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am I missing
something?
Dave,
Sometimes it's tough to address issues and
provide the specifics that folks are seeking. So, I will try to "splain"
it better.
If I am using the CMO5 with triggers of
34/-34, I would go back and start a test to evaluate this system and
triggers. The starting period would be whatever date you pick (1990,
'97, 2000, etc.).
Next, I run the test over 315 trading days
(this period gives me results for approximately one year..it takes "x" amount of
periods to load the TRIX(21), which I use as a trend identifier. My
approach produces about 10 to 15 round turn trades a year... in each
stock.
I then rank all issues by one
criteria: percent return per day (while the money is in the market).
If you only consider the percent per day contributions, I think you will find
that all other "book learned" ratios come out just fine. Numbers
lie. Would you rather trade a $100 stock that returns $20 or a $20 stock
that returns $10? Percent per goes a long way to normalizing the
comparisons.
I pick the 20 best percent per day stocks
and trade them for the next quarter. At the end of the quarter, I
reevaluate the percentage per day contributions and reshuffle the issues in
play, if necessary.
Symtems don't go bad, stocks and
commodities go bad. Going bad is best defined by a change in the pattern
of supply and demand. The cream rises to the top of the list.
Is this optimizing? Could be, by some
definitions. If all the odds are even money, who would you prefer to bet
on: Chicago or Kansas City? KC is undefeated and Chicago couldn't
beat the local high school. My money is on KC.
The stock betting setup is not
handicapped (like almost all games). This is basically a even money play
(with subtractions for commission and slippage...juice/vigorish). If you
have 9,000 issues to play, why won't someone want to bet on the strongest
performance?
I know that the explanation might be over
simplified...but, the people who know me, in and out of this forum, know that
this is the way I do it. I'm not crusading for anything. This
works. I've presented this simplistic approach publicly to large groups
and in a number of internet seminars. It continues to crank out
extraordinary profits.
Please let me know if the
paragraphs help to explain the ranking.
Take care,
Steve
----- Original Message -----
<BLOCKQUOTE
>
<DIV
>From:
Dave Merrill
To: <A title=amibroker@xxxxxxxxxxxxxxx
href="">amibroker@xxxxxxxxxxxxxxx
Sent: Friday, October 31, 2003 9:29
AM
Subject: RE: [amibroker]
Robustivity
<SPAN
class=496400216-31102003>steve, thanks for your response.
<SPAN
class=496400216-31102003>
<SPAN
class=496400216-31102003>from your msg subject and the way you presented this
system, I thought you were offering it as an example of one you
had objectively evaluated and determined to be robust. I was
interested in how you thought "robustivity" should be evaluated, since you
seemed to be contrasting your approach to walkforward optimization and
the various other system measures people were talking
about.
<SPAN
class=496400216-31102003>
<SPAN
class=496400216-31102003>what I'm hearing in your response below isn't what I
would describe as a specific method for distinguishing accidentally gorgeous
backtest results from robustness. you do mention testing also at faster time
frames, which isn't a technique that's been mentioned recently. but mostly,
the robustness label here seems to come from your integration of various
aspects of your long experience with it, like your visual sense of how it
behaves. am I missing something?
<SPAN
class=496400216-31102003>
<SPAN
class=496400216-31102003>another question: you mention issue selection, the
idea of looking for stocks you think will trade well with a particular
indicator, rather than the other way around. how do you do that? by measuring
raw past growth trading that indicator? other measures?
<SPAN
class=496400216-31102003>
<SPAN
class=496400216-31102003>thanks again,
<SPAN
class=496400216-31102003>
<SPAN
class=496400216-31102003>dave
<BLOCKQUOTE
>
<FONT face="Courier New" color=#0000ff
size=2>just for my understanding, in what sense is this system "robust"?
<FONT face="Courier New" color=#0000ff
size=2>
Well, first,
this was presented to the public in the late 90's, at a series of seminars
that I conducted for Equis. Same indicator, same triggers, same
everything. This robust "thing" is a tough one to define. I'll
try to explain what's important to me, but, it's very subjective and just
one person's opinion.
<FONT face=Arial
size=2>
<FONT face="Courier New" color=#0000ff
size=2>is it because results are similar with
different similar periods and thresholds?
<FONT face=Arial
size=2>
If you take this
CMO5 indicator and step down in time (5, 10, 60 minutes), you need to
widen the triggers to obtain decent results. Other than that,
it trades through time-zones with very good
results.
<FONT face=Arial
size=2>
<FONT face="Courier New" color=#0000ff
size=2>that seems unlikely, since there isn't very far to go from 5 to hit 1
and 0, which I'd guess are significantly different. what sort of testing led
you to decide on this period and threshold, and this system for that
matter?
<FONT face=Arial
size=2>
If you're
referring to the CMO5...I first started testing it six years ago. I've
tested and eyeballed every version of CMO(x). I've created a few
indicators that combines different periods of the CMO. For my money,
for my style, this judge of momentum trades more things, more accurately
than any other indicator I am aware of. As I have begged many
times: give me something better...I'll use it instead of
this.
