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Sorry, Steve, can't help myself. DT taught me a new word this morning
(aleatoric, although more properly it is aleatory), but robustivity just
doesn't exist. It's robustness. :-))))
AV
Original Message:
-----------------
From: CedarCreekTrading kernish@xxxxxxxxxxx
Date: Fri, 31 Oct 2003 10:09:37 -0700
To: amibroker@xxxxxxxxxxxxxxx
Subject: Re: [amibroker] Robustivity
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 -----
From: Dave Merrill
To: amibroker@xxxxxxxxxxxxxxx
Sent: Friday, October 31, 2003 9:29 AM
Subject: RE: [amibroker] Robustivity
steve, thanks for your response.
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.
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?
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?
thanks again,
dave
just for my understanding, in what sense is this system "robust"?
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.
is it because results are similar with different similar periods and
thresholds?
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.
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?
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.
is it robust because it works well on many stocks, indexes and funds
over a long period of time?
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.
because of the concepts behind the indicator itself?
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.
something else?
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.
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?
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.
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.
Optimization leads to dark and spooky places. Ranking leads you down
the yellow brick road.
Take care,
Steve
steve, thanks for sharing this (again).
just for my understanding, in what sense is this system "robust"?
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?
is it robust because it works well on many stocks, indexes and funds
over a long period of time?
because of the concepts behind the indicator itself?
something else?
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.
thanks,
dave
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.
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