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I agree with you, Graham. A good example is the Turtle system. It has
proven to be quite robust over the years in the commodities markets but not in
equities. I see no reason why a system should perform well over ALL markets. I
only plan to trade a few stocks, and if I make lots of money with those, I
couldn't give a hoot if it doesn't work with other stocks or futures or
mutual funds or options or whatever. Anthony gave a good definition of
robustness, although he intimated that it should work in lots of markets, which
I don't necessarily adhere to strictly. In my mind, the most important feature
of robustness is the relative constant performance over a broad range of
parameter values as well as equal or better performance in OOS periods. That's
all that matters to me. If a system is robust with only 5 or 10 stocks, in
accordance with the latter definition, I'm happy.
Al Venosa
<BLOCKQUOTE
>
----- Original Message -----
<DIV
>From:
<A title=gkavanagh@xxxxxxxxxxxxx
href="">Graham
To: <A title=amibroker@xxxxxxxxxxxxxxx
href="">amibroker@xxxxxxxxxxxxxxx
Sent: Friday, October 31, 2003 5:57
PM
Subject: RE: [amibroker]
Robustivity
I have always wondered
why a system must be usable over a range of markets.
If you only trade shares
in run-of-the-mill equities why should a system be suited to other
markets.
I also am assuming the
term "markets" refer to something other than equity shares of companies, like
commodities.
Perhaps someone can help
me out with this Markets term.
Cheers,Graham<A
href="">http://groups.msn.com/ASXShareTrading<A
href="">http://groups.msn.com/FMSAustralia
<FONT
face=Tahoma size=2>-----Original Message-----From: Anthony
Faragasso [mailto:ajf1111@xxxxxxxx] Sent: Saturday, 1 November
2003 6:46 AMTo: amibroker@xxxxxxxxxxxxxxxSubject: Re:
[amibroker] Robustivity
Steve,
As you are probably aware....but for others on
the list.
The first stage in the development of a trading
system is its design. This involves the development of a trading idea
and then its implementation in some testable design. The second stage in
this process is the preliminary testing of the trading model.
Testing comprises four main steps.
1. Verify that all the formulas and rules are
being calculated as intended.
2. Asses whether the combinations of formulas
and rules function as the theory would indicate.
3. Develop a preliminary idea of
profitability.
4. Develop a preliminary idea of
robustness.
Robustness is an
important idea in trading model testing. The Webster's University dictionary
provides the following definition: Robust : Powerfully
built : Sturdy.
The key word is " Sturdy". In other words, a
robust trading model is tough and long lasting. For our purposes, a robust
trading model may be identified by three characteristics:
1. Profit over a wide range of
variables.
2. Profit over a wide range of
markets.
3. Profit over a wide range of market types and
conditions.
In other words, a robust model will continue to
perform profitably when markets change. Since markets change constantly, the
more robust the model, the better.
<BLOCKQUOTE
>
----- Original Message -----
<DIV
>From:
<A title=kernish@xxxxxxxxxxx
href="">CedarCreekTrading
To: <A
title=amibroker@xxxxxxxxxxxxxxx
href="">amibroker@xxxxxxxxxxxxxxx
Sent: Friday, October 31, 2003 4:12
PM
Subject: Re: [amibroker]
Robustivity
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>
<SPAN
class=468263723-30102003><FONT face="Courier New" color=#0000ff
size=2>because of the concepts behind the indicator
itself?
<SPAN
class=468263723-30102003><FONT face="Courier New" color=#0000ff
size=2>
<SPAN
class=468263723-30102003>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.
<SPAN
class=468263723-30102003><FONT face=Arial
size=2>
<SPAN
class=468263723-30102003><FONT face="Courier New" color=#0000ff
size=2>something
else?
<SPAN
class=468263723-30102003><FONT face="Courier New" color=#0000ff
size=2><SPAN
class=468263723-30102003>
<SPAN
class=468263723-30102003><SPAN
class=468263723-30102003>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.
<SPAN
class=468263723-30102003><SPAN
class=468263723-30102003>
<SPAN
class=468263723-30102003><SPAN
class=468263723-30102003>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?
<SPAN
class=468263723-30102003><SPAN
class=468263723-30102003>
<SPAN
class=468263723-30102003><SPAN
class=468263723-30102003>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.
<SPAN
class=468263723-30102003><SPAN
class=468263723-30102003>
<SPAN
class=468263723-30102003><SPAN
class=468263723-30102003>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.
<SPAN
class=468263723-30102003><SPAN
class=468263723-30102003>
<FONT face=Arial
size=2>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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