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[EquisMetaStock Group] Re: Theta model



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I just got finished testing 12 years of Nasdaq and SP500 Index data 
and 10 years of SP600 Small-Cap Index data (long only) using the 
Theta model supplied.  The result for all three indices was a 
dramatic underperformance of a straight buy-and-hold strategy.  In 
fact, T-bills would have outperformed.

JMO, but I think that the use of formulas in trading/investing is 
widely misunderstood and misused.  First, you need to come up with a 
recurring market behavior and you have to understand why the market 
behaves that way.  Then, you use a mathematical formula to TRANSLATE 
what you've observed into language a computer can understand so that 
you can test your idea and see if it is worth anything.

Simply applying an arbitrary formula to market data as if it was all 
randomly generated and with normal distribution isn't logical, 
because the markets aren't random:  They're the results of repetitive 
group behavior.


Luck,

Sebastian

--- In equismetastock@xxxxxxxxxxxxxxx, "Andrew Tomlinson" 
<andrew_tomlinson@xxxx> wrote:
> 
> Let's keep this within the bounds of polite debate.  MG, I've tried 
a couple
> of backtesting runs with this on the S&P and on baskets of stocks, 
over 5,10
> and 15 year periods, and show losses consistently. Perhaps you 
could give us
> an example of the operation of the system in practice and the 
securities
> that it can be used on, so we can verify? It doesn't have to be 
your most
> tuned, proprietary version, but enough to demonstrate that there is 
some
> verifiable substance here. 
> 
> Andrew
> 
> -----Original Message-----
> From: Jose [mailto:josesilva22@x...] 
> Sent: Tuesday, March 01, 2005 9:04 AM
> To: equismetastock@xxxxxxxxxxxxxxx
> Subject: [EquisMetaStock Group] Re: Theta model
> 
> 
> 
> 
> 
> > Well, we have a couple of clients putting millions of real ZAR 
into 
> > this simple model, in real trades, making real money....
> 
> RG, I hope you are on a commission basis with them.  ;)
> You should be doing quite nicely by the sound of things.
> 
> 
> > Many central banks nowadays utilise a suite of models rather than 
just 
> > a single model as they did just a couple of years ago.
> 
> I'm really curious now... which central banks are these, which 
trading 
> models do they utilize, how do they apply them, and how do you know 
> about them?
> 
> 
> > One where the exponential decay weight is optimised for.
>  
> I'm stiil curious as to how you optimize your EMA.
> 
> BTW, you keep mentioning "we" & "us".  Are you part of a large 
> development team?  I envisage a team of modeling scientists & 
> mathematicians, all in their white starched apparels, pouring over 
> countless model backtests on "extensive databases".
> 
> 
> jose '-)
> 
> 
> --- In equismetastock@xxxxxxxxxxxxxxx, "MG Ferreira" <quant@xxxx> 
> wrote:
> > 
> > 
> > Well, we have a couple of clients putting millions of real ZAR 
into 
> > this simple model, in real trades, making real money....
> > 
> > OK, in all honesty, this model is part of a huge array of models 
that 
> > we use, for real clients, trading real money etc etc, but it is a 
> > significant part of that array of models.
> > 
> > Apologies for the theory, but a lot of recent research has made 
it 
> > clear that one should use a suite of models, not just one.  We 
have 
> > devised all sorts of pratical ways to, in a theoretically sound 
> > manner, combine the results of many different models into 
something 
> > that leads to sound decision making in the real world, but does 
not 
> > shy away from the theory or the intricate implementation required 
to 
> > make it work in practise.
> > 
> > But don't just look at us....  Many central banks nowadays 
utilise a 
> > suite of models rather than just a single model as they did just 
a 
> > couple of years ago.  A lot of the jargon comes from central 
banks' 
> > modelling teams.  The theoretical and practical reasons for this 
are 
> > many.  Some models work better in the short term, some in the 
long 
> > term, some are better for cyclical markets, some for trends.  
Some 
> > give you target levels, some models provide extreme values.  The 
theta 
> > model that I am sharing with this group is an amazingly simple 
model 
> > that proved itself (don't believe me, read the article) in a 
variety 
> > of applications and for a variety of time series.
> > 
> > I think it has relevance to the real world of trading and was 
> > requested by members of this real world group to provide code for 
it.
> > This I did, for your viewing pleasure and perusal - a right, 
which I
> > note, you are exercising to the full.
> > 
> > Regards
> > MG Ferreira
> > TsaTsa EOD Programmer and trading model builder 
> > http://tsatsaeod.ferra4models.com http://www.ferra4models.com
> > 
> > 
> > --- In equismetastock@xxxxxxxxxxxxxxx, "Jose" <josesilva22@xxxx>
> wrote:
> > 
> > MG,
> > 
> >> One where the exponential decay weight is optimised for.
> > 
> > Optimized to what, equity curve, market cycles?  Curve fitting, 
maybe?
> > 
> > 
> >> Of course it works.  In a scientific study, referred to before,
> > 
> > The real question is, does it work in the *real world*, with *real
> > trades*, using *real $*.  Or is it just another paper 
study/theory, 
> > dressed in quant jargon, with little or no relevance to the real
> > world of trading?
> > 
> > 
> > jose '-)
> 
> 
> 
> 
> 
> 
> 
> 
>  
> Yahoo! Groups Links








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