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[amibroker] OT: Re: Technical Vs technofundumental trading



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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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Service.
> -------Original Message-------





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