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This is an excellent post, Bob.
While I agree with it, I would only add that sometimes it is relatively
easy to notice that a market has changed modes.
Perhaps there should be three classifications:
trending, congestion, and "unknown". Fuzzy logic, huh?
I also wish that you would give an example of how characteristics
specific to a particular market can be the basis of a trading system.
Neal
> To build a good trading system, you need to find something that happened in
> the recent past that correlates well with what the price is going to do in
> the future. This is fundamental. Without it, it is just gambling.
>
> That said, can you find some universal characteristic that works on all
> markets? There obviously are some. You can apply a moving average to the
> price and buy when it turns up and sell when it turns down. That is pretty
> universal but will probably not be particularly profitable. Most of the
> universal things are pretty apparent to lots of people so probably do not
> work very well.
>
> Then there are those who try to classify the mode of a market - trending
> vs. congestion, etc. I have never had much success with this approach since
> markets do not seem to switch cleanly between the different modes making
> the modes are very hard to identify. And techniques that work in trending
> markets get killed in congestion, etc.
>
> So I would suggest that the most interesting and most profitable
> characteristics on which to base a trading system are specific to an
> individual market, or possible a combination of two markets. As an analogy,
> a voice recognition system that works on all languages is almost certainly
> likely to be poorer on English than is one designed to work only on
> English.
>
> Bob Fulks
>
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