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Thanks for your
comments.
<FONT face=Arial
size=2>
I wasn't
very articulate when I said that "since my
largest loss can only be $10,000 and the profit can be in the millions, I keep
in all losing trades when evaluating system performance". On
it's own merit, that sentence is silly. Of course, the maximum loss
could be anything depending on how much is invested. The $10,000
figure came from an earlier posting, but it is the total invested in each
position. Every buy or short had a PositionSize of
$10,000. So, the most I might lose would be
$10,000. Out of the 45,000 trades, hundreds generated profits
of more than $750,000 on the $10,000 investment. I eliminated the
stocks where trades generated more than $200,000 profit (about 100 stocks) and
re-optimized. I didn't eliminate the stocks with the largest losing
trades because there were few of them and the losses, albeit high in percentage
terms, were negligible compared to the portfolio size.
<FONT face=Arial
size=2>
I went on to
say that in the backtesting and in real life, I have lost more than the original
investment. You then said "I have
NEVER experienced losses in a short position which even approached the original
investment". I don't doubt you. But in that particular
example I posted earlier, there were 45,000 trades and there were eight examples
where overnight gaps caused losses on shorts that exceeded the initial
investment. It's fairly easy to imagine. I use 40%
stops, only to keep investors happy. The systems I tend to develop
simply don't work well with stops, so I don't use the normal 10-20% stop
arrangement.. A short position could be hovering around the 30%
loss point and then gap up enough to create more than a 100% loss in one
tick. I was only stating that it could happen to prevent
someone from correcting me. Eight trades out of 45,000 is just about
"none".
<BLOCKQUOTE
>
<FONT face="Times New Roman"
size=2>-----Original Message-----From: phsst
[mailto:phsst@xxxxxxxxx]Sent: Friday, April 18, 2003 1:08
AMTo: amibroker@xxxxxxxxxxxxxxxSubject: [amibroker] Re:
Chuck---To compound or not to compound... that is the
questionChuck,Just spent a lot of time trying
to catch up on more than 24 hoursworth of posts and could not pass up the
opportunity to comment uponyour posts during that period.Wish I
was as articulate about these matters as
you.Regarding:Compounding... I agree. Fixed position sizing is
mandatory.Positionsize compounding only skewx trading system results to
thepoint of losing all relevence in real world trading."individual
set of parameters for each stock." Talk about
'curvefitting'Unlike you, I don't use 'extinct' stocks, only
because my dataprovider eliminates extinct stocks from my
database.Concerning the statement "Do I set aside any losing
trades/stocks? No. Since my largest loss can only be $10,000
and the profit can bein the millions, I keep in all losing trades."
While unusual, I haveexperienced adverse 'gap' conditions that exceed
$10K, it is morenormal for Stop Loss orders get me out of positions at
fractions of apercent below my entry level."As I explained in
previous email, the losses CAN BE morethan the investment on a few short
trades." We differ here... I haveNEVER experience losses in a short
position which even approached theoriginal investment.It is late
and I need to call it quits for the night. But I hope you accept my
compliments for being able to articulate arational trading
approach.Phsst--- In amibroker@xxxxxxxxxxxxxxx, "Chuck
Rademacher"<chuck_rademacher@x> wrote:> MessageAnswers to
Dingo's questions below:> > 1. Which column(s) to use when
deciding which parameters are"best"? I> actually take
the trade results to another program, but given thecolumns> that
are available in AB, I would use total net profit and/oraverage
trade.> Hopefully, some of the parameters will be same at the top of
both ofthose> lists.> > 2. Which date ranges do
I use? I pretty much always use 1992 tocurrent>
date.> > 3. I use all 13,500 active and extinct stocks
that have ever tradedsince> 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.> > 4. Do I set aside any losing
trades/stocks? No. Since my largestloss> 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.> > 5. How do I
determine that the best parameters (if I include huge> profitable
trades) could be on the edge of the parameter space?
