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Chuck,
The following is my understanding from reading your posts: you test
your system on a large universe, when you find a goog parameter set,
you then run on the same universe to pick up the candidate to trade.
My question:
1) Since you do not cut off those losers in historical test from the
universe (You mentioned that a stock's characteristics can change over
time), do you still trade a certain stock when you system picks it up
but you know from you historical test this particular candidate lost
all the time? (Of course, you also mention you never check what stocks
are traded by your system, but I just want to know your thought)
2) You also mention the use of MCS, could you please elaborate on how
you use MCS to help you on system development or whatever?
Thanks
Thomas
--- In amibroker@xxxxxxxxxxxxxxx, "Chuck Rademacher"
<chuck_rademacher@x> wrote:
> No rebuke from me. You are 100% correct that one would tend to
either take
> on more positions or increase the size of positions using profits.
Either
> of these could be called "compounding".
>
> I just don't think that compounding has any place in parameter
selection.
> I've already given dozens of examples but I'll do one more.
>
> Let's say that I had a moving average crossover system (which I
wouldn't
> use). Let's also assume that we are investing $10,000 per trade
initially.
> I optimize for one set of parameters to use on a basket of stocks.
One set
> of parameters generates a trade for AOL that results in a $1.5
million
> profit for the $10,000 investment. If I then re-invest that $1.5
million
> (in backtesting), I could end up with some huge returns on the next
trade,
> based on my original portfolio investment size. This huge profit
and
> resultant compounding (in backtesting) could distort the fact that
those
> very same parameters generated far less in profits for the other 99
stocks.
> In my opinion, I would rather use parameters that missed the AOL
trade and
> did better on the other 99 stocks. Keeping AOL in the basket (for
> backtesting) and compounding the profits from that one trade simply
doesn't
> fit in how I select parameters.
>
> Once I'm finished selecting my parameters, I will use Scan over all
100
> stocks in basket. I will, at this point, turn on compounding. If
the
> parameters I've selected without the benefit of AOL and without the
benefit
> of compounding happen to pick up the AOL trade, it's a bonus. I'd
rather
> miss the AOL trade (in backtesting) and do well on the rest of the
stocks in
> the basket. In my opinion, this approach has a much better chance
of being
> profitable in the future. A fantastic-looking equity curve based
on the
> benefit of hindsight does little to satisfy my investors.
> -----Original Message-----
> From: Fred [mailto:fctonetti@x...]
> Sent: Friday, April 18, 2003 6:16 PM
> To: amibroker@xxxxxxxxxxxxxxx
> Subject: [amibroker] Re: Pairs Trading (a definition for Dingo)
>
>
> Chuck,
>
> Your "go" at it is clearly a better description then mine ...
>
> I'm still waiting for your rebuke of my description of compounding
> whether it is in terms of scaling up bet size or increasing the
> number of securities potentially invested in to be virtually the
same
> in terms of how that affects system design, testing and
optimization
> in that ones aim is still to yield consistant returns and
drawdowns
> on a percentage basis.
>
> --- In amibroker@xxxxxxxxxxxxxxx, "Chuck Rademacher"
> <chuck_rademacher@x> wrote:
> > MessageI'll have a go at defining pairs trading for you.
> >
> > To me, there are two different kinds of pairs trading
(fundamental
> and
> > technical).
> >
> > Before I get into that, however, I'll start by telling you that
> pairs
> > trading is NOTHING MORE than buying one stock and shorting
another.
> > Usually, the dollars invested would be the same for each stock.
> >
> > Fundamental pairs trading would be based on YOUR INTERPRETATION
of
> the
> > fundamentals for those two companies. If you spent the time to
> review the
> > annual reports for Ford and General Motors, for instance, you
might
> decide
> > that FUNDAMENTALLY Ford should outperform General Motors over
the
> next six
> > months. So, you would buy Ford and short General Motors. Your
> trade, in
> > theory, should not be affected by any move in the entire market
or
> even the
> > automotive sector. At the end of the six-month period you
would
> liquidate
> > both positions.
> >
> > Technical pairs trading is a little more complex. Again, you
> would be
> > buying one stock and shorting another. Most pairs traders
might
> only trade
> > a "pair" that were in the same sector, but that isn't
necessarily a
> > requirement. The idea here is that you find two stocks whose
> average daily
> > returns move very much in unison. I won't get into the math for
> determining
> > this, but I'm sure you get the picture. Let's say that you
> discover that
> > the daily returns for Ford and General Motors almost aways move
> together.
> > You also observe that if the returns move apart.... they tend to
> come back
> > together. You also observe the maximum amount that they
varied
> over some
> > period of time. When you see them move apart by that amount
> again, you
> > simply short the one with the higher returns and buy the one
with
> the lower
> > returns. Finally, you just wait for the returns to come back
> together and
> > liquidate both positions. Again, the theory is that any
major
> move in
> > the overall market has no effect on your net position.
