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I don't trade the forex markets so what my answer is based on stocks.
I suggested previously that most people should have a different
trading strategy for the different types of market conditions that
exist--up trends and down trends in particular.
For people who use systems, I suggested they test the system
performance against the type of market is intended to trade. In other
words, you test a long only system during up trends and not include
down trend periods in the tests.
There are several moving averages you can use to figure out if you are
in an up trend or down trend. The 10 and 40 SMA's are popular on
weekly charts and the 4, 9, 18 EMAs are popular on daily charts.
If you're expecting to find a single system that works well in up
trends and down trends, you're going to be looking for a long time
without much success.
If you want to find stocks for long positions in a down trend market,
you are talking about directional out performance which is hard to
achieve with ordinary systems. It can be done, but it has to done in a
completely different way than picking stocks in an up trend.
As far as moving averages go, there is no question that different
moving average periods work better under different market conditions.
I use Kaufman's AMA which is adaptive. I stay with it under all market
conditions but I change the other tools I put with it. In addition, I
change my exit strategy to fit the market bias at the time. I also use
a different method for finding stocks based on what the market is
doing at the time. For example, looking for upward momentum stocks in
a down trend is a waste of time.
There are NO universal indiactors of any type that work well with all
stocks, or in all markets or in all market conditions. There is no
such thing as the BEST indicator. Newbie's ask that question.
I don't have different systems as much as I have different strategies.
Roy's newsletter next month is going to have an excellent article on
trading the SPY and QQQQ, which in addition to having some unique
indicators for the SPY and QQQQ, also explains in detail how to
determine the market bias in ways most people have not heard or seen.
And the methods create charts that are easy to read.
As far as system testing goes, I test my systems during periods of
time when the market conditions the system is designed to perform in
exist. I use in sample and out of sample data generated under my
desired situation.
The market conditions should dictate indicator type, exit strategy,
money management, and methods for finding stocks. If someone is
uncomfortable with switching strategies, indicators or trading rules,
they should stay out of the particular market conditions they are not
comfortable with.
I often trade 60 min charts. 50,000 bars of sixty minute data is way
too many bars for finding a system that will work the way you want it to.
Let's say during your tests you determine that a 20/50 moving average
crossover shows the best overall results. The problem is it might work
the best over the 30 plus years of data you're testing, but it's also
going to have long periods of time when it doesn't work.
Since you've tested nearly 40 years of data, the system could have
negative periods of performance ( drawdowns) that last as long as five
or ten years. Are you going to trade a system that mskes above average
returns for 10 years and then performs below average for the next ten.
What ten year period are you in now. You'll be happy if you're in the
above average performance time frame and pretty sad if you start using
the system during the ten years of it's under performance.
My suggestion is to figure out what kind of period you are in now,
test your systems on historical data that are very similar to this
period, trade with it until the conditions change, identify the change
and switch the strategy to fit the new conditions.
--- In equismetastock@xxxxxxxxxxxxxxx, "dr.torque" <drtorque@xxxx> wrote:
> superfraga,
> i have a question to you..
> i remember that you suggested using different periodization for
different
> trends.
>
> i have another arguement. different periodization for different periods.
> what does this mean. say in 1980-90 it was better to use moving
average-MA34
> and 55, then in 1992-1998 ma13-ma22...
>
> why am i asking this wuestion. i have tested my system in the MS
tester with
> 60-min data euro-dollar only. thats where i am trading. for the last
50,000
> bars it was not very succesful. but for the last 10,000 bars it is
really
> giving good results for some specific periodization of the system.
>
> i know that it is something different than you trend hypothesis, but
what
> would you think about it?
>
> ps.a counter arguement to me would be by mid 2003 euro is in an uptrend,
> although there were a couple of 2-3month realizations. this would again
> enhance your hypothesis and I would beaccidentally prove that once
again.
>
> thanks,
> dr torque
>
> -----Original Message-----
> From: superfragalist [mailto:no_reply@xxxxxxxxxxxxxxx]
> Sent: Wednesday, March 23, 2005 5:42 PM
> To: equismetastock@xxxxxxxxxxxxxxx
> Subject: [EquisMetaStock Group] Re: Computers Spec's
>
>
>
>
> It really doesn't matter what kind of computer you use as long as it
> has a P4 with at least 500 megs of RAM. If you can afford 2 gigs of
> ram, you can set up MS to run on a ram disk and you'll see a huge
> speed improvement.
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