<snip>CME and BiSim are my creations and only published via the Zboard, or sometimes a little via this board<snip>
FTR
BinomialSimulation is the theoretical undperpinning for CoreMetricEvaluatio n .... it does a reasonable job of modelling randomly produced data series, including series with a known bias and variable volatility.
Allowing for the following:
- all models make assumptions about the market but are still regarded as valid if they make valid predictions,
- the market is unpredictable and therefore can not be modelled with a great degree of precision i.e the future direction of the market can not be predicted,
- the validity of all systems can only be measured against a Null Hypothesis, and for the markets the Null Hypothesis is that the market movement is random .... therefore we can learn as much as we can know about the markets, with certainty, by learning about the behaviour of randomly generated (RNG) data e.g. variance in the market will be at least == variance of a randomly generated dataset.
My proposition is that, "Observations of RNG charts indicate that evaluating trading systems as if they are a mechanical producer of binomial events is as good a model,for traders to use, as any other.
CME is the pragmatic application of Bisim theory to trading system evaluation.
A caveat on the Zboard:
It comprises the shorthand, scrubbed up, versions of some of my notes ..... it is a Notebook rather than a book, hence the notes are incomplete, contain minor errors and speculative ideas and they are not sequential.
Only on the web can we publish our notes ... no commercial enterprise or academic body would publish them.
A lot of time and effort went into producing some of the ideas behind the notes so I figured why waste them if they are of interest to some?
Waste not, want not!
--- In amibroker@xxxxxxxxx ps.com, "brian_z111" <brian_z111@ ...> wrote:
>
> Sanjay,
>
> You are very kind and most repectful.
>
> Your thoughtful and insightful approach to trading, along with your experience to date, bodes well for your future success.
>
> What do I think of newbies doing trading excercises on the list ... the group appears hesitant?
>
> It is a group of equals except for Tomasz, who is the owner and the operator of the board. Policy decisions are entirely up to him.
> The forum guidelines are on the record in the files section of this board.
>
> Basically it is a democratic board, so people respond according to their interests, needs and philosophies.
>
> There are around 9000 members and most of them are silent... I assume the majority are Fund Managers or institutional investors/traders.
> If that is the case their interests are somewhat different to ours (individual or self-managed investor/traders) ... it is unlikely they will join in the discussions on 'trading'.
>
> Personally I like to participate in some discussion of this kind because I learn so much.
>
> Often the board will give you the answer you need rather than the answer you want.
>
> Thankyou for sharing some of your experiences and perceptions.
> I appreciate the opportunity to learn from your obervations.
>
>
> Re Crossover Systems:
>
> Samantha has given an example of long term momentum and crossover strategies that are worthy of discussion.
>
> I can't recommend one because I rejected the concept in the past and therefore have no experience, with these techniques, to share ... IMO indicators that use lookback periods are always late and so I have continually tried to find more timely methods.
>
>
> Re the Zboard:
>
> Yes it is my site.
> It is a part time hobby and the place where I share my ideas with other traders.
>
> I don't promote myself there because the focus is on the content (ideas) which are free and open to discussion and critique ...only via considered papers (submitted to me by email)and not email or board discussion though (unfortunately I can not spare the time to discuss my ideas in intimate detail).
>
> CME and BiSim are my creations and only published via the Zboard or sometimes a little via this board (unfortunately Dharma calls me elsewhere and I don't post to the Zboard that often).
>
>
> Re Mechanical System trading:
>
> Please be cautious ... I do believe that the trading tale that 95% of individual traders lose their money, in the long term, is correct.
>
> IMO this forum is biased towards MechanicalSystem trading because the nature of AB attracts IT people.
>
> Also note that it is only a small percentage of members who are dominating the discussion while the silent majority (insitutional investors?) are dancing to the beat of a different drum).
>
> I think Mechanical System trading is an investment style that we have to take seriously, and investigate, because it is so prominent in todays electronic markets.
>
>
> Re Money Management:
>
> IMO there are two main parts to freelance trading (self managed investing in the stockmarkets) .... finding a strategy with a +ve expectation and then, once you have it implementing it via MM strategies.
