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Brian,
> You haven't mentioned any specific metrics ... perhaps you want to
> keep them secret or more likely you don't use any, or many
I don't use complex metrics as such, just simple stats. The equity
curve is my metric as I described how I use it to optimize. I have
seen enough of these to know what I am looking for, and what is wrong
when it looks certain ways. That plus a few stats about opportunity,
# trades/day, and individual trade DD are all I use.
BTW, I sell a lot of options, but it is all calculated manually -- AB
is not involved with that at all.
As far as under performing the max potential, that is my goal. I am
looking for the subset of the highest probability trades to take
without giving up too much opportunity. The more opportunities I
take, the worse the edge on the average. There is even a point where
taking more trades reduces the return. Taking only the very highest
probability trades gives great returns per trade, but less total
profit. There is a sweet spot tradeoff between the two.
IMHO, anyone who ignores the slippage and commission factors in
backtesting lives in a fantasy world. I would not like to see the
business plan for a delivery service that does not take the cost of
fuel and maintenance of the vehicles into account. Then there is
accident insurance, etc.
I do ignore the cost of human errors, machine failures, communication
line failures, brokerage house bankruptcies, Illness, vacations, badly
timed restroom breaks... because, I don't know how to quantify their
effects.
BR,
Dennis
On Jun 20, 2009, at 10:19 PM, brian_z111 wrote:
> Well there doesn't seem to be much interest in benchmarking, or the
> philosophy of optimization .... perhaps a few are just observing, or
> the forum doesn't know what to make of it all?
>
> Our discussion has moved over a little bit ... it is more to do with
> style and finding the 'holy grail' of trading, which some say
> doesn't exist, but, like Santa Claus, why spoil a good fairytale
> that so many get so much enjoyment from.
>
> This has become slightly more personal but then again I believe in
> transperance and sharing our trading insights (if RalphVince,
> Markowitz etc hadn't published where would I be?) and surely our
> observations must have relevance to a certain number of traders.
>
> I think I am preaching to the converted now.
>
> Right from the start my style was always builtin and I was already
> biased towards it .... I just didn't become consciously aware of
> what my style was until I had a fair amount of experience under my
> belt.... as soon as I became consciously aware of what worked best
> for me the rest was easy and still is.
>
> We can not change our natural style, only discover and enhance it.
>
> This forum is naturally biased towards algorithmic trading etc and I
> have deliberately infringed on the OT boundaries from time to time,
> to stick up for my style and my kind of people (discussions on the
> Psychology of Trading, Discretionary Trading, Intuition etc) ...
> continual discussion of code examples etc gets a little boring and
> somewhat inhuman at times, so I like to inject a little human
> interest (small personal exchanges with people I like ... Haiku
> poetry and suchlike).
>
> The interesting thing is that even though I understood myself
> reasonably well, before I started trading, the journey has still
> been one of immense self-discovery, which is why I don't confine my
> discussion to just 'learning to code'.
>
> In order to simplify my perspective, for the benefit of others, I
> have said that we have our psychological typologies, that we can
> sort everyone into, generally speaking.
> I could use some different classifications but for consistency I
> have stuck to one simple model i.e. I have told the forum that my
> primary psychic function is Intuition and my secondary is Logic (of
> course this is a gross simplification but we have to start somewhere).
> I have also told the forum that Intuition has been poorly
> represented by the scientific community and modern culture (we use
> the term intuition as if it is an inferior function).
>
> IMO intuition is more like super rationality (the rational process
> goes on, almost unconsciously, at lightning speed and it uses
> processes akin to 'fuzzy logic' and more).
>
> I also warned the forum that intuition is not fortune telling or
> 'reading the tealeaves' and so it is not infallible and like the
> 'scientific method' the outcomes depend on the practitioners skill
> and knowledge with the mode (it is also very energy dependent, and
> self aware/sirected so it has an auto failsafe when the energy pack
> is drained).
>
> So, when 'visual' traders say they just look at the charts some
> people assume that the conclusions that we arrive at are all just
> 'subjective' and hence irrational.... in some cases that may be true
> but not necessarily in all cases.
> Some people think they are using their intuition when they are just
> jumping to irrational conclusions... they call this their intuition
> and this is why it gets such a bad name.
>
> In short, science, and our community, are greatly underestimating
> the capacity of the human mind (far superior to any computer built
> so far).
>
> I think people also struggle with the possibilty that anyone can be
> highly creative (artistic) and totally logical (objective) all in
> the one package but this is possible (we just don't do them both at
> the same time although we can quite easily switch back and forth
> between the modes ... but not at the drop of a hat).
>
> So, without analysing it all, our styles are quite similar, except
> that from what you say, although a few snippets don't allow me a
> full analysis, you are even more of a 'visual' trader than I am.
>
> I am still developing, and learning, and I have more 'good ideas'
> than I will ever need ... you are probably the same.
>
> However I will go through your comments with a view to sharing with
> you a couple of my undeveloped ideas that seem relevant to your
> interests.... just in case you haven't thought of them (no two
> individuals are identical).
>
>
> - I call eSignal eS .. I have got you now on the trading ES part
> - I said before in this forum that if we excluded clip trading
> (arbitrage) and trades that benefit from no 'volatility', like
> selling options, then we are all 'trend traders' i.e. if we can find
> the trend (and I tend to the view that the trend doesn't exist ...
> if I model a trend, for any particular purpose, I always assume that
> it won't exist for long).
