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Title: Message
dear
mg,
would
you also reply the same questions that you asked?
personally, i believe that these questions being 100% dependent on the
style of your trading -the answers would not fit any average trader- it is also
as dependent on the market you are trading. i doubt the technical knowledge of
anyone trying the very same indicator to any two markets without changing the
parameters.
by
these questions are you trying to analyze "a" winner's trading style, or just
looking for a point to critisize a "winner's" style?
anyways, both lacks a point i believe..
torque
Hi
superfragalist,
I am still working through this, chewing on the many
interesting bits
and pieces in here. Some things I don't agree with,
some I would
change but for the most part, this is very informative, very
good and
well worth applying in trading. The one thing I would want
to
recommend is that you be less biased towards long and equally prone
to
keeping short positions! With that out of the way, I most of
all
appreciate the fact, pointed out here, that this is what you do for
a
living! Now, really as a matter of interest, but also to get
some
practical guidance, could you please ellaborate on the following
points:
- Do you think markets have become easier or more difficult to
trade?
Given the 'online', real time environment we operate in coupled
with
powerful software such as Metastock, trading should be easier.
But is
this offset by an increase in volatility? Or
whatever?
- How much time do you spend analysing the markets. Is
it a 24/7
thing, two hours a week, one day a month? Do you spend more
time when
you make/loose money, in up- or downtrends or at say month
end.
- How long do you keep a position? Of course, 'it depends',
but I
once talked to a trader, I guess in a similar situation as you,
who
would be very uncomfortable to keep something for more than say two
or
three days. He knew this and easily shared it. So if you
have
something there, let us know.
Thanks a lot for your
inputs.
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:
> Good afternoon, MG. Your questions are
interesting ones as usual.
>
> Because of your major
contributions to the forum, your background and
> your experience, I
would like to respond to all of your questions with
> a reasonable
amount of detail, which would probably provide more
> energy for further
discussions that might benefit others as well as
> ourselves. However, I
am somewhat limited in my detail as a result of
> having to respect
Roy's newsletter and the people who pay a very
> modest fee to
subscribe.
>
> I agree that subjectivity in a trading system is
a tricky subject.
> I've always believed that a mechanical system is
highly unlikely to be
> traded as a strict mechanical system when that
system is in the hands
> of an individual. It's very difficult to remove
judgement or emotion
> from someone who is not only executing the system
but tracking it's
> performance with their personal funds. Anyone who
has the iron will
> and stomach to stick strictly to a mechanical system
as the drawdowns
> grow, is someone who has the discipline to trade
without such a
> system. I think various research projects by Future's
Truth Magazine
> has shown this to probably be true.
>
>
On the other hand, mechanical systems make sense for money managers
>
with larger amounts of capital and staff resources. The corporate
>
structure is usually diversified, disciplined and monitored
>
sufficiently to get the best from a mechanical system.
>
> For
me, I feel the human mind is the fastest, most flexible CPU there
> is
and I don't want to remove it from my decision making even though
>
sometimes the human CPU can be significantly disrupted by all kinds of
>
events. Unfortunately, I don't see Kalman filters as an indicator of
>
how much I should train my neural nets. Everyone in my family thinks
>
they're in charge of that task.
>
> In my trading, I look for
four kinds of markets: uptrends, downtrends,
> consolidation with
leadership in tact and consolidation with rotation.
> Consolidation
includes sideways markets, normal pullbacks and various
> other
gyrations that aren't trends.
>
> Regardless of the market
conditions, I use the same methods for
> finding my prossible trades.
Mine is a combination of TA, quants and
> fundementals along with a pure
TA exploration that is very effective.
> I don't vary that technique
because I haven't found a method that
> produces a better pool of
candidates.
>
> The size of the pool of candidates changes as
market conditions
> change. In an uptrend, I'll find 50 to 100 trades
that look
> reasonable. I have a set of chart rules that I use to
evaluate which
> of those candidates I'm willing to take a risk on. My
chart rules
> don't change according to market conditions, either.
>
> In a consolidating market with leadership in tact, the pool
of
> candidates might shrink to less than half as many as when the
uptrend
> is clearly visable. Obviously downtrends stop my long trading
and I go
> short. Markets consolidating with rotation, or alternatively
that are
> directionless, calls for no trading, or very, very short
holding
periods.
>
> How much subjectivity is there in the
chart rules? I would say that
> there is little flexibility and
subjectivity in creating the pool of
> candidats, but somewhere in the
area of 40% in the evaluation of a
> chart as to which of those possible
trades to take.
