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In case you had trouble reading the .ela file
(for Tradestation 4) that I enclosed with the
original message, I have _tried_ to create a ZIP
archive on the world wide web, that contains information
in formats suitable for TS 3.5, TS 4, TS 2K, and
Metastock. The download address is:
http://www.mjohnson.com/special_needs/pgosc.zip
If you had trouble before, please download this ZIP
archive and LOOK AT THE README.TXT FILE IT CONTAINS to
see what I've tried to do for your own unique and
special circumstances.
>
> October 19, 1999
>
> I've been fooling around with indicators that try
> to answer the question "Is this market in a trend?
> And if so, how strongly is it trending?" I found
> one that looks sort of promising and I am including
> it as an attachment to this message.
>
> I suppose I should disclose my own personal trading
> biases and preferences, in case they have accidentally
> or deliberately influenced my efforts:
>
> * I am a long-term trendfollower and so I look
> for indications of long-term trends
>
> * I don't work with tick-by-tick data or with
> hourly data; I focus on daily bars
>
> * I seek an indicator that will work equally well
> on all markets that trend long-term; I don't
> want one indicator for Bonds, another for Yen,
> and a third for Coffee
>
>
> With those caveats, I went looking for a "trendiness"
> indicator and I think I might have found the beginnings
> of one. I call it "PG_trendosc" ("Pretty Good trend
> oscillator") and it seems to work reasonably well.
>
> To test out the indicator, I created a simple trading
> system that uses the indicator and nothing else.
> The system is merely
> if indicator > +3.0 then go long
> if indicator < -3.0 then go short
> if indicator crosses 0.0 then exit and go flat
>
> As you can see, the performance of this system is 100%
> determined by the performance of the indicator. So
> it's a quick and easy way to get a reading on whether
> or not the indicator is performing well.
>
> I subjected this little system to two different tests:
> (1) the MAXIMUM SLIPPAGE test;
> (2) the PORTFOLIO TRADING WITH BETSIZING test.
> ========================================================
>
> The MAXIMUM SLIPPAGE test comes from Bruce Babcock's
> book "Profitable Commodity Futures Trading from A to Z",
> specifically the interview with Fred Gehm. [by the way,
> Fred's own book _Quantitative_Trading_&_Money_Management_
> is *excellent*]. On page 178 of Babcock's book, Fred
> Gehm describes his "torture test" for futures trading
> systems:
>
> "...by subjecting it to the worst possible conditions.
> For example, he always assumes he is filled at the
> high of the day for buys, and the low of the day for
> sells. "If a trading system survives that, it should
> be pretty resilient to other market adversities."
>
> This is a GREAT idea. It imposes the MAXIMUM SLIPPAGE
> on a trade, both at the entry and at the exit.
>
> Of course, this is hard to do using Omega Research
> products. So I implemented the MAXIMUM SLIPPAGE
> test in other, non-Omega, software. And I applied
> it to the simple system (attached) that buys and
> sells based on my trendiness indicator.
>
> I ran the little system on 20 futures markets that I
> happen to trade myself in my own real-money account.
> BP CD CL CT DM
> DX FY HG HO HU
> JO JY KC LB MB
> NG SF TU TY US
>
> The test ran from 01 Jan 1987 to 07 Aug 1999, a
> period of about twelve and a half years. I
> used exactly the same code and exactly the same
> parameter values on all markets.
>
> Although the simple trading system only buys
> and sells at market-on-the-open, in this test
> ORDERS WERE ALWAYS FILLED AT THE WORST POSSIBLE
> PRICE: buy orders were filled at the high of
> the day, sell orders were filled at the low of
> the day. On top of this, a commission of $25.00
> per round trip trade was also assessed.
>
> Under these conditions, the simple trading system
> still managed to have 269 winning trades [and 379
> losing trades], a winning percentage of 41.5%.
> Average profit per trade (when trading one-lots)
> was $438.95. Think about that --- even with the
> worst possible slippage on BOTH entry AND exit,
> the system made over $400 per trade. Wow.
> That's pretty robust. Imagine how much better it
> would do when the oscillator is incorporated into
> a more sophisticated system (having, for example,
> trailing stops and MAE stops and filters and so on.)
>
> It makes me think this is probably a Pretty Good
> oscillator.
> ========================================================
> ========================================================
>
> Next I applied some betsizing rules to the little
> system and tested it using non-Omega software.
> (It's difficult to test multicommodity systems
> that trade all markets out of the same account,
> using TradeStation)
>
> The betsizing rules I used in this test were:
>
> Start off with $80K equity at the beginning of the test
>
> Bet a variable percentage of equity on every trade
>
> Make the variable percentage equal to 2.0%, times "A"
> where "A" is an "aggressiveness" factor. When
> the account is small, we will be aggressive. When
> the account is big, we will be unaggressive.
>
> Calculate A as a function of total account equity,
> using these piecewise linear equations:
>
> if (equity < 100K) or (equity > 1.3M) then A=1.0
>
> if (100K < equity < 180K) then
> A = 1.0 + ((equity - 100K)/80K)
>
> if (180K < equity < 600K) then
> A = 2.0 - (0.6 * (equity - 180K)/420K)
>
> if (600K < equity < 1.3M) then
> A = 1.4 - (0.4 * (equity - 600K)/700K)
>
> I reverted back to normal commission+slippage of $75 per
> contract per round trip trade, for this portfolio test.
> The same 20 markets were tested for the same time period,
> and the same buy and sell rules were used in all markets
> (the same ones that were used in the MAX SLIPPAGE test).
>
> The summary results for this portfolio+betsizing test were:
>
> 80000.00 Starting equity
> 88277536.00 Final equity
> 88197536.00 Net profit
> 72.85 Compound Annual Growth Rate (percent per yr)
> 45.13 Max Drawdown (percent) on 920521
> 239 Days in longest drawdown ending on 960405
> 1.614 (CAGR / MAXDD) Ratio
> 46.53 Annual Standard Deviation (percent)
> 30.52 Average max annual drawdown (percent)
> 10.189 Percent of days making new equity highs
> 1.458 Sharpe Ratio
> 2.097 Semideviation Ratio
> 6.248 Return Retracement Ratio
> 1.645 Sterling Ratio
> 870101 First day of test
> 990809 Last day of test
> 3288 # days in test
> 75.00 Slippage and commission per round trip trade
>
>
> I would point out that the Sharpe ratio is relatively
> high, and so are the various modifications of the Sharpe
> ratio that Jack Schwager presents in his book "Managed
> Futures" (semideviation, RRR, etc). The one that *I*
> personally focus upon is the "CAGR/MAXDD Ratio" but you
> may have a different favorite.
>
> If you prefer to look at the full equity curve rather
> than these end-of-test summary statistics, I've made
> it available on the web, at
>
> <http://www.mjohnson.com/trecipes/pg1.xls>http://www.mjohnson.com/trecipes
> /pg1.xls
>
> When I look at these test results, again I come to
> the conclusion that this is probably a Pretty Good
> oscillator.
>
> Try it out for yourself -- horse around with the
> oscillator, or the simple trading system, or both.
> See what YOU think. Improve it if you want. Learn.
> Have fun. Trade well.
>
> I hope you enjoyed reading this.
>
> -Mark Johnson
> mark@xxxxxxxxxxxx
--
Mark Johnson Silicon Valley, California mark@xxxxxxxxxxxx
"... The world will little note, nor long remember, what we
say here..." -Abraham Lincoln, "The Gettysburg Address"
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