>
> Your thinking re standardising a starting value, trading with a fraction (%) of your account and considering drawdown are all valid considerations for lay Money Managers but some traders, with more experience, regard these as obfuscations that hide the truth.
>
> What I am suggesting is that you start with your focus on:
>
> - learning how to measure +ve expectancy
> - finding a strategy with +ve expectancy (if you can)
>
>
> ... and then apply MM techniques to that +ve expectancy system later on.
>
> My intent with CME (CoreMetricEvaluati on) is to promote the idea that system evaluation (finding a system with a +ve expectancy) is more efficient and effective if we concentrate on the trade series produced by a system (expressed as % e.g +3% == 1.03 GrowthFactor) and then, once we have that series we can then evaluate the effectiveness of the different MM strategies that we can apply to it.
>
> If we mix MM with the search for a +ve expectancy system then we end up hiding the value, or lack of it, behind the smoke and mirrors of starting equity, smoothness of equity curves, return and drawdown etc.
>
> I appreciate that I have not done an adequate job of presenting CME to date but eventually, with a few more posts, the picture may start to emerge.
>
>
>
> Re will I expound a little more and a little more succintly?
>
>
> Yes.
>
> Yesterday I started on a 'training example' that I used in the past and that I believe is quite helpful ... the code got a little trickier than I anticipated so I didn't get it finished .. eventually I will post it at the Zboard (maybe within a month or two).
>
> The example focuses on:
>
> - mean reversals
> - and stops
>
> It allows people to play around with one or two basic settings to explore some basic trading concepts (how do stops effect outcomes and why and how effective is trend trading and fading the trend?)
>
> It also includes a trading system (for educational purposes) .... IMO it is not a good one but from time to time variants of it appear on this list and some people seem to like it.
>
> In short,the example provides some assistance for those who want to learn something, for themselves, about the first step in the process i.e. finding a +ve expectancy system (or finding out if indeed one even exists) ... it does this via the mechanisms of entries versus exits, benchmarking and testing stops (this syncs quite nicely with the Entries and Exits chapter in Howards QTS book).
>
> So, I do use implicit and explicit examples as required.
>
>
>
>
>
>
> OT Warning - spiritual commentary follows:
>
> The Master is a beacon of light that the Neophytes can not see because their eyes are closed.
>
> Like the Pupa, the Neophyte doesn't emerge into the light until their time has come.
>
> The approach of the Master merely provides some additional warmth and light. to encourage those whose time has come, to break the shackles and fly on their own two wings.
>
> Cheers,
>
> brian.
>
>
> --- In amibroker@xxxxxxxxx ps.com, Sanjay Arora <onlinetrade. skpobox@> wrote:
> >
> > Guruji Namaskar ;-)
> >
> > On Sun, May 31, 2009 at 4:30 AM, brian_z111 <brian_z111@ > wrote:
> >
> > First of all, I would like to thank for a post, which makes clear the amount
> > of thought & time you spent on my post. To let be is always easier,
> > especially when questions are from people who are obviously not your
> > knowledge peers and the exchange is most likely to be one way street.
> >
> > > The only difference between the Master and the Chela is the question!
> > >
> > Hmmm...Questions & Answers always have been and will be. I personally
> > believe what defines the master is the willingness & the skill to impart!
> >
> > After five years of studying 'trading' 60 - 80 hours per week I have found
> > > precious few 'mechanical systems' that work ... so few, in fact, that I can
> > > not afford to give any away, as I would soon have none left for myself.
> >
> > I am not asking for one. All I am asking is something like "try MACD
> > Crossovers with RSI confirmations" or "MACD would only be good in a trending
> > market...try xxx with yyy" My target is not to get a trading system workable
> > in a realtime but rather a specifically crossover position trade that would
> > backtest in the black and learn from the issues encountered in the process.
> >
> > <snip>
> > >
> > > - "Trying to experiment with Crossover based buy/sell signal" AND "Swing
> > > Trading".
> > >
> > > It is good to use one or two case studies and go over and over them to find
> > > out why they do not work but in the long run do not 'limit' or stereotype
> > > your thinking
> >
> > I concur fully and thats my objective exactly.
