have is a fixed amount for all Tickers and issue
prices. FWIW... minimize your own assumptions about what SHOULD work,
and be flexable enough to go against your instincts.
And this week Fred (who only trades MF's, not stocks) expressed the
very strong belief that only mental trailing stops should be used
because Mkt Makers have a reputation for 'gunning stops', and that
placing actual stop loss orders is the equivilent of hanging a sign
around your neck saying "SUCKER" (my interpretation of Freds post).
All I can say is this:
I trade stocks. And I have quite a bit of experience doing it...
profitably. I use actual stop loss orders AT ALL TIMES! Sure... I've
been the victim of 'gunning the stops' a few times. But much more
often I've seen stock price action come within a penny of my stop
before reversing and making me even larger profits.
I use Limit orders to open positions, and you might assume that when
unusually bad news or adverse rumors occur before market open on a
stock that I have a limit order in place on that the MM's would hit my
limit price BEFORE dropping the price, right? NOPE... I can't tell you
how many times I've placed limit orders the night before and had
adverse news or rumors gap the price against my intended position and
I almost always get executed AFTER the gap has occurred, either buying
lower than I specified or shorting higher than I specified. And I feel
pretty sure that after all the dust has settled, I've actually
profited from these situations because the actual OPEN is usually the
worst price of the day.
My point is simply this... try to rise above your preconcieved notions
or 'conventional wisdom'. Backtest every situation. Analyze, Analyze
and then analyze some more. Then if it still looks good but you
continue to be suspicious then make small trades just to see what
happens. You might be risking a few bucks only to learn that you've
got a good tradable system.
If you disagree with the above and you have stock trading experience
then OK. But if you disagree... and you have no stock trading
experience... then think carefully.
Another point... When I worked for others, some of the most
significant career accomplishments came from ignoring conventional
wisdom and probing all avenues for solutions.
And earlier this week someone posted that they had the book 'Street
Smarts' which is where I got my idea for the 'Holy Grail' trading
system. They said that they had programmed the Holy Grail system and
it did not work. I can easily believe that because it did not work
for me either as it was posted in the book. It took weeks of gyrations
using logical derivitives of the trading system before I gradually got
it to work. So if a trading system idea seems to make sense to you,
don't give up too early.
Finally this negative observation... For years I looked at charts
using the RSI, Stochastics and MACD indicators and thought to myself
that "They ought to work" in a mechnical trading system. But after
years of playing with those as the primary indicators I still have not
come up with anything significant.
Phsst
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