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<FONT face=Arial color=#0000ff
size=2>Dave,
<FONT face=Arial color=#0000ff
size=2>
An
excellent concept, but I may be able to give you an idea to make it
easier.
<FONT face=Arial color=#0000ff
size=2>
I do
what you propose, except I eliminate the "stop". Just leave an exit
after so many days.
<FONT face=Arial color=#0000ff
size=2>
Then,
using the portfolio backtester or other software, have a look at the MAE and MFE
reports.
<BLOCKQUOTE
>
<FONT face="Times New Roman"
size=2>-----Original Message-----From: Dave Merrill
[mailto:dmerrill@xxxxxxx]Sent: Saturday, November 22, 2003 8:10
AMTo: amibroker@xxxxxxxxxxxxxxxSubject: [amibroker] an
entry signal evaluation modelI've been working on a
new (to me) way of evaluating possible entry methods,as distinct from exit
methods. I've got code in the works, but I thought I'drun the concept by
folks here for some feedback while I finalize it. here'sthe basic
idea:on the long side, profits come from selling at a higher price
than youbought. so, a good entry signal is one where the stock frequently
risesreasonably soon after a buy signal occurs. with the exception of a
permanentdown-trend or individual stock fatalities, *everything* goes up
eventually,so the question really is, how soon after buys does price rise,
and how far?this exploration makes two assumptions, after Steve
Karnish: 1) a relativelytight stoploss is needed to limit risk and mental
pain, and 2) we're lookingfor short term signals, to generate a
statistically meaningful number oftrades, and to limit the opportunity
cost of continuing to hold a positionthat's treading water. specifically,
we'll sell anything that hits a 13%stoploss or is still held after 15
days. these aren't the only possibleassumptions, but they're what's used
here.given those assumptions, the quality of an entry signal can be
evaluated asthe peak percentage rise in price, after commissions, before
one of thosetwo basic exit conditions occurs. to actually trade the signal
profitably,you might well need to exit before the loss or time stops took
you out, andthe design and testing of an exit signal specific to a given
entry model isbeyond the scope of this effort. however, unless price
reaches a healthyprofit fairly often before those basic stop exits happen,
the entry signalitself isn't useful; you could do better with random
entries.peak price rise before those time or loss stops are hit can be
evaluated forany bar, not just when there's a buy signal. the efficiency
of a buy signalcan then be expressed as the percentage ratio of the
average peak rise onbuy bars to that of all bars. greater than 100% means
it entered on barswith higher than average gain before stopping out, less
than 100%, lowerthan average.to design a system using this idea,
you'd need to select a set of issues anda date range to test, evaluate a
variety of entry methods on this basis,then test a variety of exit signals
with the top entry methods and choosethe best combination.make
sense? is this a known concept that others have explored?
otherthoughts?daveSend
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