|
PureBytes Links
Trading Reference Links
|
Chuck,
I don't think we disagree. Developing, testing, optimizing and
trading can be done using compounding PROVIDING one is careful how
one evaluates the results. But no matter, I understand what you are
saying and thanks for the reply.
--- In amibroker@xxxxxxxxxxxxxxx, "Chuck Rademacher"
<chuck_rademacher@x> wrote:
> Reply to Fred:
>
> Yes... and no.
>
> Absolutely, in real time trading I am compounding.
>
> To determine parameters via optimization.... not if my life
depended on it!
> And, I guess my life does depend on it, as I make my living
managing funds
> for others.
>
> I mentioned one trade (AOL) where my system made $1.5 million on a
$10,000
> investment. That's not bragging... I'm sure you could come up with
a system
> that could achieve similar performance. Since the average trade
generated
> a profit of $2,700 for every $10,000 invested, the AOL trade could
cover up
> lots of bad trades made using one parameter set. Compounding that
trade
> would exacerbate the problem. A minor tweak to the parameters
could cut
> out the AOL trade, yet that very tweak could improve performance
going
> forward.
>
> When choosing parameters, I want plain vanilla trades, each
standing on
> their own merit, with no compounding.
>
> We may have to agree to disagree. It's like absolute gospel to me
and I
> cannot see clear to do it any other way.
> -----Original Message-----
> From: Fred [mailto:fctonetti@x...]
> Sent: Thursday, April 17, 2003 3:16 AM
> To: amibroker@xxxxxxxxxxxxxxx
> Subject: [amibroker] FW: [aaft_ta] Re: TradingRecipes
>
>
> Chuck,
>
> I'm sure you'd agree, wouldn't you ?, that one way or another you
> compound. If you are not compounding by increasing bet size then
you
> are compounding by increasing the number of stocks you'll
potentially
> take simultaneous positions in as equity grows, right ?
>
> --- In amibroker@xxxxxxxxxxxxxxx, "Chuck Rademacher"
> <chuck_rademacher@x> wrote:
> > For what it is worth, I use fixed bet size for all backtesting
> purposes. I
> > coudn't imagine backtesting/optimizing using any other
approach. I
> even go
> > a step further if I'm doing any optimizing. I recently posted
an
> equity
> > curve showing something like $80 million in profit. Within
that
> $80
> > million, the top 100 stocks (out of 13,500) generated $20
million in
> > profits. AOL, by itself, generated $1.5 million in profits. In
> each case,
> > the original trade was only $10,000.
> >
> > As I said, I go a step further than just using a fixed bet size.
> After my
> > first pass at optimizing, I remove the top performing 100
stocks.
> I then
> > re-optimize without those stocks. Granted, I could end up with
> some new
> > "top" stocks. However, my objective is to remove the extremely
> large
> > winners so that the profits from those stocks don't cause me to
> select
> > parameters on the edge of the parameter space.
> >
> > I don't bother removing the worst performers as the largest loss
> might be
> > something like $16,000 (even though the original trade was only
> $10,000).
> > This can happen if a short trade goes against you.
> >
> > As I said... for what it's worth...
> > -----Original Message-----
> > From: Bob Jagow [mailto:bjagow@x...]
> > Sent: Thursday, April 17, 2003 2:21 AM
> > To: Amibroker
> > Subject: [amibroker] FW: [aaft_ta] Re: TradingRecipes
> >
> >
> > Re the "portfolio level testing" magic bullet.
> >
> > Bob
> > -----Original Message-----
> > From: Palmer Wright [mailto:palmerw@x...]
> > Sent: Wednesday, April 16, 2003 8:27 PM
> > To: aaft_ta@xxxxxxxxxxxxxxx
> > Subject: Re: [aaft_ta] Fwd: Re: Available Portfolio testing
> programs for
> > TS2000i
> >
> >
> > Since Michael forwarded the two messages (see below), he added
> four
> > additional ones. The issue about whether a "basket system" like
> Aberration
> > is worth trading I will not discuss here (I still trade it). The
> other main
> > issue is about the effect of compounding when testing with TR
> (Trading
> > Recipes), and I comment here on that.
> >
> > Traders buy TR because it can test portfolios of systems and
> markets using
> > position sizing. A position-sizing strategy such as fixed-
> fractional money
> > management brings two advantages: it normalizes markets (eg.,
> calculating
> > many contracts for corn, but few for natural gas), and limits
entry
> risk for
> > each position to a fixed- fraction of current equity--thus
> preventing
> > overtrading. If you do not use TR, I do not know how you can get
> the large
> > returns that compounding multiple markets can bring.
