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NTES is a good example to "test your system" to see how robust your
system really can function. A waterfall drop in this stock this last
week and a lot of divergences.
Most systems will most likely fail! Take your 315 trading days and
see the results are any good.
I just went "long" today on this stock...my system gave me a "buy".
I learnt to follow it regardless how much of a drop a stock can drop.
--- In amibroker@xxxxxxxxxxxxxxx, "Anthony Faragasso" <ajf1111@xxxx>
wrote:
> Steve,
>
> Thanks for the "splaining"....
>
> Anthony
> ----- Original Message -----
> From: CedarCreekTrading
> To: 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 -----
> 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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