>
> I've used systems testing to create the part
of my system that selects
> stocks for inclusion in the pool. I've
tested that system in all four
> market conditions and I know the trade
statistics that are likely to
> occur in each case. I've developed a
method for figuring out which
> market condition exists, and I have a
pretty good idea of what to
> expect from the pool based on how I see
the market at that moment.
>
> However, when the 40% (plus or
minus of course) subjectivity comes
> into the final selection of which
stocks to buy, then the systems
> tests are of little value. I've
figured out those trading statistics
> by analyzing the final trading
results. This gives me feedback on how
> my chart reading rules are
working.
>
> I have a standard chart template I use to look at
stocks. I only use a
> couple of indicators to confirm what I think I'm
seeing. While I don't
> use the indicators as a reason to buy, I
sometimes use them as a
> reason not to buy. I'm mostly looking at price
volume action, with the
> indicators as a back stop in case I'm reading
that wrong.
>
> In addition, to the total number of stocks that
look like good trades
> changing according to market conditions, my
rules for size, exits and
> stops change also.
>
> If the
market is in an uptrend like it was in Nov and Dec of 2005, I
> use
longer MA's, loser stops and less rigorous exits. In January I
>
tightened the stops and exits and shortened the MAs. In April I didn't
>
trade. My holding periods change accordingly as you would expect.
>
> I'm mostly a long only trader. I do short the indexes when I see
a
> downtrend, but I'm even more conservative in my shorting.
With
> commissions so low and execution times so high, there's
little
> economic reason not to be conservative when it so cheap to buy
back in
> if you're stopped out too early. It takes some degree of
discipline to
> go back to a trade after being stopped out, but my
number one rule is
> don't lose money.
>
> I have to live
strictly off of the returns on my capital account so
> preservation of
my capital account is a rule with zero subjectivity.
>
> A lot
of people want to automate the chart reading criteria that I use
> to
narrow my lists of trades among the choices I have. I don't think
> that
works very well because the subjective evaluation is necessary to
>
respond to different market conditions and to consider all of the
>
variables and their constraints.
>
> If you read Roy's
newsletter you will see how Pareto's principle and
> my education in the
mathematics of operations research has shapped
> what I do. I have an
explanation in there about why I don't believe
> maximization or
minimization despite the high usage of these
> principles in
econometrics and production management. (Even an
> excellent, expert,
programmer such as yourself would find some
> interesting and new things
in there. I do and have increased my code
> library a lot because of it.
You would even get a few new systems
> develop ideas out of it.)
>
> I don't optimize much using the systems tester. As I said in
my other
> post I optimize mostly to evaluate robustness. I use the
systems
> tester as a relative comparison and to figure out how much the
trading
> statistics change from one market condition to another.
>
> When I do optimize I optimize the sytem to perform the best
in
> uptrends, and then I add rules to restrict it's ability to trade
in
> other market conditions.
>
> I do not feel that
optimizing or testing across a wide range of market
> conditions as a
means of optimization is a good idea. I do test across
> several years
to look at overall systems performance, but I also test
> year by year
to correlate the performance with the market conditions.
> I also test
on various subsets of the universe of stocks. I use in
> sample and out
of sample data, especially when I want to evaluate the
> performance of
the system in a particular market type, or to determine
> the
effectiveness of my filters at preventing trading when the trading
>
statistics for that market condition are below my acceptable
thresholds.
>
> I see trading as more about strategy than about indicators
so I don't
> waste a lot of time with indicators. Trading to me is the
management
> of probabilities. Unfortunately the mathematics of
probability is one
> of the hardest math techniques for people to
understand. Too many
> people assume they understand probability because
they can get a feel
> for a one in ten chance or 40% losers and 60%
winners. To me, that's
> not probability, it's performance statistics.
>
> As you know, probability is understanding independent events
and
> dependent events and how to determine the possibility of
different
> combinations occuring.
>
> Well, this is a
long post so I won't go into any more detail. The
> detail and code is
in Roy's newsletter, but I hope that this much of a
> discussion has at
least been worth the time it takes to read it.
>
> This stuff
works for me. Obviously there are thousands of ways to
> trade. I've
looked at as many of them as I could, and what I do is the
> best fit
for me, and it produces great results on my scale of results
>
measurements. My three primary requirements are: don't lose money,
>
consistency is more important than big numbers, and make enough to pay
>
the bills and increase my capital account to offset inflation and any
>
slips in rule number one.
>
> Thanks again for your
contributions. While a lot of them are way over
> my head, I'm sure many
people appreciate the time and effort it takes
> to post
them.
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