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Hi Manchu,
Thursday, March 18, 2004, 1:17:02 PM, you wrote:
M> Thanks for the response... Going from your reply, I have two
M> follow-up questions:
M> 1 - Do higher Sharpe Ratio systems *on average* have lower (a) max single
M> trade loss and (b) system draw downs?
I think so. But I'm no math major, so I'll let the guys who are
really into this speak more authoritatively. What I can say for sure
is that on the system I spoke of with the high Sharpe value, draw
downs have never been anything but almost negligible, which is
attested to by the high UP Index number as well, and the low Ulcer
Index (0.58, which breaks down to 0.42 on longs and 2.53 on shorts --
again, don't let anyone tell you shorting is just as easy as going
long).
M> 2 - As for "combination of indicators", is this as simple as "Buy =
M> BuyIndicator1 and BuyIndicator2 ..."
Not quite, but possibly. I think you need to think in terms of
setups, and signals. What kind of market conditions would you want
to exist when you are looking for a signal. Then, if those
conditions are met, I think your signals will be profitable on a
higher percentage. Expecting any TA signal to produce consistent
performance when it is always going to be signalling under different
market conditions is unrealistic. For example, oscillators go up and
down all the time. But in a strong upward trend, the down turn of a
quick oscillator means absolutely nothing, except that maybe another
buy opportunity will set up soon. It's the turn back *up* you'd be
looking for of course, as we all know. This is oversimplifying, but
not by all that much. I look for constricting volatility (using both
ATR and simple range), and then a price movement that breaks out of
the range on a volume requirement. Price without volume is no signal
-- I don't care how much price movement in that case. I have not
reinvented the wheel, for sure. I look at a couple of other things on
the day of entry that tell me how long I plan to stay in the trade. I
know my exit before I place the entry order. It's based on time
alone.
And I don't try to trade 1,000 stocks with it, and that is a gross
overstatement. ^_^
M> I've just order "Design, Testing, and Optimization of Trading Systems", is
M> this book helpful with #2 in particular?
I bet it is. Many have recommended it, but I've never read it.
Yuki
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