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Duke,
Thanks for the interesting link. I hadn't seen that study before.
It shows that a combination of TA and FA can be successful, but it
doesn't quite answer the question that I had in mind.
Take the example of a simple reversion-to-the-mean system: buy when a
stock closes below the lower Bollinger Band and exit N days later.
Does adding a fundamentals screen help? To test this, I'd divide
stocks into at least five categories, from the lowest-rated
fundamentals to the highest. Then I'd test each category using the
same system paramenters. Ideally, the results should be worst for
the lowest-rated fundamentals, and should improve uniformly and
consistently up to the highest-rated. That would show that using
fundamentals adds value.
But even if using fundamentals increases the profit per trade, it
doesn't necessarily follow that you'd want to incorporate them into
your system. They may decrease the number of signals to the point
that your overall profits are lower even though your per-trade profit
is higher. In the example system, I know that I can improve per-
trade profits by tightening the requirements (eg stock must close at
90% of lower BB). Maybe I'm better off chucking the fundamentals
screen, tightening the BB requirements, and screening the whole
market (which is what I think the original poster was asking).
These are the kinds of questions that I'm interested in investigating.
Wayne
--- In amibroker@xxxxxxxxxxxxxxx, "duke.jones" <Duke.Jones@xxxx>
wrote:
> Wayne,
>
> Here is a PDF from Charlie Kirkpatrick which discusses a real time
portfolio using just three elements. Two of which are fundamental the
third price momentum. http://www.mta.org/awards/01/2001DowAwardb.pdf
>
> I believe fundamentals can be used to increase the probability of
success (based on testing and results) but the key is how you measure
success. Kirkpatrick's strategy has continued to perform well and has
consistently beaten the market but you had better be able to stomach
the large drawdowns. I have a enclosed pic of real time performance
since the beginning of last year of the Kirkpatrick (kirk.gif)model.
As you can see relative performance is great but its a model that
needs a trending market. Also enclosed is a backtest of a modified
version (valuemo.gif) with more history. Better equity curve and
roughly half the risk of the market but still large drawdowns.
>
> Where I have found value is using a combination of systems with
little multicollinearity. I would to love tell you its made me rich
beyond my wildest dreams and that I only post here for the
intellectual curiosity however, the reality is like all systems mine
is a work in progress. The good news is that in aggreagte they do
have an equity curve I can live with and actually trade. Since my
primary job is to provide research I also like the fact that you
don't hear about too many fund/tech systems so perhaps where there is
no crowd there is more opportunity.
>
> OK, I have beaten the horse dead..time to climb back into the
shadows.
>
>
> Duke Jones, CMT
> -------Original Message-------
> > From: "seneca_kw" <seneca_kw@xxxx>
> > Subject: [amibroker] OT: Re: Technical Vs technofundumental
trading
> > Sent: 08 Feb 2005 05:22:44
> >
> > Fred,
> >
> > You're probably right, I just haven't seen anyone put forward
hard
> > numbers to support it. The details of the testing would be a
little
> > tricky. Off the top of my head, I guess I would create a
watchlist
> > of stocks with top-rated fundamentals and one with bottom-rated
> > fundamentals. Then I'd run various types of trading setups with
each
> > watchlist and see if the differences in the results were
> > statistically significant.
> >
> > One of the problems, though, is that you would need to test over
at
> > least several years of data, and since fundamentals are
constantly
> > changing, you'd have to adjust for that somehow.
> >
> > Wayne
> >
> > --- In amibroker@xxxxxxxxxxxxxxx, "Fred" wrote:
> > >
> > > You're right ... It does SOUND good ... If you have earnings
data
> > for
> > > a few years I suggest you test your theory of buying good
> > fundamental
> > > candidates on dips .vs. buying candidates based on price action
> > > leading up to the dip, preferably from at least the previous
dip.
> > In
> > > ten words or less I think you'll find that stocks with better
price
> > > action perform better ... Why ? because not only is everyone
aware
> > of
> > > the published fundamentals and already factored that into
current
> > > price, but SOME are more aware then that and that is factored
into
> > > price as well.
> > >
> > > --- In amibroker@xxxxxxxxxxxxxxx, "seneca_kw"
> > wrote:
> > > >
> > > > To my mind, this is one of the biggest questions in trading.
> > Does
> > > > including fundamentals provide an additional edge? It
certainly
> > > > seems plausible. If you're buying pullbacks, it makes sense
that
> > a
> > > > company with strong fundamentals is more likely to reverse
to the
> > > > upside than a company with weak fundamentals.
> > > >
> > > > The fact that something is plausible doesn't make it true.
Like
> > > > everything, it needs to be tested, and that's what I'd be
very
> > > > interested in hearing about. Even if someone doesn't have
> > results
> > > to
> > > > share, I'd be interested in discussing ideas about HOW to do
the
> > > > testing.
> > > >
> > > > Wayne
> > > >
> > > > --- In amibroker@xxxxxxxxxxxxxxx, "Claude Caruana"
> > > > wrote:
> > > > > Hi all,
> > > > >
> > > > > I am an Amibroker user for a few weeks now and I must say
it is
> > > > about to
> > > > > turn my trading method 180%.
> > > > >
> > > > > I initially purchased Amibroker to be able to generate
optimal
> > > > signals for a
> > > > > watchlist of around 100 stocks which I have selected for
their
> > > > fundumentals,
> > > > > however I am finding that my results work much better and
more
> > > > consistently
> > > > > on the entire stock universe (The 7000 tickers I have
loaded in
> > > my
> > > > db) than
> > > > > if I try running it on any watchlists containing less that
200
> > > > tickers.
> > > > >
> > > > > I find that, in general, the most reliable entry signals
occur
> > > very
> > > > > infrequently, and hence, signals are too few and far apart
to
> > > create
> > > > > consistent results when the basis is my 100 stock
watchlist. If
> > I
> > > > try to
> > > > > "loosen the parameters" and get an optimal number of
signals
> > for
> > > my
> > > > 100
> > > > > stocks, then the system will not be as reliable as the one
> > > > with "tighter
> > > > > parameters" scanning the entire stock universe.
> > > > >
> > > > > Before I ditch my fundumental approach (which quite franky
has
> > > yet
> > > > to give
> > > > > me positve results!) altogether and start using a
technical-
> > only
> > > > system, I
> > > > > would be very grateful if anybody could confirm whether my
> > > > observation about
> > > > > entry signals is normal, or whether I am missing something.
> > > > Finally, are
> > > > > there any of you out there who trade using technicals only?
> > > > >
> > > > > thanks for any feedback!
> > > > >
> > > > > Claude
> >
> > Check AmiBroker web page at:
> > http://www.amibroker.com/
> >
> > Check group FAQ at:
http://groups.yahoo.com/group/amibroker/files/groupfaq.html
> >
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> -------Original Message-------
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