> >
> > I might add that many, if not most, of the professional fund
> managers using
> > pairs trading haven't done very well over the last quarter,
> generating
> > negative returns for their investors. I've been pairs trading
> for two
> > years, netting just over one percent per month for investors in
that
> > particular fund. I can also tell you that, in my opinion, any
> attempt at
> > fundamental pairs trading is doomed for failure.
> > -----Original Message-----
> > From: dingo [mailto:dingo@x...]
> > Sent: Friday, April 18, 2003 3:13 PM
> > To: amibroker@xxxxxxxxxxxxxxx
> > Subject: RE: [amibroker] Re: Dynamic Indicators Poll -- VOTE
> AGAIN, PLEASE
> >
> >
> > Could you define "pairs trading" please?
> >
> > Thx!
> >
> > d
> > -----Original Message-----
> > From: Fred [mailto:fctonetti@x...]
> > Sent: Friday, April 18, 2003 3:08 PM
> > To: amibroker@xxxxxxxxxxxxxxx
> > Subject: [amibroker] Re: Dynamic Indicators Poll -- VOTE
AGAIN,
> PLEASE
> >
> >
> > Yes. I know. See my previous post, but for example I don't
want
> to
> > have to write my own Stdev routine for variable periods
where it
> > would require a For loop or a script to get it done. As
I've
> said
> > before, IMHO the best thing about AB today is it's speed and
> the LAST
> > thing I want to do is slow it down w/For loops if I don't
have
> to.
> > The best thing about the future of AB is of course the
support &
> > potential enhancements and I'll be happy to take the latter
in
> > whatever order Tomasz thinks best with my own personal
> preference at
> > the moment being the fixing of position size transactions
being
> > automatically limited to total available cash followed by
some
> other
> > aspects of portfolio trading i.e. pairs and ranking etc.
> >
> > --- In amibroker@xxxxxxxxxxxxxxx, "DIMITRIS TSOKAKIS"
> <TSOKAKIS@xxxx>
> > wrote:
> > > Fred,
> > > take a look at
> > >
> > > per=10+Cum(1)%20;//variable period from 10 to 29
> > > StochKa=MA(100*(C-LLV(L,per))/(HHV(H,per)-LLV(L,per)),3);
> > > StochDa=MA(MA(100*(C-LLV(L,per))/(HHV(H,per)-LLV
> (L,per)),3),3);
> > > Plot(StochDa,"",1,1);Plot(StochD(),"",4,8);
> > >
> > > for example.
> > > DT
> > > --- In amibroker@xxxxxxxxxxxxxxx, "Fred" <fctonetti@xxxx>
> wrote:
> > > > Tomasz,
> > > >
> > > > I agree completely that these are two different areas ..
.
> to me
> > > they
> > > > are both important with (1) being higher priority then
> (2) ...
> > > >
> > > > With regards to (1) and more specifically those
functions
> like
> > ATR
> > > > that require multiple arrays ... I understand and in the
> case of
> > > ATR
> > > > I'm not sure I care if this is even dealt with as again
it's
> > simple
> > > > enough like my example w/MACD to create ones own ATR
with a
> > Foreign
> > > > symbol using straight AFL.
> > > >
> > > > In the case of a stochastic though it's clearly valid to
> > calculate
> > > it
> > > > as
> > > >
> > > > 100 * (C - LLV(C, n)) / (HHV(C, n) - LLV(C, n))
> > > >
> > > > as opposed to using highs and lows. However here again
I'm
> not
> > > sure
> > > > I care as it's easy enough to do these in straight AFL
with
> n
> > being
> > > > time variant since HHV and LLV are already have the
> capability of
> > > > being time variant.
> > > >
> > > >
> > > > --- In amibroker@xxxxxxxxxxxxxxx, "Tomasz Janeczko"
> > > <amibroker@xxxx>
> > > > wrote:
> > > > > Hello,
> > > > >
> > > > > As I mentioned in the other post of mine there are
> > > > > TWO INDEPENDENT areas:
> > > > >
> > > > > 1. Make input data array available for functions like
RSI
> > > > > 2. Make second argument (period) accept array too
> (variable
> > > period).
> > > > >
> > > > > Somehow people mix those 2 areas.
> > > > >
> > > > > Fred speaks that he wants all functions to cover at
least
> > > > > area (1).
> > > > >
> > > > > The posts of Mark refer to area (2).