> - I also assume that the market doesn't have much of a memory and so
> nothing lasts (I consider that this models the markets as being
> dynamic i.e. dynamism is a fundamental quality of the markets)
> - however, we have to deal with the reality of different timeframes,
> so each timeframe will have a memory of different duration (in time
> but not in bars)
> - so generally I consider the 'holographic' like inter-relationship
> of the various timeframes as being a second fundamental quality of
> the markets
> - I use a wave concept (cycles are a third fundamental quality of
> the markets) but I don't use Fibonacci or Elliot etc because I don't
> use a set magnitude and frequency ... uncertainty is a fourth
> fundamental quality of the markets (so I only have a probalistic
> expectancy as to what the frequency and magnitude will be).... for
> that reason Fib retracements are no use to me.
> - from our recent discussions on randomness etc I am considering the
> proposition that a certain amount of chaos needs to be injected into
> financial models ... this is a new and developing idea for me ..
> probably the creative mathmeticians. who are around, are right on to
> this ... I am tentatively proposing that there has been a burgeoning
> use of computer analysis since around 2000 and that this is
> producing some chaotic influences not previously seen .... post
> approx 2000 the markets are different?....(computers are binary ...
> unsynchronized binary events may be an approximate model of limited
> and man made chaos ... I am only considering this within the context
> of the financial markets) ... if I am correct we might be in for a
> rough ride for a decade or two .. eventually financial theorists,
> and the lawmakers, will have to catchup and change the model somehow
> (regulation or freemarket driven changes or what?) ... unfortunately
> the normative view always lags and opposes the Si
> gma 3+ position (of course conservatism is necessary to prevent
> unbounded chaos in our culture ... ironic isn't it that this
> mechanism is also the cause of some unneccesary pain but that's life).
>
> - in the above scenario 'old world models' will not do as well as
> current models (due to computationally driven investing/trading
> 'old' may well only be 10 years ago, or less).
>
>> I never have to worry about if the
>> liquidity is there and if the slippage is accurate to my >simulation.
>
> I am still considering the uses that I can find for high liquidity
> and low liquidity ... every thing has its' pros and cons?
>
> In my 'world view' the market has endemic behaviours and I am
> interested in finding out everything about them that I can.
> If you factor in 'slippage' you might miss the endemic behaviours in
> lower timeframes (where slippage and commissions are a greater % of
> the move ... i.e. including commissions and slippage etc might kill
> some theoretically good trades and you will miss the connections
> that exist from one timeframe to another ) ... IMO we should do our
> thinking, and design our prototypes, without including C&S in our
> models ... only include C & S when we go into production testing (I
> got the terms prototype and production from bruceR .. I really like
> them ... I have recently found a new love of words ... very
> important things because they represent an idea ... Yuki will be
> pleased to see I am paying more attention to the words I use ... now
> I only need to learn some proper grammar and I will almost be there).
>
>> fundamental data is of little consequence. Only the immediate >news
>> has a non-technical impact, and that shows up within one minute in
>> >the chart anyway.
>
> Fundamental and value investing is a valid style ... look at Buffet,
> he has proved the success of valuie investing over and over ... of
> course even Buffet makes mistakes ... it is just not our style....
> we can't eat all of the cake on the table so lets' leave fundamental
> analysis to the righful owners.
>
> Instrument selection is important though .. I have to replace
> fundamental analysis, as a way to chose the instrument, with
> something else .. haven't worked hard on that aspect (note that
> Reefbreak has his algorithm to sort for his underlyings ... I am
> sure it is not an alogrithm that sorts by fundmentals).
>
> Definitely I am a classical technical analyst in that I believe I
> can only think fast enough to react to price action (even with a
> computer doing the thinking) and can not get handle all of the data
> input and computations required to stay ahead of the news that makes
> the moves ... however last year when the big crisis was on I
> experimented with some news following (economists newsletters etc)
> and I actually did quite well at picking how it would all unfold ...
> after it was all over I just left it at that because if I try to
> master several styles I will end up being a 'jack of all trades and
> master of none' ... I did enough to prove to myself that it can work.
>
>> Because my trading universe is so limited in scope,
>
> I also have a tendency to filter everything down to elemental
> simplicity .. works for me.
> I also believe in detailed analysis of a very small patch of the
> available trading turf.
>
> Once before in the forum I talked about the fact that I tentatively
> believe that there is only ONE trade and that we are all chasing
> with different degrees of efficiency (of course we have different
> markets and timeframes to chase it in).
>
> I have isolated market behaviour to some simple repetitive
> behaviours - they are persistent in most timeframes and all
> instruments I have tested.
>
> I was only working down to a 1min base (with eS == eSignal data) ...
> I don't like to work lower than that because at tick level etc my
> computer starts to misbehave ... too much number crunching ... I
> don't really want to get into buying and managing the fastest
> computer on the planet so I keep away from that level ... some
> people keep going to faster and faster (lower) data levels simply
> because they arent' succesful at one level and think the answer is
> in getting faster and faster == wrong! ... also I am sure some
> people don't understand how computer, or software gridlock, kills
> the creative effort .. hence my dislike for technical software
> glitches or computer glitches ... I keep it simple to allow the
> intuitive energies to function.
>
> Re timeframes and persistence patterns:
>
> - intitially I tested down to 1min base with 5 min selected
> - I found my endemic patterns (I don't call them fractals because
> they might not be ... I always own the ideas and choose my own
> nomenclature, rather than become a Mandelbrot clone for example) ...
> I found they are persistent from monthly (albeit this is a limited
> dataset) down to 5 mins (very large datasets) ... they started to
> breakup at 1 min .. I thought this might be something to do with the
> 'snapshot' nature of the basetimeframe i.e we should never work at
> the basetimeframe ... always set the base a little below where you
> want to work and then compress the underlying to where you want to
> be .. sure enough when I downloaded 5 sec and tested in 15sec the
> patterns are back.
>
> Note that I have something funny with my low level eS RT databases
> so that could have contributed to this effect... timestamp minimum
> in my fast eS databases is 5 sec ... I haven't followed up to see
> if it is an eS or an AB thing ... probably eS because AB is good to
> 1 sec? ... I am subscribed to NinjaTrader data so maybe I didn't
> read the fineprint and their eS variant is snapshot data ... perhaps
> I need to go back to the standard eS subscription.
