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Jitu,
I apologize if I offended you. I
pulled up your orginal email and I'll try to be more specific with my
points:A typical wanna-be trader reads Dr.
Elder's book.
*Maybe, but, I don't think that's the typical
path.
Then he/she tries to implement it.
*Sounds dirty or dangerous.
Of course, Dr. Elder, like many other "experts",
never offers a completely working system,although the book offers, like many
other books, good concepts well understood by practically reading any other
trading related book if you have even half the brains of what it'd take for
you to survive in this jungle. Instead, just concepts. Now here, substitute
YOUR favorite book for Dr. Elder's book. Same thing applies.
*Amen Brother!! This research
and trading is bitch. I'm in that "half the brains" category and it's twice
difficult for the half-witted.
So its upto me, an average person, to
derive a profitable system from his concepts.
*I think you are on to
something.
Hmmm... What are the odds of that happening? After
all, HE had to resort to selling stuff to other traders to make a living
himself. Call me fanatically skeptical, but I find it funny how that
works.
*That Dr. Ehler must be some
type of Jimmy Jones. Are you saying that there might be people who market
useless garbage to the public? Please Jitu, don't drink the
kool-aid.
Now, you are thinking... What does this have
to do with optimization? It does, a lot. Because optimization, IMHO, is an
attempt to make an unproven logic work with the past data you have.
*Some of us actually start
with proven logic. How many weeks, months or years does
it take for logic to be "proven"? There many traders and some products
that can prove their logic and guess what? They've done it publically for
long,long periods of time. Maybe, you're turning over the wrong
rocks. "Looking for love/luck in all the wrong places". People have
things that work. Many of these people share.
<FONT
face="Courier New" size=2>
Read that definition again. That's all it is.
At least, its a good thing that the base concept is not "completely" random,
if you read a book or two. But nonetheless, its true. You start with a
concept that you "think" will work, then it doesn't, then you tweak it a
little bit, it still doesn't work, and then you finally turn to the software
to tweak it to death to make it work with the past data, a la
optimization.
*I think you have a tweaking
problem...I can refer you to a good doctor in Eagle County. I just
recovered from West Nile Virus. That doesn't make me an expert on
diseases, but, I believe you have "tweakitis". The smarter they are...the
harder they tweak. Some say: "Don't tweak a little, because pretty
soon you'll have to tweak every day!" <FONT
face="Courier New" size=2>I don't believe that part. Every so
often, I like to tweak-it-up.
Are you tweaking
multiple variables inside your algorhythm or are you optimizationing
triggers, stops, targets, filters, qualifiers and/or other
"goodies". Remember the old saying: "You can dress a pig in a
prom dress, but in the end...it's still a pig". If you start with a
concept that doesn't work (across broad parameters) you have yourself a
pig.Think about it this
way, if someone could become the greatest stock trader just by optimizing a
concept on the past data, wouldn't we have heard about him/her by this time?
That itself should answer your original question.
*<FONT
face="Courier New">We have heard. Most of the great
stock/commodity traders are not interested in a high profile. John
Henry owns the Boston Red Sox...so, I guess that is high profile. Twenty
years ago, he wouldn't even let me see what type of computers he was
using. I bet he is still very hush-hush. It takes finding out
who/what works. Finding out what works is
work. IMHO, one should have a "sound" strategy in
the first place. A sound strategy should take into account ALL factors that
the great traders of the past have known to take into consideration. Bounce
it around a few people, if you're not sure that its sound. And THEN you can
optimize it a LITTLE BIT, and THAT is ok.
*As Keith Fitchen,
the inventor of Aberration, likes to say and, I'm paraphrasing: "These book
writers and system developers are drinking each others bath water". I
couldn't agree more. I suggest that if your not sure that your
approach is sound, that you don't even bother to "Bounce". Optimizing
is dope for system developers. Always remember to use drugs
responsibly.
All of this of course, is IMHO, a novice
trader.
I'm all for getting flamed by someone who is
actually making tons of money just by optimizing an original strategy
that didn't work prior to the optimization.
*Why would someone want to start
with a strategy that doesn't work?
May be I'll learn something.
*That's the
spirit!
And if not ualready nderstood, no offense
meant to ANYONE. Neither people who optimize, nor people who are fans of Dr.
Elder.
*No offense
taken. Poor Dr. Elder. First a Messiah, then scorned and flamed
in forums across the world. The shame of it all. I'm trying
to sell the story to Hollywood. Very sad.
