Re: Confidence is high...What does it mean?

[cvinton <cvinton@xxxxxxxxxxxxxx>]

Why not simply backtest the "intersection system" & let your
interpretation of that determine how you trade the system?

Cheers,

CAB VINTON
cvinton@xxxxxxxxxxxxxx


For the sake of argument, let's say that I have a set of "trade context
filters" that provide me with the following information suitable for the
timeframe I'm interested in trading:

-    Over the past 10 years, a trade taking place in a trade context
called
"trade context filter #1" was successful 60% of the time.
-    Over the past 7 years, a trade taking place in a trade context
called
"trade context filter #2" was successful 65% of the time.
-    Over the past 8 years, a trade taking place in a trade context
called
"trade context filter #3" was successful 68% of the time.
-    Over the past 7 years, a trade taking place in a trade context
called
"trade context intersection filter #1#2#3" was successful 84% of the
time.

Let's say that the current market context meets the conditions defined
in
"trade context intersection filter #1#2#3".  Further, let's say that in
addition to knowing that the "trade context" is positive for trading, I
also
just got a "trade signal" based on other (smaller timeframe) indicators.

Confidence is high...What does it mean?

It seems to me that there may be at least three practical trading
implications of "confidence being high."  (The third implication
courtesy of
a buddy of mine--DC.)

1    I should consider trading a larger size than is normally the case.
2    I should consider staying in the trade longer than is normally the
case
(because the net profit for trades based on the context filters
alone--i.e.,
without entry/exit timing signals being considered--is optimized for a
longer stay in the trade).  (In other words, I "scale up" in timeframes
(see
Kase) because confidence is high.)
3    I should consider changing what actually constitutes an entry/exit
signal.  (For example, if my entry/exit signal is generated by a price
breakout, I might be more aggressive, because confidence is high, and
enter
on the breakout rather than wait for the post-breakout pullback.  IOW,
the
"entry signal" itself is different because confidence is high.)

There have to be other implications of "confidence being high" that are
important.  I'd appreciate thoughts about what these other implications
are...

Steven Buss
Walnut Creek, CA
sbuss@xxxxxxxxxxx