>
>> I was able to
>> write my own back tester in AFL that only runs in indicator mode
>> >with
>> the equity curve always showing in my chart.
>
> Yes, I also 'backtest' outside of the 'backtester' ... for one thing
> I don't like AB's BT .. it is not an intuitive model (nothing wrong
> with it technically but I can't see the wood for the trees when I
> use it).
>
> It is funny that I left Metastock for AB so that I could backtest
> with customized stops (that was my only reason at that time) ... but
> since I have owned AB I have hardly ever backtested ... as my
> trading philsophy evolved, and I used it to make better and better
> predictions/systems, I was able to think of much smarter ways to
> perform my objective testing .. recently in AB I repeated some
> testing in a week that took me 1 year in Metastock ... all because
> AB is faster and the logic behind my algorithm was light years ahead
> of what I did in 2004.
>
> I have talked a bit, in the forum, about BT design and effective
> metrics (CoreMetrics) ... maybe a few get it ... not sure if there
> is much point in going further with that type of discussion (StDev1
> always dominates any subset of our culture and the dominant culture
> itself).
>
> Anyway, I am quite well aware that my posts are long, ambiguous and
> dispersed in time and location .. in fact my communication style is
> almost symbolic at times ... I have considered all along that I am
> mainly writing 'for my own' and that they can interpret the code.
>
>> I overlay a lot of
>> indicators and stats on my charts as desired to gain greater
>> >insights
>> about what is happening.
>
> You haven't mentioned any specific metrics ... perhaps you want to
> keep them secret or more likely you don't use any, or many ... my
> secondary psychic function is logic so I drop onto that wavelength
> as soon as I come out of brainstorming or sometimes interpose
> both... hence my interest in stats and my sort of compatibility with
> Howard and Patrick ...except I don't love stats/quants as much as
> them and my quant is always coloured with intuitive stuff (I make it
> as easy as eating moms apple pie) .. so far every stat I have used I
> have boiled down to a readers digest version of the academic function.
>
> You might benefit from following my ruminations on stats e.g. have
> you thought about how adaptiveStDev (thanks Herman, bruceR, RZ) can
> work with median, mode, skew etc to model your trade dists, as you
> walk forward ... all done in arrays with no binning required
> (assuming RV's math is good and it hasn't failed me anywhere so
> far)... did you see the link I posted from the German site about how
> these moments model our system, via the trade series ... I still
> have some work to do on this but I am slowly moving along with a
> rebaking of the evaluation pie.
>
> I am just checking that you are not underdone on stats ... they are
> great as long as they are restated into traderspeak.
>
> I hope you got something out of my ruminations on BiSim and
> CoreMetrics .. anyway I will probably post a few more bits and
> pieces on that subject to help the very interested get to the meat
> in the sandwich .....but once again anyone who is going to get it
> should have got it by now.
>
>> The recent addition of static arrays was a great help for me in
>> >saving
>> the temp results of previous runs for equity curve comparisons.
>
> Yep, that was the idea.
>
> I haven't tried the function out yet ... I don't take the betas ...
> too much administrative effort for me .. I wait for the upgrades
> that come with some help ... I think Tomasz underestimates the
> reliance I (certain types of people) have on help notes e.g.
> intuitives start with the meaning i.e. first of all, what does this
> mean? .. what contextual environment does this fit into? .. OK ...
> now how do I use it?)
>
> Sometime the logicos version of the help manual is very frustrating
> for me.
>
> We should also thank Tomasz very much for having the perspicacity to
> grab hold of the idea and implement it ... this level of
> responsiveness to user discussion is very rare (thanks once again
> Tomasz).
>
>> My best system is a revision to mean system so far. For this
>> >system,
>
> You might be missing something ... if the trend really does exist
> then 'reversion to mean' will underperform 'following the mean' ...
> if it doesn't exist then trading both ways will net out to being
> equal in the long term.
>
> Going back to the HolyGrail ... I only have one system but I can
> vary it in several ways ... your methods should have lead you to my
> system, or very close to it, so we must be almost talking about the
> same thing.
>
> You seem to have been mesmerized a tiny bit by the dance of the
> seven veils .. I was hinting at this in the discussion on MA and
> habituation:
>
> - I don't like it that Howard refers to 'reversion to mean' and only
> references on side .. I actually think of 'erversion to mean as
> crossing the mean from above.
> - when we look at any chart, without indicatros, it is meaningless
> - we have a strong natural desire to see meaning in it .. so strong
> we can even overlay false, or approximate meanings, and feel very
> satisfied with our efforts
> - MA is very potent ... it 'identifies' the trend (yes! won't be
> long now before I am rich) and makes the trading universe
> symmetrical ... how beautiful is that? i.e. it divides the chart
> into above and below which has a satisfying logic to the rational
> (with a small r) aspect of our mind (I went on to talk about the
> powerful reinforcing effect of what feels right == habituation).
>
> No model is forbidden in my approach .... as long as we then go onto
> analyze the pros and cons of the model which leads to an assessment
> of whether we can gain an edge out of them .. anyone of them .. and
> from there we then have to decide if the edge si significant enough
> to trade i.e. quantify it.
>
> So, MA has a reversion to mean coming from above and below ... how
> close is this model to the HolyGrail? ... is there an edge to be had
> from focussing on one direction of the reversion as compared to the
> other?
>
> Tading with the trend always beats countertrend trading (this is a
> better name than reversion to mean) .. as long as the trend persists.
>
> Of course we always pay the price when trends change.....and they
> always do this quickly, in their own timeframe ... we pay the price
> because we can never achieve theoretically achieve the perfect
> trade, let alone achieve it in real trading ... when we go into
> production, with our prototypes, C&S detract from the perfect trade
> even more.
