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My system is a drip buying system, and I have traded it for only 1 1/2
years. 20% DD4% in 2003 and 5% ytd 2004 draw down under 6%( not the best
market but OK). The system does best in up trending and consolidation
markets. The system has trouble in longer down trending marking. The
system was testing on 10 years of data and 35000 trades, yearly 3500
signals are generated. Then One must still select the trades that will be
traded. The system over 10yrs win 63%+ in up market as high as 73% on
3500 trades. The system is not the holy grail but offer a better starting
point. I have ran it through trade sim and the stats are very consistent
with real trading in returns,DD,slippage,performance level. My hope is
the filter out more stocks to bring down the trade count to about 200
yrly, and I'm working on what I think is the most important area of
trading Money Management.
Thank You for your Reply.
Richard
At 03:20 PM 8/1/2004 +1000, you wrote:
Hi
Richard,
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.
Regards,
Adrian
-----Original Message-----
From: Richard
[mailto:rhrobin@xxxxxxxx]
Sent: Sunday, 1 August 2004 2:27 PM
To: Metastockusers@xxxxxxxxxxxxxxx
Subject: RE: RE: [Metastockusers] Re: Trading System
Presentation
What do you mean by
'preform'? 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.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"
If you use timeframe as a
variable then that is optimisation.
All variable can
be, but does not mean that they have been optimized.
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.
As previously stated no one
on the planet can create a trading model that does not involve
optimisation. 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.
Is optimisation a bad
thing? No...It is a process used to discover how the markets works.
A successful model MUST
replicate the market
characteristics or changing characteristics to be valid.
I Agree !
Most model designers use
data mining. To correctly use optimisation takes many years of
experience in reading
and trading markets, along
with the ability to accurately convert that model into code. Very
few people have this
capability. I
agree!
Richard
Regards,
Adrian
-----Original Message-----
From: rhrobin@xxxxxxxx
[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
[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 '-)
>
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.,
> >
(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
www.trade-system.com.
>
>
>
>
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