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At 09:38 PM 7/9/01 -0600, you wrote: Thank you Dave! I appreciate your comments, you are seeding small ideas that will eventually help make things fall in place for me.
In answer to your questions down below: no, I haven'nt been able to catagorize stocks however i am beginning to take note on how they respond to my prototype trading systems. I am beginning to think that the best way to catagorize stocks is by System Test statistics, MSBT stats, and figures derived from the data in their reports.
One can write Explorations but they do not provide a lot of information on the stocks. Lately I like to use the cum() function to extract stats like error band and MA crossings. This produces measures that describe trend (the amount of time price stays between MAs) and volatility (the number of times the price goes up/down between error bands. I have a gut feeling we can do a lot more using this method but my mind hasn't zeroed in on it yet.
Thanks again for your feedback - it is nice to hear other views and opinions.
Happy Trading, Herman.
>>>> Hi Dave,
I finally got back to your email ... hope you are still around :-) I find your post very interesting and have what are, undoubtedly, too many questions. Sorry that this appears a one way street: there isn't much I can contribute to this topic.
Herman,
My responses to your questions are below. Please dont think of me as anyone who necessarily knows what hes talking aboutIm not convinced that I do. Just consider these as inputs, another point of view, one persons way of looking at things from a possible choice of many.
At 10:04 AM 7/3/01 -0700, you wrote: >...I start by looking at a certain market, and trying to break that up into pieces with different >character, e.g. trending, trading range, reversing, etc. So, if I'm trying to build a reversing >system using an oscillator(s), I'll want to select those segments of the market that are reversing >or trading in a range. Assuming I have enough bars, I can break those into segments for in and >out of sample testing...
Do I understand correctly that, given a long trend, you'll test the same trending period in segments? Do you use overlapping sample periods?
Id rather use successive, long trending periods assuming I have enough data and sufficient trades are generated. Id rather not use overlapping periods. Again, Ill start out with some sort of an idea for an entry like, I want to buy pullbacks in a trend& This was a popular method during the recent bull run. Does it still work? Perhaps, depending on the timeframe you are using.
So, Id want to start developing a system on some markets that are very trendy. Id find those in a scan of my database, using some criteria that I would establish to measure trendiness. This should give me some markets (securities) which tend to be more trendy than others. Hopefully, it will give me more trends & bars to work with.
>Once I've found a successful approach to the specific character of that market, I can expand my >testing to a larger portion of the historical data, but I'll need to find a way to turn the system >on and off depending on what type of market behaviour is being exhibited. Then I'll run this >overall system against the larger data set, in much the same manner as you describe below.
How many types of market behavior do you recognize, do you consider patterns (i.e. head & shoulders) a market behavior? You mentioned Trend, trading range, reversal point, ... any others?
For me, Im sticking with some very straighforward approaches like trend following and volatility breakout, because they are fundamentally appealing to meI can rationalize why this type of a trade will continue or fail. H&S patterns or any other type of behaviour that makes sense to you is what really matters. I would recommend a system developer focus on those patterns or market actions that are the most intuitively appealing. Do you use exporations or other methods to classify the market?
I use Explorations to find those markets that Ill use in building and refining my system. I suppose this is a way of classifying markets and selecting those which match.
>...A personal belief of mine is that market behavoiurs are persistent. The S&P is much more likely >to continue it's reversing behaviour in the future. I'm fairly confident that next month, it >won't become a trendy market.
I am intrigued by the idea of classifying stocks by their behavior. I tend to assign as much value to a system that works as to a system that doesn't work, they both carry an important message for us to decode. I agree completely. They both offer lots of information. The classic example is the system that loses 90% of the time, and loses by a lot. I wonder if I just reversed my entries&.Did you ever make an attempt to develop a classification system for stocks? I don't mean classifications by 'temporary' characteristics like trending, I mean more permanent, what appear like price-independent characteristics. An example would be a security's sensitivity to certain oscillators. I havent. Im using these periods of trending and flat to build my systems. In the end when running across a portfolio, I want the system to make that determination.
Since Price and Volume are the only two pieces of data we have, all indicators are derived from one, the other, or a combination. My approach is that the indicator is just an aid to seeing the price action more easily.
Most indicators are correlated because they are all based on price in one way or another. Adding too many to a system just engenders curve fitting and unrealistically inflates results.
One technique that can be very beneficial is to focus on making your portfolio or testing folder less correlated. If you had all bank stocks, plus some brokerages, you are probably not getting a lot more information from your system tests than just using the Banking or Brokerage indicies. >A sidenote here is that I'm making certain assumptions about basic system design. I subscribe >heavily to the signal / trigger approach as well as Chuck LeBeau's methods for developing robust >systems. (www.traderclub.com) I really like adaptive rather than fixed approaches. Also, you'll >notice that markets look very different depending on the timeframe: comparing a 3 minute chart of >the S&P with a daily chart is a good example.
Chuck's bulletins are many ... I don't recall him referring specifically to robustness. Are you referring to his overall approach or to specific measures designed to measure and improve robustness? Im referring to his overall approach. Ive read and reread all of his bulletins numerous times, as well as his book. All are excellent. The chandelier exit using a multiple of ATR() is one example of a robust, widely applicable exit technique. I also like his method of taking profits (or partial profits) at an extreme ATR() move in a positive direction. When you say "adaptive" do you refer to a human or a formulae quality? Formulae. In my systems, Im counting on the human behaviour to remain consistent and predictable (i.e. when the S&P breaks a pivot to the upside, traders sell the rally, and the market pulls back before it continues upward.)
>Just some somewhat random ideas to go with your thoughts....
Thanks so much for your feedback, Herman.
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