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I haven't done your Freeburg research but from
experience I agree totally.
There is always uncertainty..and most of these guys
think you can 'find' the grail when dealing
with randomness most of the time. I don't know why
anyone thinks that fear and greed driven by emotion
can fit neatly into some mathematical
formula(s).
----- Original Message -----
Sent: Monday, September 05, 2005 8:58
PM
Subject: [EquisMetaStock Group] Trading
ain't gambling, is it?
Well, I guess we have somewhat different opinions MG.
I've got a pile of research that I'm going through right now
from
Nelson Freeburg. I think he would disagree with some of your
points.
He's done many thousands of tests over the last 13 years. He
has
trading systems that have traded only 9 or 10 times over 20 years
but
have beaten buy and hold by a few percentage points. Some of
those
systems have winning trade percentages as high as 80%. There's
nothing
academic about them.
A system making only 9 trades in 20
years says nothing about how long
a trade lasts. It says nothing about the
cost of margin, or the amount
of money someone can make. Some of Freeburg's
systems have benefited
from margin and some haven't.
He also has
several systems that have been backtested for periods of
20 to 50 years.
During that time, they showed consistent performance
but in the late 90's
the systems started to drop off sharply in
performance, and some failed
completely.
I'm not going to speculate on whether gambling is a sin,
but many
types of gambling such as poker have the elements of luck, skill
and
probabilities as their components. In the hands of a truly
skilled
player, which there are very few, the odds are on the side of
the
player. Based on my perspective, and not yours, trading is exactly
the
same thing. You have to be lucky, skilled and have probabilities
on
your side.
If you look at the top poker players over the last 20
years, none of
them made money consistently every year, but over the 20
years they
did very well. They also had some losing years and some big
winning
years.
Trading got popular when it was advertised and
talked about all over
television. Poker is now popular for the same
reasons. Every
once-in-a-while someone without truly good skills can get
lucky and
win big. That's why a lot of people take up trading who don't
have a
clue as to what it takes to be consistently good at it, and it's
the
same reason people start playing internet poker and then throw
down
$10,000 to play in a tournament. It's takes about $500,000 in
front
money to play most of the world poker tour. How many players make
more
than it cost them to play? How many traders make more than it
costs
them to play? The drop out rate is about the same.
I use some
of the same systems that Freeburg has been working with as
part of my
market conditions barometer, which improves my winning
percentages as I've
written about before. I'm hoping that some of the
improvements I've come up
with to these systems will increase the
returns that Freeburg has shown
over long periods of time. I don't
know yet. The couple that I have worked
on so far have had very good
test results.
In my trading I stay
keenly aware that on any day, I may not win. I've
educated myself to as
high a level as possible regarding the game I
play. I've tested and
retested everything I do so I know the
probabilities. I've practiced and
practiced and practiced many
thousands of times before stepping up to table
to play with real
money. Now I've played it live for several years, and I
know pretty
well what I can expect to earn. However, I also know that when
I'm
lucky, I make more money than when I'm not. I know the market
is
unpredictable and may not deal me the cards I need, even when
the
probabilities are 99 to 1.
Basically I make highly educated,
well thought out, good probability
guesses. Well, now I'm guessing that if
that's not gambling, it's
really really close.
--- In
equismetastock@xxxxxxxxxxxxxxx, mgf_za_1999 <no_reply@xxxx>
wrote:
> If your system trades 9 times in 20 years, either give the
money to
> some index manager, or put it in the bank. You are not
trading, you
> are buying and holding or investing. If you add any
conceivable
> gearing then either you will run out of margin, or pay
through your
> ears in carry over the 20 years with just 9
trades.
>
> Anyhow, 9 trades in 20 years sounds academic to me -
30 trades plus
> degrees of freedom sounds practical to me.
>
> I do use such long term, 9-trades-in-20-years systems to extract
the
> long term trend from a ticker. But I do not use that as a
trading
> decision - just as part of the input.
>
> Yes I
agree with you, trading is not investing. But I certainly don't
>
think trading is gambling. It is gambling if you don't know what
you
> are doing, probably with much worse odds than you'd get in a
gambling
> house. Trading is buying and selling of financial
instruments with a
> view to making a speculative profit while gambling
is statistical and,
> given the odds, a sin!
>
>
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:
> > Your premise is from a
purely mathematical view, specifically
> > statistical. However, the
market doesn't always supply data in a
> > complete packages ready
for statistical testing and inference.
> >
> > Suppose we
have a market timing system that has made only 9 trades in
> > the
last 20 years and all of the trades have been highly profitable.
