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There is a good article on applying monte carlo methods to backtesting in
Technical Analysis of Stocks and Commodities "Judging Validity of Results"
Page 22 March 2005. It might have some application here.
-----Original Message-----
From: sebastiandanconia [mailto:no_reply@xxxxxxxxxxxxxxx]
Sent: Friday, February 25, 2005 4:03 PM
To: equismetastock@xxxxxxxxxxxxxxx
Subject: [EquisMetaStock Group] Re: Early trend stages
I would second MG's remarks about testing. I do a lot of that myself
and you'd be tempted to just give up trading and put it all in mutual
funds if you knew how much stuff simply doesn't work when properly
tested. The primary culprit (and I'm assuming honest system
builders) seems to be too short a testing period. Unless you're
testing over at least a couple of full market cycles (I'm talking 8
years or more) you can't really know whether the method you're using
is genuinely valid.
A couple more ideas you might want to meditate on about trying to
catch those V- or inverse-V turns.
Maybe use an indicator unrelated to your preferred TA indicator (like
a fundamental factor in the specific market you're trading), and use
the two tools together. A true trend-following method is liable to
reach its highest level of strength at the very end of a trend,
giving you no warning of a reverse. An unrelated indicator based on
an important fundamental of the market you're trading might clue you
in to switch to a TA method with a quicker response time.
Also, if you're using a trend-following method, you're probably going
to have a hugely profitable trade just before the V-turn. You might
want to have a money-management rule to protect those windfall
profits so that you don't get killed when the market turns and your
lagging trend-follower is still telling you to do nothing.
Just food for thought.
Luck,
Sebastian
--- In equismetastock@xxxxxxxxxxxxxxx, Philip Schmitz <pschmi02@xxxx>
wrote:
>
> What a showing! MG, Kevin, Whit, Steve and Sebastian, thank you
very much
> for posting your thoughts. I've printed them out so that I can take
a very
> close look. The opinions of others are invaluable when it comes to
putting
> issues like this into perspective.
>
> Part of the problem may be that I've been looking at the weekly
chart for
> directional signals. That could be heightening my sense of lag and
> unfortunately also my impatience.
>
> Note to Steve: As far as the following is concerned . . .
ahem . . . "A
> real thing of beauty: very smooth, but sensitive to significant
> directional changes" . . . I think we better talk about that one
over the
> phone. (huge grin!)
>
> Best regards and thanks again,
>
> Philip
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