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Re: [amibroker] Short system advice?



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Great post, Herman.  It certainly fits with my own experience of years of TA and chart reading (tea leaves?).  Now, like you, I mainly use price patterns and simple ROC type stuff.
 
ts
----- Original Message -----
Sent: Sunday, March 12, 2006 5:35 AM
Subject: RE: [amibroker] Short system advice?

System design should follow some logic: evaluate your "signal strength" first. 
 
Please know I work in the Min or smaller timeframe my experience is limited and very one-sided. I do things "my way" and try to ignore tradition. The only things I have learned from "other systems" are coding techniques. You won't find the perfect system or the HG anywhere. Sorry to burst your bubble :-) In trading you have to do your own work or work in a group. Whichever way, to attain above average results takes hard and innovative work. The following is jmo.
 
Since you may end up testing hundreds or even thousands (yes!) of ideas you need to be efficient. Getting drawn into advanced system concepts, fancy stops, money management and creating fancy charts before you have a validated the basic signals is a waste of time.
 
By fiddling with all the above you increase the chance of 1) curve fitting and 2) drawing profits from what are essentially Random signals. It is actually possible to take random signals and add so many "shock-breakers" to it that it becomes profitable (Tharp?). This, to me, is a totally "non-fun" way of developing systems, all you are doing is increasing your statistical odds to draw a little money out of the market. 
 
The Popularization and Commercial Exploitation of TA encourages this approach. Looking at fancy and colorful chart gives us ( I've been there! ) a feeling of accomplishing something important. But are we really?  Just go to your local bookstore and browse through some books or browse the web for TA software and you'll see what i mean. Tons of stuff out there that looks impressive but won't make you any money.
 
Try to focus on what is important. The backtests I perform to validate price patterns are: 
  • Exit at the Entry bar's Close (one-bar trade) or at the Next Bar's Close (two bar trade).  
  • If the system makes money I start testing intrabar exits during those two exit bars.
  • Test 1-10 minute time frames.
  • If the system looks profitable I add some code and run a Short test.
  • Run it over a watchlist, how many stocks are profitable characterizes the system as selective or common
  • Any kind of fancy stuff, like stops and MM "masks" the true signal performance, make it a very last step.
I have developed some standard code modules and placed them in my indicator space so that i can drag them onto my code under test and to plot trade prices, signals and equity. With this setup you can test hundreds of ideas a day.
 
Always look at the equity curve and try to get as many trades as possible - thousands if possible. Numerical Stats don't mean a lot since they can be distorted by a single big loss or profit. If this happens and the equity curve is good otherwise you can study the single event and add code to exploit, or protect against,  it.
 
Best regards,
herman
 
 
 
 


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