<FONT face=Arial
size=2>
<FONT face="Courier New" color=#0000ff
size=2>is it robust because it works well on
many stocks, indexes and funds over a long period of time?
<FONT face="Courier New" color=#0000ff
size=2>
Yes, it works
well on many stocks and indexes. I don't trade funds, but, some fund
managers, DTG members, use versions of the CMO to aid their timing.
<FONT face=Arial
size=2>
<FONT
face="Courier New" color=#0000ff size=2>because of the concepts behind the
indicator itself?
<FONT
face="Courier New" color=#0000ff size=2>
<FONT
face=Arial size=2>I process visually. The math is beyond me. My
bottom line has always been the same: give me an indicator that is
smooth, yet sensitive to intermediate and major market turns. After
gawking hundreds of charts, everyday, for the last six years, I'm amazed at
how this indicator quantifies momentum. I like versions of the
Stochastic RSI and the Standard Error Oscillator, but dollar for dollar, the
CMO does it for me.
<FONT
face=Arial size=2>
<FONT
face="Courier New" color=#0000ff size=2><SPAN
class=468263723-30102003>something else?
<FONT
face="Courier New" color=#0000ff size=2><SPAN
class=468263723-30102003>
<FONT
face=Arial size=2>I think there's a few other
things to mention. First of all, the ETF's that I showed were chosen
because they represent a broad range of stocks and are popular trading
instruments. Do I suggest trading these issues with this
system? No way. The CMO5 trades a lot of other issues with
better results than the ETF's. I always allow the issues "to pick
themselves". Trade the issues that return the greatest percentages in
a stable system.
<FONT
face=Arial size=2><SPAN
class=468263723-30102003>
<FONT
face=Arial size=2>In it's stripped down
version, as presented, the CMO5 is an indicator that can return steady
profits (see equity lines) in it's rawest unoptimized form. Is that
robust?
<FONT
face=Arial size=2><SPAN
class=468263723-30102003>
<FONT
face=Arial size=2>Robustness and
optimizing/over-optimizing are fascinating and misunderstood subjects.
Over the years, I've constantly simplified my approaches. I can
improve on the results of the three ETF's by simply "tweaking" the trigger
levels. But, will it walk forward better than the default triggers of
34/-34? At least what I presented was out of sample.
<FONT
face=Arial size=2><SPAN
class=468263723-30102003>
<FONT
face=Arial size=2>If an approach does a good
job of identifying movement of supply and demand, the approach should
not be expected to work on all issues. To say a system needs to
work on all issues is total crap. To say that a
system sucks because it doesn't work on XYZ is another large pile.
Build simple things and concentrate on issue
selection.
<FONT
face=Arial size=2><SPAN
class=468263723-30102003>
Optimization
leads to dark and spooky places. Ranking leads you down the yellow
brick road.
<FONT face=Arial
size=2>
Take
care,
<FONT face=Arial
size=2>
<FONT face=Arial
size=2>Steve
<FONT face=Arial
size=2>
<BLOCKQUOTE
>
<SPAN
class=468263723-30102003>steve, thanks for sharing this
(again).
<SPAN
class=468263723-30102003>
<SPAN
class=468263723-30102003>
<SPAN
class=468263723-30102003>just for my understanding, in what sense is this
system "robust"?
<SPAN
class=468263723-30102003>
<SPAN
class=468263723-30102003>is it because results are similar with different
similar periods and thresholds? that seems unlikely, since there isn't
very far to go from 5 to hit 1 and 0, which I'd guess are significantly
different. what sort of testing led you to decide on this period and
threshold, and this system for that matter?
<SPAN
class=468263723-30102003>
<SPAN
class=468263723-30102003>is it robust because it works well on many
stocks, indexes and funds over a long period of time?
<SPAN
class=468263723-30102003>
<SPAN
class=468263723-30102003>because of the concepts behind the indicator
itself?
<SPAN
class=468263723-30102003>
<SPAN
class=468263723-30102003>something else?
<SPAN
class=468263723-30102003>
<SPAN
class=468263723-30102003>
<SPAN
class=468263723-30102003>I'm not disputing the system's value, which I
haven't tested yet. I'm trying to understand what kind of process you go
through to settle on a system and settings.
<SPAN
class=468263723-30102003>
<SPAN
class=468263723-30102003>thanks,
<SPAN
class=468263723-30102003>
<SPAN
class=468263723-30102003>dave
<SPAN
class=468263723-30102003>
<BLOCKQUOTE
>
1. This exact system was presented
over a year ago at this forum
2. The charts are OOS (since, it's
been posted publicly forever)
3. Rules are simple: Buy the
opening of the next day when the CMO5 closes below -34 and sell when it
triggers above 34.
Works on most issues (raw). Works
better if:
a. You take trades only with the
trend
b. You protect yourself from large
drawdowns (stop)
c. You conjure a profit target
(limit)
d. You put in a time stop
This is the guts of an indicator and a
logical systematic approach. Whistles and bells are optional (but,
in my opinion necessary). Again, if you start with a pig, the prom
dress doesn't make it look any better. Don't hang ornaments on a
twisted Christmas
tree.Send
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