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I don't know who wrote this article, but it reminds me of this: "Once
you get a good understanding of your craft, all the masters say the
same things in different languages" - odiduro of ET
and of this battle between bulls and bears:
"I know it is hard to believe, but in trading, most battles are won
before they are even fought" - nitro of ET
For a word of caution regarding mechanical trend following systems,
consider the following in the book, "Trading for a living", by Dr
Alexander Elder who has the following to say concerning mechanical
trading systems:
"Complex human activities do not lend themselves to automation.
Computerized learning systems have not replaced teachers,
and programs for doing taxes have not created unemployment among
accountants. Most human activities call for an exercise
of judgment; machines and systems can help but not replace humans.
If you could buy a successful trading system you could move to Tahiti
and spend the rest of your life in leisure,
supported by a stream of checks from your broker. So far, the only
people who have made money from trading systems are
the system sellers.
Markets always change and defeat automatic trading rules. Yesterday's
rigid rules work poorly today and will probably
stop working tomorrow. There are good trading systems out there, but
they have to be monitored and adjusted using
individual judgment. You have to stay on the ball - you cannot
abdicate your responsibility for your success to a
trading system. Traders who have the autopilot fantasy try to repeat
what they felt as infants. Their mothers used to
fulfill their needs for food, warmth, and comfort. Now they try to
re-create the experience of passively lying on their
backs and having profits flow to them like an endless stream of free,
warm milk."
In my opinion, long term trends are much superior to intermediate
trends, if the portfolio is hedged, i.e., includes options, LEAPS?
but that is a different subject.
According to Andrew Lo of MIT: Optimal dynamic asset-allocation policy
is generally unattainable due to transaction costs and other market
frictions like slippage, but can be approximated with just a few
options given that only a few trades are required to establish the
portfolio and there are few costs to bear thereafter.
An even more compelling motivation for the optimal buy-and-hold
portfolio that includes options is the presence of taxes. For taxable
investors, the return is reduced by the present value of the sequence
of capital gains taxes that are generated by an optimal dynamic
asset-allocation strategy. In contrast, all of the capital gains taxes
are dererred until a future point in time in a buy-and-hold portfolio.
Therefore, the economic value is likely to be even lower for taxable
investors, and the optimal buy-and-hold portfolio that much more
attractive. The main challenge is tractability and computational
complexity in evaluating the options in terms of the number of options
and the strike prices and the combination thereof which could run into
hunderds of thousands, for eg., For the n = 15 cases involves (45
strikes 15 options) factorial = 344 867 425 584 sub problems, and even
if each subproblem requires 0.01 seconds to solve, the overall
optimization problem would take approximately 109.4 years to
complete.. To complicate matters even further, we don't have to limit
ourselves to 45 strikes...
rgds, Pal
--- In amibroker@xxxxxxxxxxxxxxx, Natasha !! <dynomitedoll_ddd@xxxx>
wrote:
> Hi,
> Don't take my posts seriously.Work should be fun else efficiency
goes.Posting is work and lot of fun for me.
> This ezine came in my mailbox:
> Many People Hate To Dwell On Negative Possibilities... One must
always be prepared for negative scenarios. Long term secular Bear
Markets can last as long as 20+ years, where investors make little or
no return on investment. Gold investors are still some 50% below the
highs made 25 years ago. US equity investors have had three long
periods of time in the last 105 years where the Dow Jones Industrial
average made a zero% return!
> (1901-1932) , (1929-1954), (1966-1982).
>
> Within these long term secular markets, there can be tremendous
market rallies. These can last a year or even longer. In fact in the
middle of the great depression, the Dow went from 40 to 200 (a 500%
return) in the 5 year period from 1932 to 1937 before retreating
again. The ability for mechanical trend following as we practice it
here shows it value very well in such long term secular bear markets,
which have interim strong bull counter rallies.
>
> The experience of the Japanese stock market illustrates this well. .
Between 1990 and 1992, the Nikkei suffered a three-year decline, much
like ours did in 2000-2002. Then ...
>
>
> Starting in late 1992, it rallied for just over a year, before
plunging.
>
> Between 1995 and 1996, yet another rally, with a gain of some
60%. Then year another bear market.
>
> A rally lasting over a year, coincided with the blowout stages
of our late 1990s Nasdaq Bubble before yet again rolling over.
> The bottom finally fell out of the Japanese market as it also did
with US stock market beginning in March of 2000. Interestingly enough,
at each and every rally peak, the press and financial media in Japan
declared "a new bull market," and in each case they embarrassingly
wrong! One must learn that he must ignore much of the financial press.
>
> The United States is not Japan for many different reasons, but there
are profound lessons to be learned by the above example. Not the least
of these is to always submit your market opinion to mathematic
intermediate trend following signals without ever second guessing them.
> ____________________________________________________________
>
> Agree? Disagree? With the above last para........?
>
> --- N !!
> ______________________________________________________________
>
> sloughbridge <sloughbridge@xxxx> wrote:
>
> --- In amibroker@xxxxxxxxxxxxxxx, Natasha !! <dynomitedoll_ddd@xxxx>
> wrote:
> > Hi,
> > ___________________________________________________________
> > --- sloughbridge <sloughbridge@xxxx> wrote:
> > >
> > > --- In amibroker@xxxxxxxxxxxxxxx, "Michael Robb" <mlrobb@xxxx>
> wrote:
> > > >
> > > > Actually I think there is a lot more to it than that. A brief
> > > review
> > > of some of the latest Dimitris posts point out just how much more
> > > valuable he was than any artificial attempt to reign in the
> breadth
> > > of
> > > his contribution and the subsidiary topical enrichments that are
> > > always the specific characteristic of the combination of
> contributors
> > > involved on a particular matter, or set of questions.
> > > >
> > >
> > > I was absent at his departure, and wondering what became of him.
> Is
> > > this saying his leaving had to do with topicality issues?
> > _______________________________________________________________
> > With reference to the above : NO-one said he left.We are all here
> to prosper collectively.Depends on your definition of prosperity of
> course.
> ========
> Thanks, but Yuki wrote that there's a reason he's gone. Someone else
> referred to his "exile." These certainly imply intention, thus
> "departure." I was just trying to find out what the post I replied to
> was trying to say. But I've got it now, sadly.
> ______________________________________________________
>
>
> Warm regards,
> Natasha !
>
>
>
>
> __________________________________________________
> Do You Yahoo!?
> Tired of spam? Yahoo! Mail has the best spam protection around
> http://mail.yahoo.com
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