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Hi Chuck –
This is great research work!!
My comments are for what they are worth,
and may not even apply in your case at all.
I have found that long-only systems keep
trying to buy regardless of other conditions and often fail when the ticker
they are trading enters an extended slide in price. Even if I do not
intent to make short trades, if my system handles short trades reasonably, then
it is much less likely to fall completely apart when the stock tanks. As
you point out, particularly from early 2000 to early 2003, many of the former
NASDAQ 100 stocks just slid – no recovery – then got dropped from
the index, or even delisted, to be replaced by ones that were doing well during
that period. Most long-only systems got killed during this period.
As many of us have agreed in earlier
posts, it is much more difficult to design systems that are profitable on short
trades. And systems that handle both long and short trades are usually
less profitable over their long portion than long-only systems (which may say
something about curve-fitting?). But maybe worth a try if it will help
avoid getting caught by stocks that go into long price declines?
Thanks,
Howard
-----Original Message-----
From: Chuck Rademacher
[mailto:chuck_rademacher@xxxxxxxxxx]
Sent: Tuesday, December 30, 2003
5:05 AM
To: amibroker@xxxxxxxxxxxxxxx
Subject: [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?
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.
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.
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!
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