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Well, at least the conversation is getting more interesting. All the
tests done on both VLE and BB SPY systems were done on daily data.
VlE should be traded on an intraday basis.
As was pointed out, the VLE system could be curve fitted but then the
variables and the rules would have been changed to fit the historical
data. Yes the 4% could have been optimized to make it 4.3% or
whatever, but it wasn't. The 20 dma could have been optimized and
maybe the optimized moving average for the 10 year period would have
been 36. The moving average was tested at 20 and the results accepted
not optimized. The system only has one trading rule--entry and exit
on the first signal from either indicator. The rule was not picked,
changed or added to match the historical data. It was set before the
testing and not changed.
Now, what about Zweig optimizing it? Perhaps he did, but it's been 20
years since he did it, and he was using at least 10 years of
historical data for his tests. Here we are 20 years later (30 years
worth of data) and the parameter still holds and creates a profitable
trading system on data forward of his test data. That is the true
mark of the quality of a trading system. It endures through a variety
of market conditions. In this case, 30 years worth.
While it is true the index was changed by valueline and a moving
average was added to the Zweig system, those are not curve fitting
strategies.
The VLE was not traditionally used for trading the SPY because the
SPY was available then. It was developed and used as a market trend
forecasting tool and risk reduction technique. And it's still used
for that.
The BB system was optimized for the SPY. It fails to work well across
a broad spectrum of stocks. The input parameters are non-standard as
defined by Bollinger.
It doesn't matter that the system is curve fitted. Curve fitting is
not a negative term. The degree of curve fitting simply defines the
probability that the system will work in the future on a new set of
data. The more it was curve fitted to historical data, the less
likely it is to work on future data.
The BB system has rudimentary but not overly optimized curve fitting.
The performance was reasonable and it did not deteriorate
substantially when tested on out of sample data using a walk-forward
method. One issue is I didn't re-optimize it on the first 10 years of
data because I didn't want to spend the time doing that. Ideally that
should have been done before performing the out of sample tests.
Do I think it's a good trading system. I think it's a reasonable
trading approach to the SPY on a short term basis. Every six months I
would repeat the data testing to see if it's still working at the
same level. Do I think it's performance will last 30 years like the
Zweig 4% system has--no, the optimization parameters will change.
Some people think it is okay to re-optimize periodically and some
systems developers say that is bad for business. I don't know.
Am I happy it was posted. Yes, I was. Basically, I think this site
should be about learning. However, it's mostly about answering
questions for people who don't want to take the time to learn how to
do things for themselves. Some questions are so basic, if they had
opened the manual the answers would have fallen out without even
flipping through the pages. Talk about lazy and unwilling to use even
one brain cell.
Hardly anyone shares anything on here of substance, and when they do
they're often greeted by boo birds who don't want to use the
opportunity to either teach people what's going on, or share ideas to
improve things. My making money doesn't stop you from making money.
If you use the VLE system for trading, how is that going to impact my
ability to trade with it. I don't post all of my work, but I post
some interesting things I run across.
Discussion where no one feels the need to be absolutely right works
better than criticism with nothing but negative input and arguing.
While I agree with Metastockuser, that you shouldn't trade a system
you don't understand, I disagree that the only way to get
understanding is from personally backtesting everything. When you're
looking at highly researched and scrutinized systems like the VLE,
backtesting is merely reinventing the wheel. I think a better
approach is to eyeball two to five years worth of data and see if you
can trade the system, and see if the P/L outcome matches the test
results reasonably well.
Metastockuser wanted to use TradeSim for the backtesting. Of course
the results will be different in TradeSim because all backtest
programs use a different backtest algorithm. Backtest results are
only relative results that can be comapared to each other and not
against tests run on different platforms. Backtest results have
nothing to do with the actual trading profits someone is likely to
achieve because backtest results are not done in a real trading
environment which is flexible and subject to human discretion and
emotion. Backtesting is about probability. The better the backtest
results, the higher the probability the system will work
profitability. But the probability never gets close to 100% so
there's still plenty of room for failure.
Oh, Metastockuser said in one of his posts he had developed his own
SPY trading system. Well, let's see it so we can test it and find out
how it stacks up. If he posts his system maybe somebody will give him
the MS code to backtest the VLE. You got to give to get. I think
that's something a lot of people on this site forget. They want code,
answers to problems, free stuff and yet they never post a nickels
worth of value themselves.
Anyway I appreciate Personal's posting. Please remember nothing I've
said in here is personal!
Okay, I'm sorry. Alright.
I would also like to thank myself for my postings since most of you
are too cheap with appreciation to do it for me.
And a hardy thanks to Roy, who does more than most of you know.
JO
--- In equismetastock@xxxxxxxxxxxxxxx, "david castley" <drc1939@xxxx>
wrote:
> JO - isn't it an EOD system?
> ----- Original Message -----
> From: Joe J.
> To: equismetastock@xxxxxxxxxxxxxxx
> Sent: Tuesday, November 18, 2003 9:30 PM
> Subject: RE: [EquisMetaStock Group] Re: simple SPY trading system
using Bolinger Bands
>
>
> JO,
>
> Not to defend the poster of the BB system but as I see it, he has
some variables in his system and you have some in yours (in fact all
systems have rules - i.e., variables). Just because you decided not
to change the 4% (why not 2% or 5%? - remember too that Ziewg
probably optimized the 4% number to begin with) or the 20dma, doesn't
mean that your system is better/worse on its face than the BB
system.