> >
> > Leslie Walko points to the potential danger of curve fitting
> caused by
> > compounding. I agree, and have been concerned for years about
how
> one market
> > in a portfolio (commodity X) by being dramatically profitable
in a
> single
> > year can misleadingly bias the results of the whole portfolio.
> >
> > During a multi-year test in TR, starting equity is low,
perhaps
> $100,000,
> > but compounding raises equity to many million in later years.
The
> one-year
> > outperformance of commodity X cand produce two kinds of curve-
> fitting bias:
> > early-years bias and end-years bias. Mark Johnson's message
> describes the
> > first, where X gives "a big turbocharged boost" to the
portfolio's
> equity,
> > which then gives a head-start boost to the number of trades in
all
> the
> > commodities traded. The second occurs when X's monster trades
occur
> in the
> > final years of the simulated time period when the large number
of
> contracts
> > makes X's profit far larger than if its big year came early.
Here
> the
> > profits contributed by X dwarf what they were in the first case.
> >
> > As the message from M points out, we can avoid such biases by
> normalizing
> > with a fixed-dollar bet size in testing to remove the galloping
> equity
> > effect. I proposed this method in 1999, and still use it to
compare
> with the
> > compounded performance. I confess, however, that my testing has
> failed to
> > find as much performance bias as I suspected I would find. The
> method is
> > most important when selecting markets for a portfolio.
> >
> > Palmer Wright
> > ----- Original Message -----
> > From: Michael Guess
> > To: aaft_ta@xxxxxxxxxxxxxxx
> > Sent: Sunday, April 13, 2003 9:14 AM
> > Subject: [aaft_ta] Fwd: Re: Available Portfolio testing
> programs for
> > TS2000i
> >
> >
> > This is for Pat Mazur & Palmer Wright. Others are invited to
> comment. I
> > forwarded these two messages from another list because we have
> discussed
> > these issues in the past. It appears one of the posts is saying
> Trading
> > Recipes is in error in the way it calculates. In fact, that it
> curve fits
> > data in a particular case. Comments are invited.
> >
> > Michael
> >
> >
> >
> > Your use of Yahoo! Groups is subject to the Yahoo! Terms of
> Service.
> >
> > Yahoo! Groups Sponsor
> > ADVERTISEMENT
> >
> >
> >
> >
> > Send BUG REPORTS to bugs@xxxx
> > Send SUGGESTIONS to suggest@xxxx
> > -----------------------------------------
> > Post AmiQuote-related messages ONLY to:
amiquote@xxxxxxxxxxxxxxx
> > (Web page: http://groups.yahoo.com/group/amiquote/messages/)
> > --------------------------------------------
> > Check group FAQ at:
> > http://groups.yahoo.com/group/amibroker/files/groupfaq.html
> >
> > Your use of Yahoo! Groups is subject to the Yahoo! Terms of
> Service.
>
>
> Yahoo! Groups Sponsor
> ADVERTISEMENT
>
>
>
>
> Send BUG REPORTS to bugs@xxxx
> Send SUGGESTIONS to suggest@xxxx
> -----------------------------------------
> Post AmiQuote-related messages ONLY to: amiquote@xxxxxxxxxxxxxxx
> (Web page: http://groups.yahoo.com/group/amiquote/messages/)
> --------------------------------------------
> Check group FAQ at:
> http://groups.yahoo.com/group/amibroker/files/groupfaq.html
>
> Your use of Yahoo! Groups is subject to the Yahoo! Terms of
Service.
------------------------ Yahoo! Groups Sponsor ---------------------~-->
Get a FREE REFINANCE QUOTE - click here!
http://us.click.yahoo.com/2CXtTB/ca0FAA/i5gGAA/GHeqlB/TM
---------------------------------------------------------------------~->
Send BUG REPORTS to bugs@xxxxxxxxxxxxx
Send SUGGESTIONS to suggest@xxxxxxxxxxxxx
-----------------------------------------
Post AmiQuote-related messages ONLY to: amiquote@xxxxxxxxxxxxxxx
(Web page: http://groups.yahoo.com/group/amiquote/messages/)
--------------------------------------------
Check group FAQ at: http://groups.yahoo.com/group/amibroker/files/groupfaq.html
Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
|