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<FONT face=Arial color=#0000ff
size=2>Jayson,
<FONT face=Arial color=#0000ff
size=2>
Where
do I begin? First, let me put your mind at ease and tell you that I
am successfully trading numerous systems against the entire universe of
stocks. Suffice to say that I have a 40-year track record trading my
own as well as other people's money. As I mentioned in my earlier
email, I became frustrated by the fact that many people in this group were
getting such good backtested results from systems applied to the
N100.
<FONT face=Arial color=#0000ff
size=2>
My
N100 systems being discussed performed very well in the last year, not
poorly as you suggest. They performed very well for several years
against the CURRENT N100 list. But, the CURRENT N100 list is a
success story for those 100 stocks.
<FONT face=Arial color=#0000ff
size=2>
It is
my belief that selecting and ranking based on only 100 stocks simply won't yield
enough qualified buy signals to give good returns without large
drawdowns. By the time I add liquidity and price filtering, there
may only be one or two signals at each swing of the overall market.
That simply doesn't give me an acceptable level of diversfication.
Due to the size of the funds that I manage, I need to get off a fair amount of
dollars in a fair number of positions in each system in order to play the
game.
<FONT face=Arial color=#0000ff
size=2>
I'll
probably just go back to developing and trading systems that look at the entire
universe, rather than the N100. However, I will suffer every time I
hear of someone seeing 2,500% annual returns in backtesting some new system
on the N100.
<BLOCKQUOTE
>
<FONT face="Times New Roman"
size=2>-----Original Message-----From: Jayson
[mailto:jcasavant@xxxxxxxxxxx]Sent: Wednesday, December 31, 2003
3:10 AMTo: amibroker@xxxxxxxxxxxxxxxSubject: RE:
[amibroker] The demise of 23 systems...
<FONT face=Arial color=#0000ff
size=2>Chuck,
<FONT face=Arial color=#0000ff
size=2>Thanks for the detailed reply. You certainly have more experience
system testing then I but it just seems that if a system "Works" it should
work on any given data set at any given time. By this I mean that there is
really nothing magical about the NAS100 or the SP500, they are just stocks
chosen, for a variety of reasons, to be components of an index. If the
system looks at market timing components then a stock will either pass/fail
based on that criteria. The same will be true for any additional components in
the system. Why would stock "A" perform favorably while stock "B" does not,
after all it passed the same (series) of tests.
<FONT face=Arial color=#0000ff
size=2>
Time
is also a component of testing that tends to confuse me. If a system does
poorly over the last 12 months why would you want to test it over a longer
period? True the system may produce favorable results if you had run it for 10
years but if it is failing for the last year do you really want to be
following it? Wouldn't you instead want to be looking for a system that is
behaving better today? If your system begins to fail wouldn't you want to stop
trading it until such time as it begins behaving again? You may miss out on
some winning trades but have you not saved your self some losers in the
process? I have seen posts over the years that indicate some are trying to use
MA's of the equity line as a filter to determine adherence to a given system.
On the surface this seems to make sense to me. Have you done any work in this
area?
<FONT face=Arial color=#0000ff
size=2>
In
answer 4 you state that the system will not optimize on the revised data. Does
this not indicate that the system only worked on the stocks originally tested
and therefore its success/failure was actually random? Pure luck based on the
trades taken in the origininal data?
<FONT face=Arial color=#0000ff
size=2>
<FONT
face=Arial color=#0000ff size=2>Over the years I have tested various systems,
some simple, some complex, and have found the process frustrating. I can build
a system that trades well on a given universe of stocks. It will trade well on
the the timeframe I built the system on but when tested over a different time
frame or on a different basket will invariably fall apart. It seems to me
there is certainly an element of luck involved. Perhaps it is a coup[le of
stocks in the universe the have steadily produced, take them out and ...no
joy. Perhaps a large percentage in the group had a stellar couple of years.
Test out side that run up and again...no joy
<FONT face=Arial color=#0000ff
size=2>
In
your follow up you state that you have had little luck with any system testing
less than 1,000 stocks. Do your systems take significantly more trades
when tested against a large group or are you simply trading stocks meeting
higher standards based on some type of ranking? If the latter than perhaps
stock selection is key. There certainly is a large group of believers in this
theory over at IBD and at QP/HGS.
