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Pal,
I'm glad you wrote in and will try to set the example here in being
collegial as I requested of everyone else :-) First let me say that
you'll never be able to *prove* that a system will be profitable in
the future unless it's a risk free arbitrage or something of that
nature and even then, the trades can still go horribly wrong, lol.
However, the purpose of this robustness drill is *precisely* to use
past performance measures to determine a high likelihood of future
success. The past is all we've got. If you don't believe you can use
it to succeed in the future, what's left? Solid theoretical
foundations? I've read that a lot and it seems to make sense. But
(temporarily) leave your preconceptions at the door and let's talk a
little about the systems I have that *do* meet my robustness criteria.
They're very simple, short term and trade often. Somehow, they're
very good at taking small chunks out of stocks whether they're going
up, down or sideways. The ones I've traded *do* make money in real
time, one of them I've been trading for a long time. What's their
theoretical foundation? Don't know, don't care, haven't got a clue.
But they do meet certain criteria for robustness, only the first of
which I've described.
Regards,
Mark
--- In amibroker@xxxxxxxxxxxxxxx, "palsanand" <palsanand@xxxx> wrote:
> 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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