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Hi
Richard,
<FONT face=Arial color=#0000ff
size=2>
Thanks
for taking the time for a detailed response. A friend of mine does exactly
what you have. They have a mode and the model is traded only on stocks
where performance (based on Sharpe ratio's) over the past 2 years makes the
grade. Sound fine in theory, but in reality it failed to generate returns
to the level expected, gradually deteriorating over time. Once gain this is
still optimisation. Perhaps not of the model per se, but optimisation in
the portfolio sense, which ultimately is part of the modelling process. As
you say, you could have used 1 year...so picking 2 years means you have the
ability to optimise, whether you choose to or not. Whatever time frame you pick,
it presupposes that the conditions which you seek will continue to operate into
the future. Winners begets winners etc. That is still very much an
open subject. The big upside form your approach is that is scales out
stocks that are doing poorly and could send you bankrupt. The downside is
that is often comes at a heavy price paid via insurance. The price you pay
for always being involved with markets that are showing money making
characteristics. Market are far more complex unfortunately. I've seen many
models or stocks alter their behaviour at the drop of a hat. Waiting 2 years is
several lifetimes in the market. And knowing that markets always go
from Trending to Consolidating back to Trending again means if you time the
Trending performance component perfectly, you will start trading a trending
model just as the stock goes into consolidation.
Off
topic...This is one of the great reasons why Elliott Wave Theory when used
properly is the most powerful tool available. If you have just had 3 trending
waves to the upside, you will know a high probability exists for a
consolidation, whereas every trending model on the market will be long or
looking to buy the dip.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>Regards,
<FONT face=Arial color=#0000ff
size=2>Adrian
<BLOCKQUOTE dir=ltr
>
<FONT
face=Tahoma size=2>-----Original Message-----From: Richard
[mailto:rhrobin@xxxxxxxx] Sent: Sunday, 1 August 2004 2:27
PMTo: Metastockusers@xxxxxxxxxxxxxxxSubject: RE: RE:
[Metastockusers] Re: Trading System Presentation
<FONT face=arial color=#0000ff
size=2>What do you mean by 'preform'? <FONT face=arial color=#ff0000
size=2>My Trading system uses a trading basket that is updated daily. In
order to qualify to be included, the stock must first perform with
trading system over a two year time frame. The trades are recorded,
then the systems check to see if the required preformance levels were made.
Once in the basket , the system checks to see if the condition are made for
the next days trading. The basket walks forward so only the last 2 years of
data is checked. This can be changed to a different time frame say 1 year,
The preformance requirements can be changed also. The system will adjust to
the stocks that make the basket if any variable are changed. The optimistion
of these variable will only change the number of stocks in the basket, It
does not change any of the condition. The system test 12500 differnt stock
and etf. If you have
'conditions' in your trading system, then that is optimisation.<FONT
face=arial color=#ff0000 size=2>As stated below it is the act of rendering
the optimal value, That does not make a condition the most optimal,
optimisation would be used to find the best variable fit, not the condition
itself. A 50SMA crossing 200SMA would be a condition the variable 50 and 200
can be optimized. But if the condition is not change to find the best fit
and the preformance of stocks under a set of conditions alert you of the
stocks that simply have preform the past. The selection of which
trades to take is not based on the system. As the system is a tool to find
stock that meet your requiremnents.
[n]
the act of rendering optimal; "the simultaneous optimization of growth and
profitability"; "in an optimization problem we seek values of the variables
that lead to an optimal value of the function that is to be optimized"; "to
promote the optimization and diversification of agricultural
products"
<FONT face=arial color=#0000ff
size=2>If you use timeframe as a variable then that is optimisation.
All variable can be, but
does not mean that they have been optimized.<FONT face=arial
color=#0000ff size=2>If you use past profit performance in some way then
this is definitely optimisation. Profit is not , I look for number of trades
made in a time frame,max Open DD,Win/loss Ratio/Win%,Price and Volume at the
time of the each trade. <FONT face=arial color=#0000ff
size=2>As previously stated no one on the planet can create a trading model
that does not involve optimisation. <FONT face=arial color=#ff0000
size=2>I would agree that here is alway some degree of optimistion in all
trading system, But not in scanning systems where the goal is to find when a
stock meets some conditions and show historical statistical. Most trading
will never stand against time, as most system are not market driven, they
are the results of historitcal market conditions. <FONT
face=arial color=#0000ff size=2>Is optimisation a bad thing? No...It
is a process used to discover how the markets works. A successful model
MUSTreplicate the market
characteristics or changing characteristics to be valid. <FONT
face=arial color=#ff0000 size=2>I Agree ! <FONT
face=arial color=#0000ff size=2>Most model designers use data mining.
