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Re: [amibroker] Robustivity



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Steve,
 
Thanks for the "splaining"....
 
Anthony
<BLOCKQUOTE 
>
  ----- Original Message ----- 
  <DIV 
  >From: 
  <A title=kernish@xxxxxxxxxxx 
  href="">CedarCreekTrading 
  To: <A title=amibroker@xxxxxxxxxxxxxxx 
  href="">amibroker@xxxxxxxxxxxxxxx 
  Sent: Friday, October 31, 2003 12:09 
  PM
  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 ----- 
  <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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