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On Jan 31, 9:14pm, Owen Davies wrote:
> Subject: Re: preliminary results of my system
>
> >1) Does the system tend take its trades mostly at the same time across
> >the universe of stocks? For example, with 100 trades in a year, you
> >would want to see the system take a position in 100 stocks out of
^ NOT
> >the S&P 500 all at once, and then sit pat for the rest of the year.
> >You wan't have the capital to trade the system, and a correlated set
> >of trades will defeatt the purpose of drawdowns.
>
> Gary, am I right in guessing that you really meant, "For example,
> with 100 trades in a year, you would NOT want to see the system..."
Good eye, Owen. Definitely meant to say NOT in that sentence. The
main point is that stocks in general (esp. those that are part of the
widely followed and widely held S&P) will tend to move up together, and
tend to move down together. It is linkely than any simple system will
choose to buy many of the stocks at the same time, as they all start to
move up together. The same system will likely tend to sell at the same
time. This will cause the equity curve, and cash needed to be
"spikey", and that defeats the purpose of trading individual stocks.
Also, by choosing from a list of related stocks (the S&P 500
_Industrial_ index), you're further biasing the correlation between the
stocks. Better would be to choose diverse groups, ideally those that
are not as well-correlated. An example might be to include gold and
oil stocks, which tend to perform better in times of inflation and
uncertainty and balance that against banks, retail, and tech. stocks,
which will do better during times of lower inflation and higher
growth.
--
| Gary Funck, Intrepid Technology, gary@xxxxxxxxxxxx, (650) 964-8135
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