To correctly use optimisation takes many years of experience in
readingand trading markets,
along with the ability to accurately convert that model into code.
Very few people have this capability.<FONT face=arial color=#ff0000
size=2> I agree! Richard
<FONT face=arial color=#0000ff
size=2>Regards,<FONT face=arial color=#0000ff
size=2>Adrian
-----Original Message-----
From: rhrobin@xxxxxxxx [<A href=""
eudora="autourl">mailto:rhrobin@xxxxxxxx]
Sent: Sunday, 1 August 2004 5:08 AM
To: Metastockusers@xxxxxxxxxxxxxxx
Subject: Re: RE: [Metastockusers] Re: Trading System
Presentation
Optimistion is to use the optimal value (Fitting) the MEANS of the
test is not optimistion, it is the true variable. You can build trading
systems without optimistion, Condition do not require variable and I have
a system that has no variable to over fit nor under fit because it is
preformance driven, if stock do not preform they are not traded. Time
frame can also be fitted but with my system the final output will be based
on total preformance under the conditions set.
>
> From: "Adrian Pitt" <apitt@xxxxxxxxxxxxx>
> Date: 2004/07/31 Sat AM 01:23:48 EDT
> To: <Metastockusers@xxxxxxxxxxxxxxx>
> Subject: RE: [Metastockusers] Re: Trading System Presentation
>
> So Jose,
>
> Going by your comments, you seem to define optimisation as the
process
> of introducing a variable where you have to select a number from
a range
> of numbers. Some people suggest that by using price patterns
instead
> that they aren't optimising, but we both know this to be wrong as
well.
> So my question is Jose, how do you go about designing a system
without
> using optimisation at one point or another? And just picking a
number
> for a variable and saying you didn't optimise it doesn't mean
that at
> all...it merely says you randomly chose a number and then stuck
your
> head in the sand hoping it would work. Your email says to
"identify a
> characteristic within the data".. How does one do that without
some
> level of data mining..i.e optimisation?
>
> Bottom line, regardless of what anyone on the planet thinks,
every
> single model and strategy has been optimised. And that
includes buy and
> hold. People have done endless research to show that buy
and hold 'has'
> been an effective strategy for the market as a whole. In other
words
> they optimised the strategy process, even though there are
basically
> ZERO variables. Ultimately to arrive at a model that in
some way
> accurately reflects how the markets work requires
optimisation..end of
> story, and no one can prove otherwise. There is a subtle
line though
> between optimising and data mining. Data mining is simply
the scanning
> of data for patterns, random of otherwise until you find
something that
> happens to do well. This is highly likely to be just a
random
> occurrence though unless you have some way of showing it not to
be
> random.
>
> So back to you Jose. IF you don't do any curve fitting or
optimisation,
> how do you go about designing a trading model and finding a
> characteristic 'within the data'?
>
> Regards,
> Adrian
>
> -----Original Message-----
> From: Jose [<A href=""
eudora="autourl">mailto:josesilva22@xxxxxxxxx]
> Sent: Saturday, 31 July 2004 3:28 AM
> To: Metastockusers@xxxxxxxxxxxxxxx
> Subject: [Metastockusers] Re: Trading System Presentation
>
>
>
> Having coded & backtested 000's of trading ideas for paying
clients
> over the last five years, these are my personal comments based on
my
> experience:
>
>
> "Identify a characteristic within the data."
> "Pick a trading time frame."
> "Test entry ideas."
>
> "After finding a good entry, test exits."
> "Add filters to improve the system performance."
> "Test money management rules."
> "Complete out-of-sample testing."
>
> Reasonably good system development ideas.
>
>
> "Optimize the entry signal across as many commodities as
possible."
>
> Curve-fitting.
>
>
> "He defines curve fitting as either the overuse of rules,
filters, or
> stops when developing a trading system on a sufficient amount of
past
> data;"
>
> Not so.
> One can curve-fit system results with just one simple set of
entry &
> exit rules, on any amount of past data.
>
> Curve-fitting is simply tailoring (mostly illogical) system rules
to
> fit past results. Often these rules manage to (mostly by
coincidence)
> capture one or two large price swings, enough to make a final
> difference to test results.
>
>
> "He is confident that if he can get enough trades then total
profit is
> the only meaningful statistic to prove that a system works."
>
> Pfff...
