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1. There has been occasional discussion on performance metrics on this board
- search and you will find. If you want to get serious about metrics you
have to export results out of MetaStock (or better, TradeSim) and run your
own statistics in Excel.
2. "If you know the market is going into a trending phase, switch over to
your trending system, if you know volatility is picking up, stop using your
trending system e.g." we've been hearing a lot of this recently. Use your
trending model when the market is trending, use your sideways model when it
isn't, etc. Which begs the question, how do you decide what kind of market
you are in in a timely and consistent fashion? Even the 100% trend followers
reckon they only catch around 1/3 of the trend, and that's with models that
are only trying to play trends i.e. that catch every one. If you go back
and just test your models against periods of time when you know in
retrospect that there was a trend, of course they're going to look good. But
it's hindsight. And its unverifiable.
The latest TASC has an article on trading pullbacks that does the same
thing. Writes a trend-following system and tests it against past periods
where trends were identifiable by trendline breaks. Great in retrospect, but
unverifiable (unless you can exactly describe your trendline criteria in a
way that MS can understand). It may be a great system, but its not back
testable as described.
I can understand running several models at the same time so that something
is always working, which should give you low-risk results. But I understand
we're being told we should be able to identify trading environments early
enough to switch models entirely.
So I confess to being curious. What kind of trend filters are you guys using
that are backtestable, verifiable and timely, and enable you to profitably
switch between models? Heck, if I knew when the market was starting and
ending a trend, I wouldn't need a model, I'd just go 100% leveraged in the
trend direction.
OK, I'm salivating now. Someone put me out of my misery. (And just to do a
little filtering of responses, I've done quite a bit of backtesting on very
large stock portfolios in TradeSim on some of the traditional trend filters,
ADX, MA combos, Aroon, etc. over long time periods and didn't identify
results much different from random - so I mostly focus on exit technologies,
as they seem to have a little more impact)
Andrew
-----Original Message-----
From: MG Ferreira [mailto:quant@xxxxxxxxxxxxxxxx]
Sent: Monday, April 11, 2005 2:19 AM
To: equismetastock@xxxxxxxxxxxxxxx
Subject: [EquisMetaStock Group] Re: Systems Testing Report metrics - your
opinion please
Hi there,
We optimise and test many, many systems on a variety of markets.
Currencies, commodities, stocks - you name it, we test it. What we have
found to work in practise contains some elements of the following:
- There is no universal system working in all markets. A good system will
have some 'universal' attributes and there is a lot of 'spill over' from one
market into another, but a mechanical system must be built for a given
market and kept up to date vigorously for this market.
- Even for a single market, try and use a lot of systems. You have to make
the final choise but if you have a large playing field it helps. If you
know the market is going into a trending phase, switch over to your trending
system, if you know volatility is picking up, stop using your trending
system e.g.
- Even though there is emotion in it, try to add your own 'gutt feel' to the
decision making process. We often use discression to give more or less
weight to a given system based on our own, subjective reading of the
fundamentals.
- If you require a completely automated system, things will get complex and
you have to prepare for this. We have built such systems, but to take a
human out of it completely adds many things that otherwise are taken care of
easily. Scaling in and out, sometimes ignoring the model until an event
works through the system, roll-over and expiry of contracts - humans can do
these things much easier than computers.
In terms of your question specifically. I haven't read any of those books,
but we use a variety of metrics. We look at overall profit, we look at
profit in a hold-out period (you should use hold-out periods to properly
test a system), we adjust profits in all sorts of ways and finally, pretty
much in line with the above, we make up a metric by weighing a number of
these metrics. I think we have eight metrics, which we combine in a single,
ninth metric and this is what we then use as our metric to pick systems.
But sometimes, for a specific task (such as least risky or most active) we
may switch to one of the individual metrics.
We also don't use MS anymore to test systems. MS has many limitations and
we developed our own system tester a long time ago to overcome these and
have been much happier ever since. MS is good for exploration, testing of
concepts, prototyping and so on, but it has its limits as well.
Regards
MG Ferreira
TsaTsa EOD Programmer and trading model builder http://www.ferra4models.com
http://fun.ferra4models.com
--- In equismetastock@xxxxxxxxxxxxxxx, superfragalist <no_reply@xxxx>
wrote:
>
> I've read the Stridsman's and Conway's books and basically there isn't
> any system in them that an individual can apply and make much from. I
> liked the books. Stridsman tells you a lot about what won't work. And
> my own test results confirm his.
>
> Stridsman's systems are very hard to program in MS. However, I've
> tested a few to them and frankly there are easier and higher
> probability ways to trade. Stridsman methods do find some good trades,
> but not too many and not too often.
>
> Roy has a very good discussion of mechanical systems and systems where
> you actually have to make a decision.
>
> There a few simple methods of trading that will make most individuals
> far more money than a mechanical system.
>
> However, if you have time, money and programming ability you might be
> able to come up with a half decent mechanical system. I've tested
> something over 500 of them and so far nothing comes close to the
> trading methods I use.
>
> I've found that mechanical systems work better for hedge funds and
> funds where there is a large amount of money under management and they
> have to trade multiple markets to deploy it. In those cases they have
> the money and time to handle the huge drawdowns of a mechancial
> system. They're executing based on many mechanical systems at the same
> time, when the system starts producing poor results they can discard
> it and try something else, and their trades are carried out by
computer.
>
> Active Trader Magazine tests hundreds of so called mechanical systems.
> I've taken the best one's they've come up with and tested them on a
> larger market sample than they use. The S&P 500. All of their systems
> looked bad when tested on a larger market segment. Even their good
> systems had huge drawdowns.
>
> If you don't have the emotional ability to look at a chart and buy the
> stocks based on your judgement, you won't be able to stomach the
> drawdowns of most mechanical systems.
>
> Future's Truth magazine has tested and tracked the performance of many
> mechanical systems over the years. While they've found a few that work
> reasonably well, most of the time, when an individual starts using
> them, they second guess the system and the actual live trading results
> are far worse than the tests.
>
> There are a lot of people on here that will disagree with me, and
> that's fine. If they want to use a mechanical system and they're happy
> with the results, get them to give you their system, and you can both
> trade it. I've just never found one that I thought was worth much.
>
> You have to remember if there was a mechanical system making any
> serious money a whole lot of people would be using it. Think about all
> the smart guys with unlimited amounts of computer time and money who
> have been chasing just such a thing.
>
> The simple trading methods outlined in Roy's newsletter work better
> for me than all of the systems I've tested to this point. However, I
> have an open mind and as soon as something comes along that beats what
> I'm doing now, I'm on it.
>
> www.metastocktips.co.nz
>
> All the newbie's think they're going to discover some great new
> system, or copy some guru's crap and the money is going to roll in.
>
> Let me know when that happens.
>
>
>
>
>
> --- In equismetastock@xxxxxxxxxxxxxxx, "Todd" <todd@xxxx> wrote:
> >
> >
> > Has any one read Conway's Professional Stock Trading or s
> > Stridsman's
> > Trading Systems That Work?
> >
> > I also have a question about the value of some of the metrics in the
> > Systems Testing reports. Which do you find most valuable? I believe
> > that some probably should not be used at all as they are
> > either "meaningless" or could be misleading. Of course, I may not
> > understand them so that could be a problem, but after reading a few
> > papers on trading systems metrics, this is what I have concluded.
> >
> > What metrics do you use in addition to those on the reports?
> >
> > Thanks!
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