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I'm a strong believer in systems trading/testing and I disagree strongly
with Robyn and ATom.
The root cause of our disagreements about trading systems is our different
approaches to the markets. As I understand it,Robyn, you select a position
and hold it for several days, weeks or even perhaps several months? On the
other hand, I take a position and hold it anywhere from 1 hour to 3-5 days
(until my system tells me to stop and reverse or just exit).
I'm a big believer in trading systems because I've seen it worked and use
it extensively.
I always believe that certain market conditions will repeat itself and if
one is able to discern its charateristics, there is an oppurtunity to make
a profit from it (otherwise, I would be involve in Technical Analysis). To
me, this is nothing more than a high stake blackjack game where you, the
trader, controll the odds, not nature or fate. I don't have to trade all
the time. There are several periods of time (days/weeks) where these
conditions don't exist, the odds are not in my favor,so I won't trade.
When I do trade, the probability of me making a profit has to be better
than 50%, and the profit I stand to take has to be more than 3 times what I
stand to lose. With this criteria, I know that over the long run, I will
survive any market conditions and hopefully thrive in them.
Trading systems are nothing more than a way of finding out if the
probablity of making money is there or not. By testing it extensively, over
several different markets, one can see if it is robust enough to survive
the unknown, different market conditions of the future...
Andy
P.S. This is how I test the robustness of my systems: Optimize the system
on the current contract (usually 3 months). Superimposed the resulting
inputs on 1 years of data (usually an index with the big point value change
to act as a continous futures contract). If it's still profitable, keep it
else throw it away ( it also has to been within a10% range of the optimized
results. I.E., if the percentage of the optimized system is 65%, then the
year long system can vary from 55% to 75%-if it above the optimized result,
it's even better!!). Then change the date back to the previous year (i.e.
from 3/17/98 to 3/17/97 or 3/17/96). But, then, I'm working on 60min
charts...so your daily charts might require a different procedure. If it
survives, switch markets (from NDX to S&P/NYSE or from S&P to Russell
2000). If it's profitable and within the ranges, then it is robust/strong
enough to survive in the future (if a system optimized for a 3 month period
of one market can perform just as well over an unknown and totally
different market, it stands to reason it can perform reasonably well over
the unknown and perhaps totally different future market conditions.).
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