Ican't> really determine that information, nor do I really
care. I removethose> stocks from my watchlist and
re-optimise. If I end up with a newlist of> huge
winners, I might repeat the process. I just don't want
tochoose a> parameter that squeezes in a couple of huge trades but
is inferioron the> rest of the market.> > 6.
How do I decide which signals to take every day (if I had
moresignals> 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 anadvocate>
of using low P/E for buying stocks (I'm not). I would add a columnto
my> Explore that showed the current P/E.> > > I'm
quite happy to discuss any of this further. Obviously,
theseare only> my views and they are no better than those you or
others might haveon the> subject. I have the benefit of
trading for (too) many years and the> possible disadvantage of "being
past it".> -----Original Message----->
From: dingo [mailto:dingo@xxxx]> Sent: Thursday, April 17,
2003 11:10 AM> To:
amibroker@xxxxxxxxxxxxxxx> Subject: RE: [amibroker] To
compound or not to compound... that is the> question> >
> I can understand and appreciate why you use fixed trade
sizes inorder to> get the best parameters. But how do you get a
reasonable measure of> drawdowns that way? Do you use some other
technique to evaluatedrawdowns?> > Re your param
selection method: Do I understand the steps correctly:>
> 1. You optimize for the best
params> a.
Based on what column or
calculation?>
b. What date ranges would you be using
currently?>
c. What subset of stocks would you be optmizing on?>
> 2. You set aside the the top
100.> a. Do
you set aside any at the
bottom?> b.
How did you determine that the first set of paramswould be at> the
edge of the parameter space?> > 3. You reoptimize
the resultant set from step 2 and those are theones you>
use.> > Given the size of your trading capital how
do you decide whatstocks to> trade on a particular day?>
> 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.> > Thanks for any comments you choose to
make.> > d>
-----Original Message-----> From: Chuck
Rademacher [mailto:chuck_rademacher@xxxx]>
Sent: Thursday, April 17, 2003 6:58 AM> To:
amibroker@xxxxxxxxxxxxxxx> Subject: [amibroker]
To compound or not to compound... that is the> question>
> > Reply to Fred:>
> Yes... and no.>
> Absolutely, in real time trading I am
compounding.> > To determine parameters
via optimization.... not if my lifedepended on> it!
And, I guess my life does depend on it, as I make my
livingmanaging> 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 comeup with> a system that could
achieve similar performance. Since the averagetrade>
generated a profit of $2,700 for every $10,000 invested, the AOLtrade
could> cover up lots of bad trades made using one parameter set.
Compounding that> trade would exacerbate the problem. A
minor tweak to theparameters could> cut out the AOL trade, yet that
very tweak could improve performancegoing> forward.>
> When choosing parameters, I want plain
vanilla trades, eachstanding on> their own merit, with no
compounding.> > We may have to agree to
disagree. It's like absolute gospel tome and> I cannot
see clear to do it any other way.>
-----Original Message-----> From:
Fred [mailto:fctonetti@xxxx]> 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 sizethen
you> are compounding by increasing
the number of stocks
you'llpotentially> 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 otherapproach.
I> even
go> > a step further if I'm
doing any optimizing. I recentlyposted
an>
equity> > curve showing
something like $80 million in profit.
Withinthat>
$80> > million, the top 100
stocks (out of 13,500) generated $20million
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
100stocks.> 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), andlimits
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 yearsabout
how> one
market> > in a portfolio
(commodity X) by being dramaticallyprofitable 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 lateryears.
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
theportfolio's>
equity,> > which then gives a
head-start boost to the number of tradesin
all>
the> > commodities traded. The
second occurs when X's monstertrades
occur> in
the> > final years of the
simulated time period when the largenumber
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
tocompare> 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
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ADVERTISEMENT>
>>
>>
>>
>> > Send BUG
REPORTS to bugs@xxxx>
> Send SUGGESTIONS to
suggest@xxxx> >
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