>
> That being said, you make some good points about testing the
robustness of the system. I ran this on the five minute SPY bars
from 11-3 to 11-17 (857 bars) in a points only test and it made a
woeful .38 points on 69 trades. The win percentage was almost 61%.
>
> In looking at it, one would have a hard time trading this system
because you are shorting while the market can be screaming up (and
vice-versa) and you have no means of a stop to get you out - you have
to wait for a reversal. Thus, I don't disagree with your conclusion
with regard to this system.
>
> Good Trading,
>
> Joe J.
>
>
>
> -----Original Message-----
> From: manohohman [mailto:no_reply@xxxxxxxxxxxxxxx]
> Sent: Tuesday, November 18, 2003 1:48 PM
> To: equismetastock@xxxxxxxxxxxxxxx
> Subject: [EquisMetaStock Group] Re: simple SPY trading system
using Bolinger Bands
>
>
> This is an interesting systems as opposed to the 4% VLE system
that I
> posted.
>
> This system has the potential to be curve fitted. Curve fitting
is
> simply changing variables in the expert equations, or adding
trading
> rules to a trading system to the point where the system is
tuned only
> for the historical data it is being tested on.
>
> In this system you have two variables which impact the outcome.
You
> have the BB periods and BB std devs. Both of which can be
tweaked for
> one security over a specified range of historical data. BB
systems
> are easily over optimized.
>
> In the 4% VlE system you have the VLE which can't be
manipulated. You
> have the 4% rule which can't be changed and you have a 20 dma
which
> is very common. The trading rules are take whichever signal
comes
> first. So there's only one trading rule. Once moving average,
which
> was not optimized (ie 20 not 22 or 36 or whatever) and you have
the
> 4% price differential which is fixed. That makes it really hard
to
> curve fit it. However, it is not robust in that it only trades
the
> price movement of the SPY, or the market as a whole, as it was
> intended.
>
> The BB system is not robust either in that it is only applied
to the
> SPY. If it were applied to other markets, it would likely
produce
> much lower results. (Actually I did test it and it does produce
lower
> results as expected. Since it wasn't presented as a robust
trading
> system, I didn't bother sharing those results.)
>
> To test the degree of curve fit in the BB, I did a walk-forward
out-
> of-sample data test and in sample test. Walk-forward tests are
> difficult to do with MS because it does not have that as an
optional
> choice.
>
> Here are the results.
>
> Annual B&H Trades DrwDwn
> Ten Years 18.24% 5.84% 138/206 >0.003
>
> Seven Years 18.67% 10.42% 81/120 0.015
>
> OutSam
>
> Two Years 16.94% -3.62% 25/38 0.041
>
> One Year 31.20% -27.4% 14/18 0
>
> One Year 18.97% 27.98% 7/12 0.038
>
> Six Months 6.65% -6.68% 5/9 0.045
>
> Six Months 25.30% 23.00% 10/15 0.016
>
> You have to be careful how short your walk forward periods are
> because if they are too short, you'll chop off parts of the
drawdowns
> periods.
>
> In addition, in almost every year tested the lossing trades,
both
> average and highest, were worse than the winning trades.
However
> because winning trades out number losing trades the system is
> profitable.
>
> The TradeStation report on the 4% VLE system is different from
MS
> reports. It ended its tests in 2002. As I said I didn't run it,
but I
> have the results. The annual rate of return was 21.7% vs about
6% for
> the market. Tradestation doesn't give me the exact raito
between
> winners and losers but it looks like 140 or so out 207 were
good
> trades. In addition, the winning trades returned a much higher
> percentage of profit than losses.
>
> The 4% VLE system can't be curve fitted--at least by any
conventional
> means that I am aware of. I programmed it uniquely using a
highlight
> code which can't be used direclty in the systems tester. I am
> thinking about writing an expert for it and if I do, I will try
to
> put it in a form that can be tested in MS. The way I want to do
it is
> a little tricky because I am not coding for the SPY, I will be
coding
> for the VLE and then transfering the entry and exit points to
the
> SPY. How much fun can one guy have!
>
> Anyway, you can read the data and draw your own conclusions. If
you
> think that you need to do your own systems tests because you
feel
> more comfortable with whatever you think you're doing that
other
> people aren't, please do so, and then share the results.
Recognize
> that there probably won't be a way to reconcile the
differences,and I
> just can't help you with figuring out how to do your own tests.
If
> you don't know how to do these tests, the results probably
aren't
> going to be reliable anyway.
>
> I think the BB system paired with some other non-curve fit non-
> colliner indicators might work well for the SPY. That's my
opinion.
>
> JO
>
>
>
> --- In equismetastock@xxxxxxxxxxxxxxx, "personal592002"
> <personal592002@xxxx> wrote:
> > For your system backtesting enjoyment:
> >
> > Use 6 day Bollinger Bands +/-1.6 stadard deviations on end of
day
> > data on SPY. Buy at open when the closing price crosses
above the
> > lower Bolinger Band, sell when the closing price crosses
below the
> > upper Bollinger Band. Trade both long and short. Very simple
&
> back
> > tests great on the SPY. Ten year performance over 2X that of
buy
> and
> > hold, 207 trades in ten years 140 of which were profitable....
> >
> > Code -
> >
> > Buy & Buy to cover:
> >
> > Cross(CLOSE, BBandBot(CLOSE, 6, SIMPLE, 1.6))
> >
> > Sell & Sell Short:
> >
> > Cross(CLOSE, BBandTop(CLOSE, 6, SIMPLE, 1.6))
>
>
>
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