> > > > >
> > > > > Let me show you example:
> > > > >
> > > > > RSI( period ) - this function has no input data array
> (uses
> > CLOSE
> > > > array
> > > > > indirectly) and accepts static period
> > > > >
> > > > > (1) RSIa( ARRAY, period ) - this function accepts
input
> data
> > > array
> > > > but accepts
> > > > > only static period
> > > > >
> > > > > (2) RSIa( ARRAY, dynamic_period ) - this function
accepts
> > input
> > > > data array
> > > > > and accepts both static and dynamic_period.
> > > > > (NOTE: Current version of AB does NOT support this
> > RSIa 'flavour'
> > > > yet)
> > > > >
> > > > >
> > > > > As to (1): implementation of this is relatively easy.
> > > > > There is one caveat however: many analytical functions
> > > > > in fact use MORE than one input array. For example
> Stochastics
> > use
> > > > > Close, Open and High arrays as inputs.
> > > > > ATR too needs OHLC, not only close.
> > > > >
> > > > > As to (2): not every function is suitable for this
kind of
> > > > operation. Although
> > > > > theoretically it is possible to rewrite every function
to
> > accept
> > > > such 'variable
> > > > > periods' the practice shows that transformations that
are
> > > recurrent
> > > > in nature
> > > > > (exponential averages for example) are
> extremely 'sensitive' if
> > > > parameter(s)
> > > > > change to fast. A kind of "frequency modulation"
effect
> appears
> > > > that may produce
> > > > > distortions therefore one should be careful working
with
> > adaptive
> > > > systems
> > > > > using recurrency-based transformations.
> > > > >
> > > > > Best regards,
> > > > > Tomasz Janeczko
> > > > > amibroker.com
> > > > > ----- Original Message -----
> > > > > From: <uenal.mutlu@xxxx>
> > > > > To: <amibroker@xxxxxxxxxxxxxxx>
> > > > > Sent: Friday, April 18, 2003 5:28 PM
> > > > > Subject: Re: [amibroker] Dynamic Indicators Poll --
VOTE
> AGAIN,
> > > > PLEASE
> > > > >
> > > > >
> > > > > > And IMHO also
> > > > > > LINEARREG, LINREGSLOPE, TSF
> > > > > > should be removed from your list. Please
> > > > > > check the remaining too... Test it in AFL editor (it
> will
> > > inform
> > > > you
> > > > > > via a small hint window about the params after you
type
> the
> > > > opening brace).
> > > > > > UM
> > > > > >
> > > > > > ----- Original Message -----
> > > > > > From: <uenal.mutlu@xxxx>
> > > > > > To: <amibroker@xxxxxxxxxxxxxxx>
> > > > > > Sent: Friday, April 18, 2003 5:21 PM
> > > > > > Subject: Re: [amibroker] Dynamic Indicators Poll --
VOTE
> > AGAIN,
> > > > PLEASE
> > > > > >
> > > > > >
> > > > > > > Hi mark,
> > > > > > > can you clarify BBANDBOT and BBANDTOP;
> > > > > > > IMHO they both already do accept user defined
> arguments
> > > > > > > for all the 3 possible parameters to them.
> > > > > > > UM
> > > > > > >
> > > > > > >
> > > > > > > ----- Original Message -----
> > > > > > > From: "markf2" <feierstein@xxxx>
> > > > > > > To: <amibroker@xxxxxxxxxxxxxxx>
> > > > > > > Sent: Friday, April 18, 2003 4:03 PM
> > > > > > > Subject: [amibroker] Dynamic Indicators Poll --
VOTE
> AGAIN,
> > > > PLEASE
> > > > > > >
> > > > > > >
> > > > > > > > In Message 38132, Tomasz pointed out that HHV,
LLV,
> > > HHVBars,
> > > > LLVBars,
> > > > > > > > DEMA, TEMA, MA, WMA, REF, and SUM already work
with
> > dynamic
> > > > > > > > parameters. When I updated the poll to reflect
> this, ALL
> > > > votes were
> > > > > > > > lost so please vote again if you're still
> interested, LOL.
> > > > > > > >
> > > > > > > > http://groups.yahoo.com/group/amibroker/surveys?
> id=1071266
> > > > > > > >
> > > > > > > > I apologize for the confusion. The fact that
the
> above
> > > > indicators and
> > > > > > > > functions accept dynamic parameters was
reflected in
> > > release
> > > > notes but
> > > > > > > > not in the 4.30 users guide that I used to make
the
> > poll.
> > > > The fact
> > > > > > > > that so many of you voted for them shows you
didn't
> know
> > > > either, and
> > > > > > > > I've asked Tomasz to include this information in
> the next
> > > > > > > > documentation update.
> > > > > > > >
> > > > > > > > Mark
> > > > > > > >
> > > > > > > > "No good deed goes unpunished."
> > > > > > > > --Steve Karnish
> > > > > >
> > > > > >
> > > > > >
> > > > > >
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