>
>
> Re volatility:
>
> - I am still learning about it ...more to do ... very important
> (thanks to JohnBollinger who first introduced me to the subject via
> BB's ... been hooked ever since).
>
>> I start with the philosophy, and work towards the optimization from
>> there. In the beginning, it helps to do it the other way around,
>> until you learn the relationships between parameters. Mostly it is
>> staring at charts with indicators overlaid and asking yourself if
>> there is anything significant about the patterns you see, then
>> program
>> the ideas in and see what it gives you.
>
> I agree.
>
> Just to refine the details:
>
> - which came first the chicken or the egg?
> - my trading philosophy has developed in tandem with my struggle to
> find ways to make a buck.... one seems to shape the other ... I
> definitely think everything through in detail before moving on to
> testing for confirmation .. if my idea isn't confirmed I go back to
> more thinking to find out why it failed etc.
>
> - an analogy is that if we want to hunt the Tiger we could go into
> our office, read all of the research and run simultions of our plans
> to formulate a plan of action OR we could go into the field and sit
> quietly in the hide for extreme periods of time ... I do this
> frequently, take notes on all of the observed behaviours and then
> when I go back to the lab I start to hypothesis, based on my notes.
>
> When I reference others trading research/opinion I cross check their
> observations and theorems with my field observations .. if it
> doesn't stack up I reject their work, or parts of it.
>
>
>
>
>> It also helps to manually
>> trade your ideas some. The perspective of what can and will go
>> >wrong
>> in the real world is quite eye opening.
>
> Yes, I am at the point where I might not Backtest much more, ever ..
> it isn't imperative that I do so anymore ... an exception might be
> if I develop a MatrixBacktester for fun .. then I would find some
> uses for it, at least for a while.
>
> I have accepted that my methods, combined with using paper trading
> as the OOS test, are perfectly adequate for me.
>
> As an aside I am sceptical that there is evne such a thing as OOS
> when we use historical data ... for one thing we are all too widely
> read to be naive about any trading idea so in that sense we have all
> walked over any historical data, we care to get our hands on,
> thousands of times .. in that sense live trading is the only 'real'
> OutOfSample data.
>
> Thanks for sharing .. very helpful for me.
>
> I hope you get something specific out of my commentary or that at
> least it sparks of some fruitful creative thinking for you (some
> commentators have tried to filter the qualities that make a top
> trader/investor but of course it is very simple .. they are highly
> creative which exhibits as a passion for investing/trading).... like
> passionate golfers .. we will talk to other passionate traders
> anywhere at anytime.
>
> I have done a fair amount of commentating on TradingPsychology ...
> it is spread all around the forum .. this might be the last in the
> series ... I am not certain about that but I am starting to get
> bored with it and the forum must be getting bored with it .. anyone
> who was going to get it should have got it by now (and I am very
> realistic about that) ...tough luck for newcomers ... they miss out.
>
> Still, I never say never.
>
> All the best with your trading efforts..
>
>
> brian.
>
> --- In amibroker@xxxxxxxxxxxxxxx, Dennis Brown <see3d@xxx> wrote:
>>
>> Brian,
>>
>> First, remember, I am only trading ES, the e-mini S&P 500. That
>> simplifies my problem immensely. I never have to worry about if the
>> liquidity is there and if the slippage is accurate to my simulation.
>> They are known quantities. I also only look at 1 minute bars, and do
>> not hold overnight. My trades rarely last over an hour, so
>> fundamental data is of little consequence. Only the immediate news
>> has a non-technical impact, and that shows up within one minute in
>> the
>> chart anyway.
>>
>> Because my trading universe is so limited in scope, I was able to
>> write my own back tester in AFL that only runs in indicator mode with
>> the equity curve always showing in my chart. I overlay a lot of
>> indicators and stats on my charts as desired to gain greater insights
>> about what is happening.
>>
>> So my secret is to simplify the unknowns to the smallest universe
>> possible and specialize on just one kind of trade. This gives me a
>> fighting chance of actually understanding what I am doing.
>>
>> The recent addition of static arrays was a great help for me in
>> saving
>> the temp results of previous runs for equity curve comparisons. I
>> manually control every aspect of parameter changes and selection of
>> which curves to save. I also take a lot of screen shots of my charts
>> for later comparison purposes.
>>
>> My best system is a revision to mean system so far. For this system,
>> volatility is good and trends are bad. I am currently working on a
>> trend following version to see what I can do with that. In that case
>> trends are good. I am only talking about the action over one day of
>> course.
>>
>> I don't rely on mathematical straightness, because the ES does not
>> give equal opportunity all the time. For a reversion to mean system,
>> volatility gives more opportunity. I measure volatility and apply
>> that value to modify different parameters on the fly.
>>
>> I start with the philosophy, and work towards the optimization from
>> there. In the beginning, it helps to do it the other way around,
>> until you learn the relationships between parameters. Mostly it is
>> staring at charts with indicators overlaid and asking yourself if
>> there is anything significant about the patterns you see, then
>> program
>> the ideas in and see what it gives you. It also helps to manually
>> trade your ideas some. The perspective of what can and will go wrong
>> in the real world is quite eye opening.
>>
>> BR,
>> Dennis
>>
>> On Jun 20, 2009, at 12:50 AM, brian_z111 wrote:
>>
>>> Thanks .. its great to get some feedback about how people are
>>> actually going about their evaluation.
>>>
>>> I notice that you are using visual methods, rather than a metric, to
>>> select your top model.
>>>
>>> For my first optimization I didn't look at any eq curves ... this is
>>> not the default in AB's opt?
>>>
>>> How do I create and plot the relative curves for all of the possible
>>> combinations ...d o you limit this to subsets to save time OR
>>> perhaps from your later comments, you don't search all candidates
>>> but start in a chart and then manually add plots to test the
>>> combinations you fancy?
