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yeah but Rich, the facts of the matter are.....
1) few investors are technically astute as far as time-series analysis,
technical analysis and trading
2) even fewer can do any programming at all
3) even fewer of the remaining have any knowledge of building decent trading
systems
So, when you say "WE", I would say we are a tiny, tiny fraction of the
investment community UNIVERSE who are doing this type of trading. We may not
all be rich with this approach, but We are attempting to get returns in one
MONTH that many of the UNIVERSE would be happy with in one YEAR.
SO.....relatively speaking, I think the approach of extensive backtesting,
solid application of technical analysis, and application of systems building
techniques is pretty sound in my book compared to what the UNIVERSE
does.....reacting on news (too late!), asking Uncle Bob for advice (dumb),
getting tips from Barron's(dumber), listening to Mr. Buy-and-hold (Peter
Lynch) in the summer of 1987, etc.
You sound like your experience is more extensive than many of us and that
you've had your share of knocks with systems trading. That's great ! And
that puts you possibly in a pretty elite group. However, if you are only
executing the trades and not building the systems, then criticizing a
back-testing approach is like the pot calling the kettle black. For
instance, how can a one-hundred trade system ever become successful unless
it's a least back-tested or paper-traded or traded RT in small lots ? I know
I wouldn't just want to take a system and begin live trading without
paper-trading it first or starting with the E-minis vs. the big contract for
instance. And I would never just trade a SINGLE system...that's asking for
trouble.
This is my attempt to refute the inference that "everyone can do this
therefore it cannot be profitable"......
> -----Original Message-----
> From: Rich Estrem [mailto:estrem@xxxxxxxxxxxxx]
> Sent: Saturday, July 15, 2000 11:54 PM
> To: omega-list@xxxxxxxxxx
> Subject: RE: A question about system design.
>
>
> At 07:09 PM 7/15/00 -0500, M. Simms wrote:
> >What you are saying then is that backtesting large samples is
> fruitless ???
>
>
> Of course its fruitless! If it wasn't, we would all be wealthy by
> now. Just make a system or buy one which has a nice backtest over
> 300 trades and retire in a few years. Its so easy right? :)
>
> But really, I'm saying your idea of large is probably too small to
> give *me* much confidence. How many trades did the Demark system have
> before it blew up - enough to give you some confidence in it? As I
> said, I have seen very little or no correlation between sample size
> and future results in systems we backtested and then traded which
> had as many as several hundred trades. That whole porfolio of
> systems made money, but only a few systems in the entire group
> carried the load. Maybe you have seen otherwise in your actual
> testing/trading. I've seen tons of systems quickly break down with
> 200 trades and nice equity curves. We traded a system once which
> had no losers in 98 trades in the backtest, but it broke down
> immediately in realtime trading!
> On the other hand, the stock system I mentioned with thousands of
> trades I do have some confidence in. I like seeing 10,000+ trades
> do well, and testing 75 stocks and seeing every single one make
> money over the test period. Now that inspires at least a little
> confidence that maybe this thing might actually work going
> forward. I just don't get that same feeling from 30-300 trades.
>
> regards,
> rich
>
>
>
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