----- 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