>>>
>>>> I also block out the
>>>> best performing times to concentrate effort on the low performing
>>>> times as part of my process.
>>>
>>> I agree that this is an area worth focusing on.
>>>
>>> I did notice that AB only optimizes the 'concatenated' data, as a
>>> portfolio, (at least as I understand it ... couldn't find any
>>> guidance on this in the help manual or Howards' books .. trial and
>>> error seems to indicate the opt report is a 'one in all in' approach
>>> so I couldn't differentiate under/over performance relative to
>>> under/
>>> over performing stocks without a special effort on my part).
>>>
>>>> (last Fall was
>>>> a great addition to the max volatility set).
>>>
>>> Yes. I noticed that if I run the MACrossover opt on monthly data,
>>> for the entire 1970-present range, then it still qualifies as a
>>> trendfollower (just).. IOW the dip of 2008, wasn't quite big enough
>>> to take us out of an uptrend, from the long term perspective, so
>>> bull trend following systems still work in that timeframe/timeslice.
>>>
>>> I didn't report on it but when I ran an MACrossover opt on the
>>> random dataset that I produced (designed for and run in EOD data)
>>> the spread of the optimized results is pretty tight and low (not
>>> significant) ... using ABs' total portfolio approach .. this is
>>> reassuring since the concatenated random datasets converge on the
>>> mean of zero returns (half the datasets underperform and half over
>>> perform with low volatility) ... I wonder if that will change if I
>>> introduce some volatility ... I'll have to try it.
>>>
>>>> I overlay my equity curves on top of
>>>> each other and look for the straightest curve relative to the
>>>> >market
>>>> opportunities (volatility).
>>>
>>> You are not confident of the metrics that measure straightness or
>>> you just prefer the eyeball method (I found it sort of ironic, or
>>> something, that Howard also likes to eyeball the curves).
>>>
>>> Volatility could be good or bad ... say it is all over the shop ..
>>> don't you want trendiness with volatility?
>>>
>>> Are you measuring or eyeballing volatility?
>>> Do you filter, by volatility, to select the instrument to trade?
>>>
>>>> When rare
>>>> events hurt the performance, I zoom in on those trades and try to
>>>> understand what about the underlying algorithm lets it happen.
>>>>> Then,
>>>> I think about how I can make my algorithm smarter in the general
>>>> case
>>>> to reduce these types of problems.
>>>
>>> If another line of code removes a significant number of losers then
>>> it is likely to be generic going forward?
>>>
>>>> I do a lot more thinking than testing and optimizing
>>>
>>> That was my initial reaction to my optimizing experience ... that if
>>> we enter some parameters and send the computer off to search then
>>> what comes back might not have a lot of meaning, in terms of a
>>> trading philosophy, whereas if we are working at developing a
>>> trading philosphy first, then later on opt can help develop/test
>>> systems derived from the philopsphy.
>>>
>>> It takes a long time , and a certain skill, to develop a trading
>>> philosophy, but anyone can quickly learn to run an opt, with or
>>> without applying a lot of thought to what they are doing.
>>>
>>> --- In amibroker@xxxxxxxxxxxxxxx, Dennis Brown <see3d@> wrote:
>>>>
>>>> Brian,
>>>>
>>>> When I optimize (and I am only working with ES), I watch the
>>>> complete
>>>> equity curve over more than a thousand trades under all market
>>>> conditions of volatility and trends in both directions (last Fall
>>>> was
>>>> a great addition to the max volatility set). I also block out the
>>>> best performing times to concentrate effort on the low performing
>>>> times as part of my process. I overlay my equity curves on top of
>>>> each other and look for the straightest curve relative to the
>>>> market
>>>> opportunities (volatility). In other words, the slope of the
>>>> equity
>>>> increases with the volatility. If an optimization step generates a
>>>> better profit by virtue of clipping off a big drawdown, or other
>>>> rare
>>>> event, then it is over optimization and I reject it as just data
>>>> mining. However, if an optimization step results in a steady,
>>>> constantly deviating increase in outcome over all market
>>>> conditions,
>>>> then I accept it as a fundamentally good optimization. When rare
>>>> events hurt the performance, I zoom in on those trades and try to
>>>> understand what about the underlying algorithm lets it happen.
>>>> Then,
>>>> I think about how I can make my algorithm smarter in the general
>>>> case
>>>> to reduce these types of problems. I do a lot more thinking than
>>>> testing and optimizing --which I do by hand with parameters, so I
>>>> know
>>>> what the relationships are intuitively after a while. I do not
>>>> consider it cheating to have parameters that adjust themselves to
>>>> general market conditions like high or low volatility, etc., just
>>>> as
>>>> long as the algorithms are very general and make logical sense
>>>> regardless of the data.
>>>>
>>>> It is a slow process, but when I am done, I have an algorithm and
>>>> settings that are robust to whatever the market throws at me. I
>>>> don't like being fooled by randomness!
>>>>
>>>> BR,
>>>> Dennis
>>>>
>>>> On Jun 19, 2009, at 8:10 PM, brian_z111 wrote:
>>>>
>>>>> OR
>>>>>
>>>>> ... is opt correctly flagging something about market behaviour or
>>>>> system trading that I don't understand?
>>>>>
>>>>>
>>>>> OR
>>>>>
>>>>>
>>>>> ... all of the above, none of the above, a combination of some of
>>>>> the above?
>>>>>
>>>>>
>>>>>
>>>>> Also, the MACrossover changed from TrendFollowing to MeanReversion
>>>>> when I added 1.5 years to a 30 year lookback and not a 10 year
>>>>> lookback ... not a 9 year lookback as per my previous post.