<FONT
size=2>
<FONT
face="Courier New">I'm in the "people who like to optimize"
category...but, I'm mostly a recovering "person who used to like to
optimize". Once, I over-optimized so hard...I almost
died. No kidding, it almost killed me. So, obviously, you have
to be really careful. It can be deadly. First, you do a little
tweak here and a little tweak there and pretty soon you're a tweaking
fool. Suddenly, there's this ever growing need to "do a little
tweaking"("on the tweak", "tweakin'", "doin' the tweak", "tweakarama", "tweaky
deaky"...etc.). Bless me father, for I have tweaked. Welcome
to tweaksville.
Direct all
flames at Dave. :-)
*Flames don't bother Dave, the Ft.
Collins group will pour beer on him.
<FONT
face="Courier New">**Jitu, sorry I offended you. Optimizing is a
heavy subject. I can understand your frustration. Dave did a good
job with the presentation and yes, he and people around him (using totally
different approaches) make money trading mechanical systems. These guys
are "Crunch Monsters" and are powered up. Guess what? Dave
gives a good optimizing seminar because he's also a recovering
"tweaker".
Jitu
<BLOCKQUOTE
>
----- Original Message -----
<DIV
>From:
jtelang
To: <A title=amibroker@xxxxxxxxxxxxxxx
href="">amibroker@xxxxxxxxxxxxxxx
Sent: Wednesday, October 08, 2003 8:03
PM
Subject: [amibroker] Re: FW:
Optimize/OverOptimize
Dave, if this thread goes on for ever, YOU will be the one
to blame. :-) Here! I'll help you completely open the can of worms that
you're attempting to open. :-PIMO, most, but not all, attempts to
optimize are based on flawed logic. I'll present myself as an example,
which should rhyme with most novice traders. A typical wanna-be trader
reads Dr. Elder's book. Then he/she tries to implement it. Of course, Dr.
Elder, like many other "experts", never offers a completely working
system, although the book offers, like many other books, good concepts
well understood by practically reading any other trading related book if
you have even half the brains of what it'd take for you to survive in
this jungle. Instead, just concepts. Now here, substitute YOUR
favorite book for Dr. Elder's book. Same thing applies.So its upto
me, an average person, to derive a profitable system from his concepts.
Hmmm... What are the odds of that happening? After all, HE had to resort
to selling stuff to other traders to make a living himself. Call me
fanatically skeptical, but I find it funny how that works.Now, you
are thinking... What does this have to do with optimization? It does, a
lot. Because optimization, IMHO, is an attempt to make an unproven
logic work with the past data you have. Read that definition again. That's
all it is. At least, its a good thing that the base concept is not
"completely" random, if you read a book or two. But nonetheless, its true.
You start with a concept that you "think" will work, then it doesn't, then
you tweak it a little bit, it still doesn't work, and then you finally
turn to the software to tweak it to death to make it work with the past
data, a la optimization.Think about it this way, if someone could
become the greatest stock trader just by optimizing a concept on the past
data, wouldn't we have heard about him/her by this time? That itself
should answer your original question.IMHO, one should have a
"sound" strategy in the first place. A sound strategy should take into
account ALL factors that the great traders of the past have known to take
into consideration. Bounce it around a few people, if you're not sure that
its sound. And THEN you can optimize it a LITTLE BIT, and THAT is
ok.All of this of course, is IMHO, a novice trader. I'm all for
getting flamed by someone who is actually making tons of money just
by optimizing an original strategy that didn't work prior to the
optimization. May be I'll learn something.And if not ualready
nderstood, no offense meant to ANYONE. Neither people who optimize, nor
people who are fans of Dr. Elder. Direct all flames at Dave.
:-)JituPS: A family emergency will prevent me from replying to
this for couple of days, but I will follow it up as soon as I get a
chance.--- In amibroker@xxxxxxxxxxxxxxx, "Dave Merrill"
<dmerrill@xxxx> wrote:> [other reply to my questions, from
Dave Chamness. - dave merrill]> > -----Original
Message-----> From: David Chamness> Subject: Re:
Optimize/OverOptimize> > > It's OK to post my
replies.> > Equities may trade based on a specialist, or a small
group of frequent> traders, in effect market makers. Change
the group and price behavior may> change. Try to find a
system for GE. You may have better luck with a> smaller
stock.> > Commodities are traded by many people who do not need
to make a profit, such> as hedgers and governments.