> >
> > > <snip> e.g. What is "Swing Trading" exactly .... you assume that you know
> > > what it is, or that I know what you are talking about ... in trading reality
> > > the term doesn't mean anything, at least nothing worth thinking about.
> > >
> > > Probably the person who first coined this term wasn't even a successful
> > > trader ... just a successful author.
> > >
> > I don't know....and frankly I am yet to read literature on minute
> > differences between different types of trading. Before getting interested in
> > TA, I was an Investor who had two investment styles:
> >
> > 1. In a trending market keep buying and averaging as markets fall and
> > keep partially selling as markets rise (ensuring that I never bought or sold
> > at the optimum price obtainable at what I know as a Top and Bottom, but I
> > did get profits most of the time and if my investment got too much or the
> > trend was too steep for two long, I simply went to sleep and waited to
> > average when trend reverses noticably and start selling as prices climb and
> > as I dealt with only cash segment with delivery, strategy was workable.
> > 2. In a rangebound market, I bought at lower end of the range and sold at
> > the higher end and if market brokeout to my detriment, I simply averaged out
> > and went along the same lines.
> >
> > To me these points where I changed my policy were swing points where I
> > changed my policy from hold to buy or sell. To me a swing trade is a trade
> > where I buy & sell between swings of price, earlier for me they were in
> > months, now I know them in days & weeks too.
> >
> > Regarding the TA definition, I will study more on it, since this has been
> > pointed out to me ;-) and in future when I am giving a term, I will try to
> > explain what I am interpreting that term as ;-)
> >
> > > GuruBrian says, "Read one hundred times and believe once".
> > >
> > Guruji, this I fervently disagree with.....rather. ...Read one hundred times,
> > test it out a few times and then believe and thank your author/guru ;-) and
> > make sure you test the belief periodically before it outgrows you!
> >
> > <snip> Maintain a position 100 Shares Long or Short ... Cash in hand 3 times
> > > the initial ... Draw-down should not be more than 50% <snip>
> > >
> > > Good trading philosophy comes before good results.
> > >
> > > None of the above are relevant to good trading.... they are all part of
> > > incorrect Money Management schemes.
> >
> > Mine was an exercise...I am yet to form a trading strategy/style. Keeping
> > the number of shares fixed at 100 because a variable number would have put
> > complexities in analyzing results. Three times cash-in-hand was a top of the
> > head figure and 50% loss of capital was the finish line with a resounding
> > defeat of strategy. 50% loss of 300% of initial trade is a strategy that
> > Allies needed the Germans to trade before World War Two, to avoid the War
> > itself ;-)
> >
> > First you need a trading system with a proven edge (+ ve expectancy)
> >
> > Thats what I am trying to do with a crossover trade strategy which is
> > supposed to be the simplest strategy. I want to build a base of lowest
> > possible loss, then ad bells & whistles to bring the strategy to profit or
> > as near profit as possible. In the process I need to learn all types of
> > crossovers and their pros & cons and what they need to be supplemented with.
> > In this exercise I will learn all the suggested supplementary pivots or
> > oscillators or indicators.
> >
> > > then you apply correct MM and Portfolio Management theory
> > >
> > I am not doing any money-management or Portfolio Management. I seem to have
> > imbibed some terms, which I believe made you think I was doing so.
> >
> > > (I suggest you bypass all of the would be MM teachers and go straight to
> > > RalphVince .... use his books as a workbook ... perform all of his exmamles
> > > in a spreadsheet etc ... take your time ... it takes years for it all to
> > > sink in ... after you understand Vince go back and read the rest to see if
> > > they are worth the effort compared to Vince's work).
> > >
> > Will do. Thanks, a most wanted advice.
> >
> > <snip>Carry positions overnight<snip>
> > >
> > > Yes, this does affect outcomes ... overnight moves represent a win or a
> > > loss and they vary in magnitude ... the same 'hold overnight' strategy will
> > > perform differently on different instruments e.g. I have posted and example
> > > here of how some 'markets' gap more overnight than others ... this can apply
> > > to instruments within markets too (I haven't posted the explanation as to
> > > why but that might come later):
> > >
> > > http://zboard. wordpress. com/2009/ 04/12/stock- profile/
> >
> > Very Interesting. Is that your blog? No name or About Me on it...not the
> > norm ;-)
> >
> > <snip> stop-loss at say 20% loss ??,<snip>
> > >
> > > Yes, stops are a very important part of trading.