>>>>>
>>>>>
>>>>> --- In amibroker@xxxxxxxxxxxxxxx, "brian_z111" <brian_z111@>
>>>>> wrote:
>>>>>>
>>>>>> So, in my first ever attempt at optimization I am presented
>>>>>> with a
>>>>>> conundrum.
>>>>>>
>>>>>> If I opt MACrossver(C,X), and look down the list of top
>>>>>> candidates
>>>>>> (using the AB default objective function), I see that
>>>>>> historically
>>>>>> this system was both a 'trend following system' and a
>>>>>> 'reversion to
>>>>>> mean' system.
>>>>>>
>>>>>> If I could travel back in time, armed with this info, should I
>>>>>> trade MA crosses as a 'trend follower', 'reversion to mean' or
>>>>>> both?
>>>>>>
>>>>>> OR
>>>>>>
>>>>>> ...on the other hand am I failing to interpret the results
>>>>>> correctly ... is there something about opt that I don't
>>>>>> understand ... if I develop my opt skills will this help me solve
>>>>>> this riddle?
>>>>>>
>>>>>> OR
>>>>>>
>>>>>> ... is optimization itself somehow not providing me with a clear
>>>>>> understanding of how I should have followed the markets (for that
>>>>>> historical period)?
>>>>>>
>>>>>> OR
>>>>>>
>>>>>> ... is it something to do with MACrossovers ... perhaps other
>>>>>> systems are more amenable to optimization ... if so how can I
>>>>>> filter systems in advance to save me wasting my time opting non-
>>>>>> compliant systems?
>>>>>>
>>>>>> OR
>>>>>>
>>>>>> .... is the objective function the underlying cause of this
>>>>>> dilemna?
>>>>>>
>>>>>> OR
>>>>>>
>>>>>> ... I have done something wrong .. failed to optimize correctly
>>>>>> or
>>>>>> used AB incorrectly?
>>>>>>
>>>>>> OR
>>>>>>
>>>>>>
>>>>>> ... is it the data... is there something wrong with the Yahoo
>>>>>> data
>>>>>> I used?
>>>>>>
>>>>>> --- In amibroker@xxxxxxxxxxxxxxx, "brian_z111" <brian_z111@>
>>>>>> wrote:
>>>>>>>
>>>>>>> What I am headlining here is that looking back,at 9 years of
>>>>>>> data,
>>>>>>> the best MA system was 'trendfollowing' then, only 1.5 years
>>>>>>> later
>>>>>>> the best MA system was turned completely upside down into a
>>>>>>> 'reversion to mean' system ??????
>>>>>>>
>>>>>>> Say, what?
>>>>>>>
>>>>>>> I don't have an explanation for any of this but it is too early
>>>>>>> anyway ... I need to make a lot more observations before it is
>>>>>>> time to hypothesis.
>>>>>>>
>>>>>>> --- In amibroker@xxxxxxxxxxxxxxx, "brian_z111" <brian_z111@>
>>>>>>> wrote:
>>>>>>>>
>>>>>>>> This is the first time I have optimized or used any kind of
>>>>>>>> synthetic data in AB ... so far I haven't used any
>>>>>>>> sophisticated
>>>>>>>> methods to produce synthtetic data either.
>>>>>>>>
>>>>>>>> I have only done a small amount of testing but I immediately
>>>>>>>> found three anomalies that might be worth further
>>>>>>>> investigation.
>>>>>>>> I have aleady reported bcak on two:
>>>>>>>>
>>>>>>>> - why does an apparently worthless 'system' (plucked out of
>>>>>>>> thin
>>>>>>>> air unless my subconscious mind intervened) outperfrom on
>>>>>>>> approx
>>>>>>>> 6% of stocks when those stocks are assumed to be correlated
>>>>>>>> to a
>>>>>>>> fair extent ... chance? OR some property of the data that
>>>>>>>> correlation does not measure ... what property of the data
>>>>>>>> would
>>>>>>>> favour that randomly selected 'system'?
>>>>>>>>
>>>>>>>> Note. if anything I expected the system to test the assumption
>>>>>>>> that the MA is the trend and I expected the system to 'fail'.
>>>>>>>>
>>>>>>>>
>>>>>>>> - why does the same system then outperform approx 50% of the
>>>>>>>> time
>>>>>>>> when tested over randomly generated price series ... is it a
>>>>>>>> coincidence that the outperformance ratio, on random data, is
>>>>>>>> close to the expected for randomness? and why didn't the bull
>>>>>>>> 'system' outperform only on the random price series that
>>>>>>>> outperformed?
>>>>>>>>
>>>>>>>>
>>>>>>>> The third anomaly is:
>>>>>>>>
>>>>>>>> - I optimized the following on some Yahoo ^DJI data ... 10
>>>>>>>> years
>>>>>>>> EOD ... 9951 quotes ... 2/01/1970 until June 4th 2009.
>>>>>>>> Default objective (fitness) function = CAR/MDD.
>>>>>>>>
>>>>>>>> fast = Optimize( "MA Fast", 1, 1, 30, 1 );
>>>>>>>> slow = Optimize("MA Slow", 1, 1, 30, 1 );
>>>>>>>>
>>>>>>>> Buy = Cross(MA(C,fast),MA(C,slow));
>>>>>>>> Sell = Cross(MA(C,slow),MA(C,fast));
>>>>>>>>
>>>>>>>> - when I optimized on the total range I found that the top
>>>>>>>> values, were inverted (as per Howard's examples in this forum
>>>>>>>> and
>>>>>>>> his books) but when I left out the 2008/09 extreme market
>>>>>>>> conditions I found this did not hold.
>>>>>>>>
>>>>>>>> Why does sucn a relatively small change in the test range make
>>>>>>>> such a radical difference in the outcomes?