Currencies and interest rates trend because> Alan Greenspan does
not want to look like an idiot jacking rates up and down> in a
random walk. So he lowers interest rates repeatedly until he is
done.> > Personally, I trade commodities, but I keep searching
for stock systems.> > Dave> -----
Original Message -----> From: dave
merrill> Subject: RE: Optimize/OverOptimize>
> > thanks for clarifying, much appreciated. is it
ok w you if I forward your> reply(ies)to the AmiBroker group where
steve posted your original? let me> know.>
> one area intrigues me still:> >
if we do find a market where a simple rule set works well, why would
you> think that's so? because of some inherent property of the stock
itself that> makes it non-random, different from other issues where
that rule fails? or> is it another random walk phenomenon, unlikely
to persist at all? if that's> so, it seems completely pointless to
trade equities at all, no different> from gambling.>
> why do you think commodities act differently? because
prices respond more> to real-world changes (supply/demand and
factors that influence it, etc)> than to the raw emotionality that
seems to drive equities? if so, that> implies we should look to
fundamentals for more non-random trends in> equities, but not much in
that dimension except news spikes seems to drive> valuation very
much. how do we resolve this apparent lack of perceivable> order,
other than trading commodities instead?> > thanks
again for your thoughts, very interesting.> > Dave
Merrill> > Answers are in the text
below. Contrary to Steve's statement, I have> only one
degree, BS Mechanical Engineering.> >
Dave Chamness> > -----Original
Message-----> From: Dave Merrill
[mailto:dmerrill@xxxx]> Sent: Monday, September
29, 2003 12:32 PM> To:
dec@xxxx> Subject:
Optimize/OverOptimize> > >
> Dave, I hope it's ok to contact you on this.
steve karnish posted a> presentation of yours on optimization that
I found very interesting, though> I'm afraid I don't get all of it.
this is a topic I'm thinking about pretty> much constantly these
days, with quite a bit of accompanying frustration.> IMVHO, most of
the world gives way too much weight to optimizations that> seem
like curve fitting to me, but I haven't figured out how to move
beyond> that.> > >
> a couple of questions, if I might:>
> > > - can you explain the
scatter plots on slides 3 and 4? what exactly is> plotted on x and
y? the punch line, which I'm too ignorant to see, is that> the
system fails with out of sample data. the one part I understand, I>
think, is that the correlation coefficient, presumably between in and out
of> sample results, is poor. is that right? how does the plot itself
show this?> > > > They
show the In-Sample gain as % of perfect trading on the x axis>
versus the out of sample gain on the y axis. Each data point is a
separate> stock with a separate system. In sample gains were
15% of perfect on> average. Out of sample were near zero on
average. Perfect trading wins all> close to close
changes. There are 2 years in and out of sample.> >
> > - slide 24 mentions "Trend Following
on Commodities", as "100 day> lookback, trade 34% before breakout".
I don't understand what this means.> something about MA or
EMA(100), maybe, but what's the 34% piece? how does it> get around
the parameter settings limitations that sink other systems? is>
this method, or something based on related principles, tradeable in
stocks> and/or mutual funds?> > >
> Breakout buys a new high, sells a new
low. Near Breakout trades sooner.> 34% before breakout buys
in the top third of the 100 day high-low range,> sells in the
bottom third. Specifically, the 34% means 34% of the
high-low> range.> > >
> - how would I compute the daily standard
deviation of the S&P500, in> AmiBroker for instance, in a way
that gives the same .95%/day figure you> mention? is that the
average std dev of daily close price change over some> specific
period of time? I ask so I can generate comparable figures for>
other markets.> > > >
Compute the standard deviation of all the close to close changes.>
> > > > - the parameters I
get optimizing today compensate for transient market> behaviors
that will eventually end, and eventually it will do very poorly.>
but if those behaviors persist, at least somewhat, for a little while,
might> the system to do better than average in the short term? if so,
is constant> re-optimization worth exploring, or even switching
whole trading systems in> a mechanical way based on recent
performance?> > > > I find
little tendency for trading systems to work in the future.
Try> to identify a simple nonrandomness. Try to find markets that
simple systems> work on. Don't pick an impossible market like
S&P 500 and try to fit a> complex bunch of rules to it.>
> > > Commodities have long term
trends. Stocks show short term 2-10 day> reversals.>
> > > thanks again for writing
and sharing this. makes me wish I lived> somewhere near the meetings
you haunt...> > > >
dave> > Dave is an Agilent,
triple-degreed, engineer. Two weeks ago, he> presented this
work to our Denver Trading Group's weekly meeting (actually,> this
group meets every Thursday and most Saturday's). Once a month,
I> moderate a SIG on mechanical trading (and I haven't seen less than
eighty> people in the room since I've been attending).>
> > > Although, I
don't agree with certain aspects of his presentation and I>
somewhat object to his assigning my name to the "Karnish System" (it
has> become a bastardized off-shot of my work), I still believe that
there is a> lot of merit to aspects of his work. The "Karnish
System" has become the> moniker for systems (along the front range
of Colorado) that stochastically> smoothes a momentum oscillator
that initiates buy and sell signals using> symmetrical
triggers.> > >
> I neither want to endorse, defend
or criticize Dave's work...but,> offer this for group members to
stimulate thought.> > >
> Take care,> >
> > SteveSend
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