> >
> > Hmm...I rather expected a range of percent or theory of how you like to put
> > stops. Won't you please be like all the average people and expound a bit on
> > it? Many people use the 7% rule from somewhere. To me it seems to be getting
> > caught quite frequently, wasting a rather promising assumption, which proves
> > true, except for the issue of getting hit by the stop. I rather like to hear
> > how people like to put stops & why and then try to extrapolate on the
> > divergence.
> >
> >
> > You need to learn how stops shape the profile of your system where profile
> > > == W/L and ave%W/ave%L (part of Core Metric Evaluation, or CME, and
> > > BinomialSimulation, or BiSim ).
> > >
> > Now that I have the terms, be sure I will research them out. Thanks again.
> >
> > > One good way to get feel for this is to experiment with stops and consider:
> > >
> > > - benchmarking for mechanical systems
> > > - how much the entry signal is contributing to the final result
> > > - how much the exit signal is contributing to the final result
> > >
> > > Howard Bandy's book, QuantitativeTrading Systems is one place where AB users
> > > can get a headstart towards understanding these vital concepts.
> > >
> > Again, very much wanted advise. Will do.
> >
> > >
> > > <snip>Reverse position on Crossover <snip>
> > >
> > > I recommend caution with this strategy. for various reasons ... I can't say
> > > anymore about that because it is advanced and complex and therefore not
> > > suitable for a general forum discussion.
> > >
> > I really would like to know why you say caution with this strategy. To me it
> > seems people lose when they fail to be in the market and by the time they
> > get into it, the trend is already halfway through to its destination.
> >
> > >
> > > It also depends on a case by case analysis e.g. 'the trend is our friend'
> > > so if the reverse trade tends to go against the trend I am cautious (of
> > > course defining the trend is one of the most challenging tasks facing a
> > > trader).
> > >
> > Well, I have to say I do agree with it. Thats why I chose crossover for my
> > strategy basis. If I do take a wrong position the crossover & subsequent
> > reversal would rebalance it, with maybe money lost, but thats why I am
> > looking for suitable bells & whistles to correct & supplement the reversal
> > triggers.
> >
> > >
> > >
> > > Overall:
> > >
> > > - I suggest that you shouldn't be fixated about what trading is e.g. value
> > > investing is a succesful method .. value investors waited years for the
> > > opportunities presented to them by what was a crash for most others i.e.
> > > last years markets.
> > >
> > > Warren Buffet sat on the sidelines with cash until the market presented him
> > > with some 'not to be repeated in a hurry' bargains.
> > >
> > > The caveat is that this proven method suits his temperament, and carefully
> > > considered objectives.. ... it doesn't suit me, for several reasons (too
> > > boring is one of them).
> > >
> > > IMO there are a handful of successful stockmarket investing styles ...
> > > mechanical system trading is just one of the claimants to that title.
> > >
> > Thats the one I am trying to understand and expect to use in a year or so or
> > maybe sooner ;-) Otherwise I am OK with my so-called Swing Investing
> > style...notice I do not call it trading...trading is what I want to do with
> > help from mechanical systems.
> >
> > >
> > >
> > > I am happy with my progress, after 5 years, but you won't read about my
> > > 'style' in the textbooks, or this forum, however you will see a sprinkling
> > > of 'traders' who are obviously 'in the same camp'.
> > >
> > > Sometimes I call myself GuruBrian but that is only in fun.
> > >
> > > One of my mottos (for the NewAge) is:
> > >
> > > "I don't deciminate creeds ... only information" .
> > >
> > > GuruBrianZ
> > >
> > I really appreciate that thought.
> >
> > Once again, let me thank you for your post. Hope you give more feedback.
> >
> > BTW, what do you think of newbie list members doing some exercises together?
> > Though I'm sure they would differ on what kind ;-) A few list members have
> > asked me details off-list, so it seems there is some interest in that sort
> > of thing, but people seem to be hesitating on the list. Please do comment on
> > this.
> >
> > With regards.
> > Sanjay.
> >
>