>>>>>>>>
>>>>>>>> Here are some of the reported metrics from AB .. notice that
>>>>>>>> they
>>>>>>>> are similar in some cases and markedly dissimilar in others.
>>>>>>>>
>>>>>>>> I am not sure if that leads to a question but it certainly gets
>>>>>>>> my attention considering that I am in the business of
>>>>>>>> engineering
>>>>>>>> reward/risk.
>>>>>>>>
>>>>>>>> Note that I am using ProfitFactor because it is typical in the
>>>>>>>> industry but it has some question marks over whether is it the
>>>>>>>> best CoreMetric to use (I am investgating PowerFactor and
>>>>>>>> assymetricalPayoffRatio which might be more apt ... I hope to
>>>>>>>> post more on these metrics later).
>>>>>>>>
>>>>>>>> Opt1:
>>>>>>>>
>>>>>>>> using all data
>>>>>>>>
>>>>>>>> top model = CAR/MDD == 0.25 AND periods == fast 10, slow 7;
>>>>>>>>
>>>>>>>> NETT PROFIT 1749%
>>>>>>>> Exposure 44.9;
>>>>>>>> CAR 7.68;
>>>>>>>> RAR 17.07
>>>>>>>> MAXDD 31.57
>>>>>>>> RECOVERYFACTOR 2.64
>>>>>>>> PF 1.62 (WIN 68% * PR 0.75)
>>>>>>>> #TRADES 588
>>>>>>>>
>>>>>>>>
>>>>>>>> Opt2:
>>>>>>>>
>>>>>>>> using data range from 2/01/1970 to 31/12/2007 (that's Dec for
>>>>>>>> the benefit of timezoners).
>>>>>>>>
>>>>>>>> top model = CAR/MDD == 0.42 AND periods == fast 1, slow 6;
>>>>>>>>
>>>>>>>> NETT PROFIT 1921%
>>>>>>>> Exposure 54.51;
>>>>>>>> CAR 8.23;
>>>>>>>> RAR 15.09
>>>>>>>> MAXDD 21.67
>>>>>>>> RECOVERYFACTOR 5.07
>>>>>>>> PF 1.35 (WIN 40% * PR 2.03)
>>>>>>>> #TRADES 1049
>>>>>>>>
>>>>>>>>
>>>>>>>> I hope I reported the metrics correctly but anyone can
>>>>>>>> replicate
>>>>>>>> my tests and report otherwise.
>>>>>>>>
>>>>>>>> I think it also demonstrates that if PoF (PowerFactor) is a
>>>>>>>> better CoreMetric than ProfitFactor it will need to be
>>>>>>>> standardized on a returns/time basis (choose your time period =
>>>>>>>> the basetimeframe you trade ... PoF is related to GeoMean per
>>>>>>>> bar?)
>>>>>>>>
>>>>>>>> --- In amibroker@xxxxxxxxxxxxxxx, "brian_z111" <brian_z111@>
>>>>>>>> wrote:
>>>>>>>>>
>>>>>>>>> Following recent discussions on benchmarking and using rule
>>>>>>>>> based systems to engineer returns to meet 'clients' profiles
>>>>>>>>> i.e.Samantha's MA(C,10) example, I did some follow up R&D with
>>>>>>>>> the intent of expanding the examination a little further via a
>>>>>>>>> zboard post.
>>>>>>>>>
>>>>>>>>> I may, or may not, get around to that so in the meantime I
>>>>>>>>> decided I would share a couple of things while they are still
>>>>>>>>> topical.
>>>>>>>>>
>>>>>>>>> I made up some quick and dirty randomly generated eq curves so
>>>>>>>>> that I could optimise MA(C,10) on them (out of curiosity).
>>>>>>>>>
>>>>>>>>> Also, out of curiosity, I decided to see how the example
>>>>>>>>> signal/
>>>>>>>>> filter code that I made up, as the study piece for Yofas topic
>>>>>>>>> on benchmarking, would actually perform.
>>>>>>>>>
>>>>>>>>> Buy = Ref(ROC(MA(C,1),1),-1) < 0 AND ROC(MA(C,1),1) > 0 AND
>>>>>>>>> ROC(MA(C,10),1) > 0;
>>>>>>>>> Sell = Cross(MA(C,10),C);//no thought went into this exit
>>>>>>>>> and I
>>>>>>>>> haven't tried any optimization of the entry or the exit
>>>>>>>>>
>>>>>>>>> By chance I noticed that it outperformed on one or two of the
>>>>>>>>> constituents of the ^DJI (Yahoo data ... 2005 to 2009) and to
>>>>>>>>> the naked eye the constituents all seem to be correlated to a
>>>>>>>>> fair extent over that time range.
>>>>>>>>>
>>>>>>>>> Also, to the naked eye, it outperforms on randomly generated
>>>>>>>>> stock prices around 50% of the time and the outperformnce
>>>>>>>>> doesn't appear to be correlated to the underlying(I haven't
>>>>>>>>> attempted to find an explanation for this).
>>>>>>>>>
>>>>>>>>> Here is the code I used to make up some randomly generated
>>>>>>>>> 'stocks'.
>>>>>>>>>
>>>>>>>>> As we would expect it produces, say, 100 price series with a
>>>>>>>>> concatenated mean of around zero (W/L = 1 and PayoffRatio ==
>>>>>>>>> 1)
>>>>>>>>> etc.
>>>>>>>>> When plotted at the same time ... individual price series are
>>>>>>>>> dispersed around the mean in a 'probability cone' ... in this
>>>>>>>>> case it is a relatively tight cone because the method doesn't
>>>>>>>>> introduce a lot of volatility to the series.