> Buy & Hold fits this description exactly, yet drawdowns and
lack of
> sufficient profit generated over time make this strategy totally
> unsuitable to most active traders with limited funds.
>
>
> Nevertheless, perhaps Mr Fitschen's presentation is worth
listening
> to. Has anyone been to any?
>
>
> jose '-)
> <A
href="">http://users.bigpond.com/prominex/pegasus.htm
>
>
>
>
> --- In Metastockusers@xxxxxxxxxxxxxxx, "luigilms_2000"
> <luigilms_2000@xxxx> wrote:
> > This is an announcement of a free presentation by Keith
Fitschen,
> > the developer of the Aberration Trading System, in regard to
> > developing trading systems and the pitfalls involved. I'm
confident
> > that they will learn valuable information in regard to
system
> > development. Below are the details:
> >
> > SATURDAY, AUGUST 7, 2004, FROM 10AM - 2PM, DOUBLETREE HOTEL
OHARE
> > AIRPORT, 5460 NORTH RIVER ROAD, ROSEMONT, IL. (847)-
292-9100
> >
> > SATURDAY, AUGUST 21, 2004, FROM 10AM - 2PM, HYATT SAN JOSE
AIRPORT
> > 1740 North First Street, San Jose, CA. 95112,(408)-
993-1234
> >
> > Important Seminar Information,(Note: All pre-registered
attendees
> > will receive a free trading system, $500 value,RSVP to
> > Leonard@xxxx or call 800-858-2340.
> >
> > Trading System Development Outline
> >
> > Keith Fitschen presents a detailed study on the theory of
system
> > development, an application of that theory in which he
designed a
> > profitable system, and an overview of his commercially
available
> > Aberration Trading System. Aberration is a multi-commodity
trading
> > system that was released in 1993. Futures Truth Magazine has
twice
> > named it "ONE OF THE TOP TEN TRADING SYSTEMS OF ALL TIME"
(1997 and
> > again in 2000). The speaker is sponsored by Angus Jackson,
Inc.,
> > (<A href=""
eudora="autourl">www.angusjackson.com), a futures and commodity
brokerage firm based
> > out of Fort Lauderdale since the mid-1980s. Angus Jackson
Inc.
> > specializes in executing various mechanical trading models
for its
> > clients.
> >
> >
> >
> > System development, as defined by Fitschen, is a process to
identify
> > a means of profitably exploiting noisy market data. Fitschen
> > summarized the process as a series of steps:
> >
> > . Identify a
characteristic within the data.
> >
> > . Pick a trading
time frame.
> >
> > . Test entry
ideas.
> >
> > . Optimize the
entry signal across as many commodities as
> > possible.
> >
> > . After finding a
good entry, test exits.
> >
> > . Add filters to
improve the system performance.
> >
> > . Test money
management rules.
> >
> > . Complete
out-of-sample testing.
> >
> >
> >
> > Curve fitting. The biggest pitfall to system development, in
his
> > opinion, is curvefitting, which over-optimizes past data to
generate
> > results that can't be achieved in real time trading. He
defines
> > curve fitting as either the overuse of rules, filters, or
stops when
> > developing a trading system on a sufficient amount of past
data; or
> > the proper application of rules, filters, or stops on an
> > insufficient amount of past data.
> >
> > Demonstration. Turning from theory to application, Fitschen
> > demonstrated the system development process. He followed the
steps
> > he had outlined earlier.
> >
> >
> >
> > Another Example. Donchian breakout entries are a well-known
> > commodities trading technique. This system buys on a close
higher
> > than the highest close in the look back period and sells on
a close
> > lower than the lowest close in the look back period.
> >
> >
> >
> > Performance Metrics. The most important measure of a system
to
> > Fitschen is total profitability. He is confident that if he
can get
> > enough trades then total profit is the only meaningful
statistic to
> > prove that a system works. He also likes to look at the
gain/pain
> > ratio, which he defines as the average annual gain divided
by the
> > average annual drawdown.
> >
> >
> >
> > Guidelines for Buying and Trading a Mechanical System.
> >
> >
> >
> > Overview of Aberration Trading System.
> >
> >
> >
> >
> >
> > Keith Fitschen has developed commodity systems for the last
20
> > years. He retired from the Air Force in 1988, and has
been trading
> > commodities since then. Aberration has been marketed since
1993.
> > Keith has also developed Aztec, a shorter-term commodity
system, and
> > Imaster, a short-term index system. Additional information
about his
> > work can be found at <A href=""
eudora="autourl">www.trade-system.com.
>
>
>
>
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