> >
Do we use the system or not? There are not enough trades to validate
>
> the results.
> >
> > We can wait another 40 years or
so and we'll probably have enough data
> > and enough trades to make
statistically meaningful inferences.
> >
> > None of this
is neat, precise or absolute. And there are no hard and
> > fast
rules for how many trades a system needs to give good test
> >
results. There are approaches which are better than others like this
>
> one by MG, but there is no one correct answer to the question.
>
>
> > After many millions of systems tests and a lot of trading
years in the
> > markets, no one has come with a trading system, a
timing system or any
> > other system that works consistently over
long periods of market
> history.
> >
> > Trading is
not investing, it's gambling with an edge to the player if
> > the
player is an expert at that game. However, the house is always
> >
changing a little something here or there that changes the
> >
probabilities of events just enough to change the game. It's the
> >
players job to stay up with these changes and adapt well enough to
>
> keep the edge on the house.
> >
> > Newbie's just
don't get how long it takes and how hard it is to get
> > the edge
consistently and over long periods of time. A newbie thinks
> > if
they make money one year, they're going to be a successful trader
> >
every year. Call me in twenty years with your track record and if it
>
> measures up, I'll send you your certificate of validation.
> >
> >
> >
> >
> >
> >
>
>
> >
> > --- In equismetastock@xxxxxxxxxxxxxxx,
mgf_za_1999 <no_reply@xxxx>
> wrote:
> > > The 30
trades is based on the central limit theorem - after about 30
> >
> observations things settle down if the mean of random
samples
follows
> > > a normal distribution. There are
several assumptions in this
> > > approach, but it should give a
good idea. I'd push it up a bit, say
> > > to 35 or
40. Also, you need to adjust for degrees of freedom if you
> >
> do any optimisation. Suppose your system is driven by 1
parameter,
> > > then you must add this to the 30. Suppose
you have a big system
that
> > > uses say 10 parametrs - then
you need at least 40 trades.
Especially
> > > if the system
gets bigger, it needs more trades to give any
> > > confidence,
and I will feel better if such a system produced good
> > >
results in 50 or more trades.
> > >
> > > Another,
excellent way to test is to use a hold out sample.
Build the
> >
> system on a portion of the data, say an 80% sample. Then test it
on
> > > the rest and you can see if you have a winner or fools
gold. The
> > > *proper* way to do this is to segment the
sample in say 10
blocks (of
> > > 10% of the data each).
Now you choose randomly any 8 blocks,
optimise
> > > the
parameters of the system on it, and test it on the remaining 2.
> >
> Then you choose another 8 blocks randomly, optimise the system,
test
> > > it on the remaining 2 and so on. After you've
done this say 100
> > > times, you test the results.
> >
>
> > > For this you need special software - one good example
can be
found at
> > >
> >
> http://weka.sf.net
> > >
>
> > In practise, just chop off the most recent 20% and you'd get a
good
> > > idea if the system will work or not.
> > >
> > > Regards
> > > MG Ferreira
> > >
TsaTsa EOD Programmer and trading model builder
> > > http://www.ferra4models.com
>
> > http://fun.ferra4models.com
>
> >
> > >
> > > --- In
equismetastock@xxxxxxxxxxxxxxx, "rvalue1"
<rvalue1@xxxx>
wrote:
> > > > I would contend that if
you generated >30 trades in the up
> direction
> > >
> for a sufficiently long period 2 years or so, you would have
>
> > > confidence that the system does well in the up direction.
Same
for
> > > > down and catch the sideways as it
transitions. Very unusual to
> find
> > > > a
great system up, down and sideways!! If you have one, let me
>
know.
> > > >
> > > > If you are waiting for
1000 trades, you must trade very often.
> > > >
> >
> > --- In equismetastock@xxxxxxxxxxxxxxx, "Ed Hoopes"
> >
> > <reefbreak_sd@xxxx> wrote:
> > > > > I
recently attended a lecture by Keith Fitchen, the author of
> > >
> several
> > > > > successful trading systems most
notably Aberration. He says
that
> > > > >
statistics on more than 1000 trades must be compiled before the
> >
> > > results can be considered valid.
> > > > >
> > > > > Ed Hoopes
> > > > >
>
> > > > --- In equismetastock@xxxxxxxxxxxxxxx,
chichungchoi
> <no_reply@xxxx>
> > > >
wrote:
> > > > > > Does anyone know how many trades the
evaluation needs to be
> sound
> > > > > >
statistically?
> > > > > > Thank you in advance
>
> > > > > Eric
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