<FONT face=Arial color=#0000ff
size=2>
I am
sorry to hear your story as I am certain you have invested lots of sweat
equity into the development of your many systems. I sincerely hope that next
year at this time you can share with us your success
story.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>
Regards,
Jayson
<FONT face=Tahoma
size=2>-----Original Message-----From: Chuck Rademacher
[mailto:chuck_rademacher@xxxxxxxxxx]Sent: Tuesday, December 30,
2003 12:54 PMTo: amibroker@xxxxxxxxxxxxxxxSubject: RE:
[amibroker] The demise of 23 systems...
<FONT face=Arial color=#0000ff
size=2>Jayson,
<FONT face=Arial color=#0000ff
size=2>
I
can tell you, but probably not convince you, that the systems were not over
optimised. However, let me tell you the following so you can
decide for yourself:
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>1. All 23 of these systems were long only.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>2. Each system had between 3 and 6 parameters, including two for
market timing.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>3. The performance of these systems did not fall off a cliff if
any or all of those parameters deviated in either
direction.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>4. Let's say that they were over optimised. The
systems won't optimise with the "revised"
data.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>
I
have to tell you a couple more things:
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>1. I tend to use exactly the same two-parameter market timing
methodology (including parameter values) for more than 120
systems.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>2. I find that the more stocks I pump into a system, the more it
has to select from and the better the performance.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>3. I could never get any systems to work to my satisfaction on
less than 1,000 stocks.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>4. I certainly could never get any system to work to my
satisfaction on the NASDAQ 100.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>5. All of my systems work (40+ years) was previously done outside
of AmiBroker where my database knows which stocks belong to which
index at any given minute in time.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>6. I became frustrated with reports of numerous AmiBroker users
having success with NASDAQ 100 trading systems.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>7. I created a (current) NASDAQ 100 watchlist and a bunch of
systems that appeared to work.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>8. I'm actually trading 11 of the 23 systems that I
mentioned. Well, to be honest, I was trading them until
yesterday.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>9. Once I tried the more accurate method of determining which
stocks were NASDAQ 100 constituents in AmiBroker, these systems fell
apart.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>That's my story... back to the drawing board (unless I want to ignore
using more accurate watchlists).
<BLOCKQUOTE
>
<FONT face="Times New Roman"
size=2>-----Original Message-----From: Jayson
[mailto:jcasavant@xxxxxxxxxxx]Sent: Tuesday, December 30, 2003
9:52 AMTo: amibroker@xxxxxxxxxxxxxxxSubject: RE:
[amibroker] The demise of 23 systems...
<FONT face=Arial color=#0000ff
size=2>Chuck,
<FONT face=Arial color=#0000ff
size=2>does this suggest that all of your systems were simply curve fitted
to the current nas100? Or perhaps simply over optimized?
Regards,
Jayson
<FONT face=Tahoma
size=2>-----Original Message-----From: Chuck Rademacher
[mailto:chuck_rademacher@xxxxxxxxxx]Sent: Tuesday, December 30,
2003 7:05 AMTo: amibroker@xxxxxxxxxxxxxxxSubject:
[amibroker] The demise of 23 systems...
I
thought that I would share the following with you. Perhaps you
can see how the results of my research may affect your own
systems?
<FONT face=Arial color=#0000ff
size=2>
I
had what I thought to be 23 "good" to "very good" systems that I backtested
against a current NASDAQ 100 watchlist. After spending
two days updating symbols and accounting for de-listed stocks, I came up
with nine separate watchlists, as at January 1 each year between 1995 and
2003. Thanks to some of you, I modified my AFL to make sure that
I used the correct watchlist depending on the date. The
results... not one of my 23 NASDAQ 100 systems now backtest
with acceptable performance. Many went from nice, positive
returns with low drawdowns to negative returns and almost total loss of
capital.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>What does it all mean? IMO, working with only a current
NASDAQ 100 watchlist can give you a real sense of false
security. Not only are de-listed stocks not in the current list,
but many of those de-listed stocks had lacklustre performance before their
demise.
<FONT face=Arial color=#0000ff
size=2>
I
encourage you to think about the impact of using only a current watchlist,
regardless of how that list is constructed, for backtesting
purposes. I see it all the time. System designers
create watchlists of high-beta or high-yield or low P/E or whatever stocks
based on current information to backtest a system starting perhaps five
years ago. Think about it!Send
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