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Dave,
Quite honestly, I haven't heard any definitions of
robust at this forum. Lot's of folks are willing to say: "This is
not robust...", but I have asked for specifics and definitions and nobody is
supplying the answers. The system and how it's traded is not the
issue. This is exactly why I decided to present the CMO5 on ETF's.
The concept isn't new and the data is OOS. Without any tweaking or
modification, the approach continues to produce a reasonable equity line.
Would you like for me to comment on the deviation
of the equity from a chosen linear regression? Fred mentioned it would be
nice to see an equity curve (and there is one on each chart that I sent) and
that should count for one of Mark's nine robust measures.
Since, I'm not bright enough to even guess at nine
measures of robustness (and so far, Mark hasn't shared), I must rely on simple
bench marks: how does it perform over 8,000 issues, how does it perform in
different markets (futures, equities, ETF's), how does it perform in different
time periods, max eod dd's, max neg. excursions, avg. win/avg. loss,
expectancy, blah, blah, blah.
Did I miss something or did someone actually define
robust? If so, I hope it was better than the optimizing thread.
Testing is necessary, optimizing is a spiraling death trap (unless you name has
DT as initials...then you understand the trap and play the game on the edges of
the black hole).
The CMO5 is a dandy indicator and the rules that I
apply to trigger the trades are simplistic. Certainly, anyone with
decent software can better the results (well, maybe). The trick is to
modify the approach ... without over-optimizing (tough trick).
If over the next six months, this system, with it's
defined triggers, trades the DIA, QQQ, and SPY with decent profits...is it
robust? How many years must it continue to produce steady results before
it can be called robust? If we look back ten years from now, and it has
performed as it has in the last four years, is that robust? Must it also
show the same kind of results in silver, bonds and soybeans? If it
performs on EOD, data ... must it also knock em dead in one minute time
frames?
Here's a different view: If a system performs
OOS for a period (x) of time and continues to perform into the future, without
adjustments...then I hereby declare that it is robust. Why? Because,
just like technical analysis: every input, that can be considered, is
discounted by an issue's price. In technical analysis, we discount all the
information that flows in, out and around a stock and only consider the
price. So, why not just judge a issue's robustness by strictly pegging it
to OOS results? Period. If these ETF's continue to produce steady
results for the next five years, I expect someone to say: "Well, maybe
these ETF's with the CMO5 performed well for the past eight years, but by
my definition, this is not robust".
I'm still waiting for the naysayers to define
robust and to post a system that can be monitored for results. The CMO5 is
the default indicator that I use to demonstrate the character of momentum
oscillators. Many of us have come to realize that the indicator is not the
most important piece of the puzzle. The grail is not a silver or gold
chalice.
Robust and optimizing are difficult terms to
define. Any definition can be argued. Robust is like beauty.
My wife is beautiful (my subjective opinion). You might find her
unattractive.
The real silly part is that people want to argue
whether something is robust or not. The rubber meets the road when you
trade. Try flipping around sizeable accounts with something that is not
robust... money flies away.
Sorry that I haven't been able to answer your
question. Why don't you direct you question to Mark. He has a nine
point plan to evaluate what is or is not robust. Is there a possibility
that one might over-optimize robustness?
Take care,
Steve
<BLOCKQUOTE
>
----- Original Message -----
<DIV
>From:
Dave Merrill
To: <A title=amibroker@xxxxxxxxxxxxxxx
href="">amibroker@xxxxxxxxxxxxxxx
Sent: Friday, October 31, 2003 12:33
PM
Subject: RE: [amibroker]
Robustivity
<SPAN
class=093340919-31102003>thanks for the specifics, glad to have 'em, even
though that's not what I was trying to ask (:-)
<SPAN
class=093340919-31102003>
<SPAN
class=093340919-31102003>what I'm most interested in isn't the system itself,
but what you did to convince yourself that it's robust. the way it was posted
implied that you disagreed with other ideas of robust-ness/ivity floating
around here, so I'm trying to find out what your approach
is.
<SPAN
class=093340919-31102003>
<SPAN
class=093340919-31102003>dave
<SPAN
class=093340919-31102003>
<BLOCKQUOTE
>
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><SPAN
class=468263723-30102003>
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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