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Hi,
In my view, it is misleading to exclude individual systems using past
measures of profitability like APR, Annual trades, Percent Wins,
etc., because these statistics may disprove that a system has been
unprofitable in the past, but cannot prove that it may be profitable
in the future. I would select systems based on a sound theory, not
arbitrary systems which has no solid theoretical foundations...
rgds, Pal
--- In amibroker@xxxxxxxxxxxxxxx, "MarkF2" <feierstein@xxxx> wrote:
> This is in response to DT's and others' requests to provide more
> details on my 9 robustness criteria.
>
> First some administrative anouncements, lol. I've decided to
provide
> them one-by-one, first due to my time constraints, second because I
> feel that's the best way to discuss them and third because I want
to
> see how this goes. I welcome all constructive debate, especially
> opposing views supported by quantitative analysis. But if this
> degenerates into a flame war, I've got better things to do with my
> time. Treat me with respect and I'll treat you with respect.
There
> seems to be a lot of interest in this topic, so let's please have a
> collegial and productive discussion. This is post 1 of 9 (not
> counting the dialog inbetween, let's see how far we can get :-).
>
> Why care about robustness? For whatever reasons, markets change.
We
> could spin our wheels forever discussing time series theory, serial
> dependencies, random walk, nonstationarity, etc., like academicians
> do and get nowhere (as they do), or we can try to cut through the
crap
> and deal with it (the simple fact that markets constantly change).
> My weapon of choice is robustness. You could say I have a
robustness
> obsession and my criteria are overkill. But that's my choice and
> you're free to make your own on how far you want to take this, if
at
> all.
>
> OK, I lied. There will be some, very light discussion of
statistics
> because some criteria are steeped in statistical theory. But most
> can be reduced to simple, mechanical procedures that can be graphed
in
> a spreadsheet and visually and intuitively interpreted. Others
> require simulation software and one requires proprietary software
but
> we'll cross that bridge when we come to it.
>
> Speaking of proprietary, there are some things I simply won't
> disclose, such as specific parameters for certain criteria. So
please
> respect my wishes and don't ask. I have my reasons. So evaluate
this
> on your own and decide for yourself what place, if any, the criteria
> have in your trading. They work great for me but I make no claim
that
> they're the Holy Grail of robustness and am sure that some of you
will
> come up with better ideas if there's enough interest and
discussion.
>
> With that long winded intro, here's Criterion #1:
>
> Test *unoptimized* system on small, mid & large cap stocks in bull,
> bear & sideways market conditions, same parameters for all. I use
> the stocks of the S&P 600, 400, and 500 indices and 2 year bull,
bear
> and sideways periods (for a total of 6 years per stock). Rationale
> behind this: to find systems that profitably *tested out in the
past*
> on a large number of (somewhat tradeable) stocks of varying market
> caps in multiple sectors under different market conditions, under
the
> assumption that this indicates the system is robust enough to
> profitably *trade select issues in the future*. More on robust
issue
> selection in later criteria. Looking for net profitability on all
mkt
> cap and mkt condition subtests, and profitable on the majority (>
> 50%) of issues in each subtest, the more the better. Sometimes I
cut
> a system some slack if it's close on one or two subtests, it's a
> judgement call. My commission setting(s) in AB: proprietary, based
> on my *slippage* research using data from actual trades. But you
> could choose an arbitrary say, 1% to get started. Date settings for
> my 2 year intervals: proprietary but you can easily find your own
by
> eyeballing a chart of a major index. Just use the same ones each
> time so you compare apples to apples. My lite version of this is 2
> year bull and bear periods on the ND100 and SP100 stocks, which I
> sometimes run as a quick pre-screen. Next time someone posts a
system,
> run it through the lite or full version. Or test the systems in the
> AFL library. The more systems you run through, the more intuitive
of
> a feel for robustness you'll get. Note that I'm *not* saying you
> shouldn't or can't successfully trade something that doesn't meet
> this standard, lol. That's obviously not true! I was asked to
> explain my robustness criteria and that's what I'm doing. Period.
> This criterion is a post-Amibroker creation, BTW. Pre-Amibroker I
had
> a small test portfolio of diverse issues I used instead and it did a
> decent job. I run this now because I now (easily) can, *many* thanks
> to Tomasz. If you're thinking, geez, why bother with this, ask
> yourself a simple question. *All else being equal*, would you feel
> more confident trading (with your money) a system that passes this
> test or one that fails it?
>
> Regards,
>
> Mark
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