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No I don't do that.
I assume the negative, i.e., that the indicator that I am testing is
indicating noise ... until proven otherwise.
The indicator has to prove that it is indicating a market inefficiency. If
the market is too big or too complex to answer some of the 5 W's then I look
for a more manageable market. My bottom size for a market or tradable uses
Kase' formula of one tick, i.e., transaction or price change, every two
minutes.
Ya ... that's the hard part, giving up on all that work in a market or
tradable when nothing is proven. It's hard to walk away. Your mind can play
tricks on you.
I'm always inspired by rereading Steve's emails about the number of runs
that he uses when researching an indicator. Just how much work is involved.
Oh well ... such is the business
Best regards
Walter
----- Original Message -----
From: "Walter Lake" <wlake@xxxxxxxxx>
To: <metastock@xxxxxxxxxxxxx>
Sent: Wednesday, December 15, 1999 1:55 PM
Subject: Re: Volatility
| No problem Philip.
|
| To others that wrote. It depends upon your indicator or event based
trading
| system.
|
| Once you have recovered from "indicator-itis" which by the way ... I hear
| can be a profound and long lasting dis-ease. The next step is to figure
out
| what your indicator is indicating.
|
| Of course this is much more difficult if you pile up the indicators. This
is
| why writers often suggest that you reduce the number of parameters to the
| simplest level when testing.
|
| Is your indicator pointing to a market inefficiency? Or ... is the
| indication a figment of your indicators imagination?
|
| Can you answer any of
| the 5 w's: what, where, why, when and who about the underlying market
| inefficiency? (See the TASC articles on trading the opening gap)
|
| If so ... then you have the beginnings of a theory or hypothesis. This
| theory is usually tested by a testing vehicle independent from the
discovery
| vehicle (i.e. Metastock). It doesn't matter what the name or how loony the
| basis of your theory is ... so long as you test it.
|
| By the way if you are continually running multiple system tests through
the
| same data, i.e., stocks, funds, sector, universe of stocks then you will
| probably have to use the Markowitz/Xu data correction formula on your
| results to get a true picture of your results.
|
| Once you have proven the theory about the underlying market inefficiency,
| then you can starting planning how to exploit it: entries, exits,
| seasonalities, etc. Also, you look to see if there any structural
| inefficiencies in the market place that you can add profit and an "edge"
to
| your business plan.
|
| The proven indicator/theory is the beginning ... you will probably need 4
or
| 5 more proven indicators/theories according to the markets that you trade.
| It's pretty boring work ...
| a long ways from the gee-whiz excitement of the latest indicators and
| trading system.
|
| Best regards
|
| Walter
|
|
| ----- Original Message -----
| From: "Walter Lake" <wlake@xxxxxxxxx>
| To: <metastock@xxxxxxxxxxxxx>
| Sent: Tuesday, December 14, 1999 10:23 PM
| Subject: Re: Volatility
|
|
| | Hi Philip
| |
| | Yes volatility is important ... The TASC Nov. and Dec. article talked
| about
| | outliers that had implications on trading one share. Let alone 1,000 or
| | 5,000 shares on margin.
| |
| | Market and structural inefficiencies that offer opportunities exist both
| | with stable distributions (i.e., non-Gaussian) and with very very low
| | volatility tradeables. I have seen systems that exploit both. Most
traders
| | usually read the options literature to begin to develop insights and to
| look
| | for inefficiencies in these areas.
| |
| | Best regards
| |
| | Walter
| |
| | ----- Original Message -----
| | From: "Philip" <pschmi02@xxxxxxxxxxx>
| | To: <metastock@xxxxxxxxxxxxx>
| | Sent: Tuesday, December 14, 1999 8:33 PM
| | Subject: Re: Volatility
| |
| |
| | | > Volatility is the most valuable thing I look at. I recall that some
| | Market
| | | > Wizards speak very highly of it also.
| | | > For a simple example, Let's say you beleive that markets swing from
| low
| | to
| | | > high vol (not to difficult), then placing entry stop orders either
| side
| | of
| | | > vol bands, should get you set for a big move either way.
| | |
| | | I wish you'd explain this in greater detail. (I'll even say "Please."
| | <g>)
| | | Not sure I understand exactly what you mean by "placing entry stop
| orders
| | | either side of vol bands." Sorry to be slow. Do you mean placing the
| | orders
| | | outside the top/bottom band, for a breakout, or outside the top/bottom
| | band for
| | | a return trip?
| | |
| | | It seems that a price which falls outside of the 2nd StDev is
relatively
| | | uncommon, right? So if such an event occurs, aren't the chances
pretty
| | good
| | | that you won't get another one right away. On the other hand, every
so
| | often a
| | | price event occurs "out there" and it continues, it stays there.
Voila!
| | The
| | | successful breakout.
| | |
| | | Based on your observations, can you (better phrased perhaps as 'would
| you
| | be
| | | willing to') discuss what characterizes a good volatility breakout as
| | opposed
| | | to a poor one? In other words, what does price action have to look
like
| | to
| | | warrant trading a continuation of the move in the direction of the
| | breakout, as
| | | opposed to fading it? This is a money maker, folks.
| | |
| | | Let me also address a question to Walter Lake. Forgive me if I'm
| | mistaken, but
| | | wasn't it you who (about 10-12 days ago) spoke of 3 or 4 sigma events
| that
| | | could really make money -- or have the opposite effect! Does my
memory
| | serve
| | | me well? I remember thinking at the time "Hmm, Walter has probably
| given
| | this
| | | topic some careful thought." I'd be really grateful if you would
| comment.
| | |
| | | Philip
| | |
| | | > But as always, entry is only the tip of the icecream.
| | |
| | | >
| | | > IMHO - The best indicators are Stdev and ATR.
| | | >
| | | > Michael Samerski
| | | > Metronome Trading Systems Pty Limited
| | | > email : michael@xxxxxxxxxxxxxxxxxxxxxxxx
| | | > www : http://www.metronome-trading.com.au
| | | > <http://www.metronome-trading.com.au/>
| | | >
| | | >
| | | >
| | | > -----Original Message-----
| | | > From: Theo E.M. Lockefeer [mailto:sky40912@xxxxxxxxx]
| | | > Sent: Tuesday, 14 December 1999 21:09
| | | > To: Metastock User Group
| | | > Subject: Volatility
| | | >
| | | > Can someone give his views on Volatility :
| | | >
| | | > Succesfull systems implemented ? Which are good Volatility
| indicators
| | ?
| | | >
| | | >
| | | >
| | | > Thx
| | | >
| | | > Theo
| | |
| |
|
|