>>>>>>>>>
>>>>>>>>> /*P_RandomEquity*/
>>>>>>>>>
>>>>>>>>> //Use as a Scan to create PseudoRandom Equity curves
>>>>>>>>> //Current symbol, All quotations in AA, select basetimeframe
>>>>>>>>> in
>>>>>>>>> AA Settings
>>>>>>>>> //It will also create the curves if used as an indicator (add
>>>>>>>>> the appropriate flag to ATC)
>>>>>>>>> // but this is NOT recommended as it will recalculate them on
>>>>>>>>> every refresh.
>>>>>>>>> //Indicator mode is good for viewing recalculated curves
>>>>>>>>> (click
>>>>>>>>> in whitespace)
>>>>>>>>> //CommentOut the Scan code before using the indicator code.
>>>>>>>>> //Don't use a very large N or it will freeze up indicator
>>>>>>>>> scrolling etc
>>>>>>>>>
>>>>>>>>> n = 100;//manually input desired number - used in Scan AND
>>>>>>>>> Indicator mode
>>>>>>>>>
>>>>>>>>> ///
>>>>>>>>> SCAN
>>>>>>>>> ///////////////////////////////////////////////////////////////////
>>>>>>>>>
>>>>>>>>>
>>>>>>>>> Buy=Sell=0;
>>>>>>>>>
>>>>>>>>> for( i = 1; i < n; i++ )
>>>>>>>>>
>>>>>>>>> {
>>>>>>>>>
>>>>>>>>> VarSet( "D"+i, 100 * exp( Cum(log(1 + (Random() - 0.5)/
>>>>>>>>> 100)) ) );
>>>>>>>>> AddToComposite(VarGet( "D"+i ),"~Random" + i,"X",1|2|128);
>>>>>>>>> //Plot( VarGet( "D"+i ), "D"+i, 1,1 );
>>>>>>>>> //PlotForeign("~Random" + i,"Random" + 1,1,1);
>>>>>>>>> }
>>>>>>>>>
>>>>>>>>> /*
>>>>>>>>> ////PLOT/////////////////////////////////////////////////////
>>>>>>>>>
>>>>>>>>> //use the same number setting as for the Scan
>>>>>>>>>
>>>>>>>>>
>>>>>>>>> for( i = 1; i < n; i++ )
>>>>>>>>>
>>>>>>>>> {
>>>>>>>>>
>>>>>>>>> PlotForeign("~Random" + i,"Random" + i,1,1);
>>>>>>>>>
>>>>>>>>> }
>>>>>>>>>
>>>>>>>>>
>>>>>>>>> ////
>>>>>>>>> OPTIMIZE
>>>>>>>>> ///////////////////////////////////////////////////////////
>>>>>>>>>
>>>>>>>>> //use the filter to run on Group253 OR add ~Random + i
>>>>>>>>> PseudoTickers to a Watchlist and define by AA filter
>>>>>>>>>
>>>>>>>>>
>>>>>>>>> //fast = Optimize( "MA Fast", 1, 1, 10, 1 );
>>>>>>>>> //slow = Optimize("MA Slow", 4, 4, 20, 1 );
>>>>>>>>>
>>>>>>>>> //PositionSize = -100/P;
>>>>>>>>> //Buy = Cross(MA(C,fast),MA(C,slow));
>>>>>>>>> //Sell = Cross(MA(C,slow),MA(C,fast));
>>>>>>>>>
>>>>>>>>> //Short = Sell;
>>>>>>>>> //Cover = Buy;
>>>>>>>>>
>>>>>>>>> I also stumbled on this, which seems to have some relevance:
>>>>>>>>>
>>>>>>>>> http://www.scribd.com/doc/6737301/Trading-eBookCan-Technical-Analysis-Still-Beat-Random-Systems
>>>>>>>>>
>>>>>>>>>
>>>>>>>>> It contains a link to a site that has a free download of some
>>>>>>>>> RNG produced datasets.
>>>>>>>>>
>>>>>>>>> There hasn't been much discussion on using synthetic data in
>>>>>>>>> the
>>>>>>>>> forum ... Patrick recommended it for testing? OR
>>>>>>>>> benchmarking? ... Fred is against using it ("If we knew enough
>>>>>>>>> about the characteristics of the data, in the first place,
>>>>>>>>> to be
>>>>>>>>> able to create synthetic data then we would know enough to
>>>>>>>>> design trading systems to exploit the data's profile
>>>>>>>>> anyway", OR
>>>>>>>>> something like that).
>>>>>>>>>
>>>>>>>>> I was titillated enough by my first excursion into
>>>>>>>>> benchmarking
>>>>>>>>> with synthetic data to bring me back for some more.
>>>>>>>>>
>>>>>>>>
>>>>>>>
>>>>>>
>>>>>
>>>>>
>>>>>
>>>>>
>>>>> ------------------------------------
>>>>>
>>>>> **** IMPORTANT PLEASE READ ****
>>>>> This group is for the discussion between users only.
>>>>> This is *NOT* technical support channel.
>>>>>
>>>>> TO GET TECHNICAL SUPPORT send an e-mail directly to
>>>>> SUPPORT {at} amibroker.com
>>>>>
>>>>> TO SUBMIT SUGGESTIONS please use FEEDBACK CENTER at
>>>>> http://www.amibroker.com/feedback/
>>>>> (submissions sent via other channels won't be considered)
>>>>>
>>>>> For NEW RELEASE ANNOUNCEMENTS and other news always check DEVLOG:
>>>>> http://www.amibroker.com/devlog/
>>>>>
>>>>> Yahoo! Groups Links
>>>>>
>>>>>
>>>>>
>>>>
>>>
>>>
>>>
>>>
>>>
>>> ------------------------------------
>>>
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>>> This is *NOT* technical support channel.
>>>
>>> TO GET TECHNICAL SUPPORT send an e-mail directly to
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>>> For NEW RELEASE ANNOUNCEMENTS and other news always check DEVLOG:
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>>>
>>>
>>>
>>
>
>
>
>
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