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Thanks
Chuck!
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My
further questions in red below:
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<FONT
face=Tahoma size=2>-----Original Message-----From: Chuck Rademacher
[mailto:chuck_rademacher@xxxxxxxxxx] Sent: Thursday, April 17, 2003
4:00 PMTo: amibroker@xxxxxxxxxxxxxxxSubject: RE:
[amibroker] To compound or not to compound... that is the
question
<FONT face=Arial color=#0000ff
size=2>Answers to Dingo's questions below:
<FONT face=Arial color=#0000ff
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<FONT face=Arial color=#0000ff
size=2>1. Which column(s) to use when deciding which parameters are
"best"? I actually take the trade results to another program, but
given the columns that are available in AB, I would use total net profit
and/or average trade. Hopefully, some of the parameters will be
same at the top of both of those lists.
<FONT face=Arial color=#0000ff
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<FONT face=Arial color=#ff0000
size=2>I too have another program and am
curious as to what calculated results would lead to the "best"
params?
<FONT face=Arial color=#0000ff
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<FONT face=Arial color=#0000ff
size=2>2. Which date ranges do I use? I pretty much always
use 1992 to current date.
<FONT face=Arial color=#0000ff
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<FONT face=Arial color=#ff0000
size=2>You go all the way to the current
period? Do you not test out of sample?
<FONT face=Arial color=#0000ff
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<FONT face=Arial color=#0000ff
size=2>3. I use all 13,500 active and extinct stocks that have ever
traded since January, 1992 that were over $1 on at least one day and had an
average 50-day volume of 75,000 shares on at least one
day.
<FONT face=Arial color=#0000ff
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<FONT face=Arial color=#0000ff
size=2>4. Do I set aside any losing trades/stocks? No.
Since my largest loss can only be $10,000 and the profit can be in the
millions, I keep in all losing trades. As I explained in previous email,
the losses CAN BE more than the investment on a few short
trades.
<FONT face=Arial color=#0000ff
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<FONT face=Arial color=#0000ff
size=2>5. How do I determine that the best parameters (if I include huge
profitable trades) could be on the edge of the parameter space? I
can't really determine that information, nor do I really care. I
remove those stocks from my watchlist and re-optimise. If I end up
with a new list of huge winners, I might repeat the process. I
just don't want to choose a parameter that squeezes in a couple of huge trades
but is inferior on the rest of the market.
<FONT face=Arial color=#0000ff
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<FONT face=Arial color=#ff0000
size=2>You method sure is counter intuitive
until I think about your reasoning. I take it you're not a disciple of
stocks having their own individual params?
<FONT face=Arial color=#0000ff
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<FONT face=Arial color=#0000ff
size=2>6. How do I decide which signals to take every day (if I had more
signals than cash)? Using AB, I would place something that I could
sort the signals by that I have proven to myself increases the likelihood of
the signal being a good one. For simplicity, let's say that I was
an advocate of using low P/E for buying stocks (I'm not). I would add a
column to my Explore that showed the current P/E.
<FONT face=Arial color=#0000ff
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<FONT face=Arial color=#ff0000
size=2>If you were to make this decision
independent of AB then would you make the decision?
<FONT face=Arial color=#ff0000
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<FONT
size=2>I'm quite happy to discuss any of this further. Obviously,
these are only my views and they are no better than those you or others might
have on the subject. I have the benefit of trading for (too) many
years and the possible disadvantage of "being past it".<SPAN
class=843033320-17042003>
<FONT
size=2><SPAN
class=843033320-17042003>
<FONT
size=2>Do you ever
re-optimize for the purpose of calc'ing new params? If you do how
do you decide when it is time to do
that?
<FONT
size=2><SPAN
class=843033320-17042003>
<FONT
size=2>Thanks for your
answers!
<FONT
size=2><SPAN
class=843033320-17042003>
<FONT
size=2><FONT
color=#ff0000>d
<BLOCKQUOTE
>
<FONT face="Times New Roman"
size=2>-----Original Message-----From: dingo
[mailto:dingo@xxxxxxxxxx]Sent: Thursday, April 17, 2003 11:10
AMTo: amibroker@xxxxxxxxxxxxxxxSubject: RE:
[amibroker] To compound or not to compound... that is the
question
I
can understand and appreciate why you use fixed trade sizes in order to get
the best parameters. But how do you get a reasonable measure of drawdowns
that way? Do you use some other technique to evaluate
drawdowns?
<FONT face=Arial color=#0000ff
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Re
your param selection method: Do I understand the steps
correctly:
<FONT face=Arial color=#0000ff
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1.
You optimize for the best params
<FONT face=Arial color=#0000ff
size=2> a. Based on what column or
calculation?
<FONT face=Arial color=#0000ff
size=2> b. What date ranges would
you be using currently?
<FONT face=Arial color=#0000ff
size=2> c. What subset of stocks
would you be optmizing on?
<FONT face=Arial color=#0000ff
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2.
You set aside the the top 100.
<FONT face=Arial color=#0000ff
size=2> a. Do you set aside any at
the bottom?
<FONT face=Arial color=#0000ff
size=2> b. How did
you determine that the first set of params would be at the edge of the
parameter space?
<SPAN
class=671315814-17042003><FONT face=Arial color=#0000ff
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3.
You reoptimize the resultant set from step 2 and those are the ones you
use.
<FONT face=Arial color=#0000ff
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<FONT face=Arial color=#0000ff
size=2>Given the size of your trading capital how do you decide what stocks
to trade on a particular day?
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>I'm not trying to pick a fight here I'm intensely curious as I've
been struggling with these questions for quite some time
now.
<FONT face=Arial color=#0000ff
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<FONT face=Arial color=#0000ff
size=2>Thanks for any comments you choose to make.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>d
<FONT
face=Tahoma size=2>-----Original Message-----From: Chuck
Rademacher [mailto:chuck_rademacher@xxxxxxxxxx] Sent: Thursday,
April 17, 2003 6:58 AMTo:
amibroker@xxxxxxxxxxxxxxxSubject: [amibroker] To compound or
not to compound... that is the question
<FONT face=Arial color=#0000ff
size=2>Reply to Fred:
<FONT face=Arial color=#0000ff
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<FONT face=Arial color=#0000ff
size=2>Yes... and no.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>Absolutely, in real time trading I am
compounding.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>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.
<FONT face=Arial color=#0000ff
size=2>
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.
<FONT face=Arial color=#0000ff
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<FONT face=Arial color=#0000ff
size=2>When choosing parameters, I want plain vanilla trades, each
standing on their own merit, with no compounding.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>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.
<BLOCKQUOTE
>
<FONT face="Times New Roman"
size=2>-----Original Message-----From: Fred
[mailto:fctonetti@xxxxxxxxx]Sent: Thursday, April 17, 2003
3:16 AMTo: amibroker@xxxxxxxxxxxxxxxSubject:
[amibroker] FW: [aaft_ta] Re:
TradingRecipesChuck,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@xxxx]> 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@xxxx]> 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> > > > >
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