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Volker,
I agree 100% ... correlation is a slippery beast. I've seen it come and go
in markets as well. People who've traded Indigo will remember how "hot"
models simply stop working. This was because of the the MX systems traded
off a correlation between one market and a particular index, which can
change. Many inter-market pattern systems have suffered the same fate.
I note that correlation pairs show more stability on longer time-frames
(going from daily, weekly, to monthly) and length of input. This may be one
answer to practical application.
I also agree with your statements on human logic and diversification, at
least until I can be shown otherwise. Correlation as a method of market
selection is based on past behavior which is subject to change. Correlation
as a method of "loading" the exposure of a portfolio differs in that the
portfolio has already been selected, but positions are limited based on
their current inter-market relationships. This is a very practical way to
use correlation in trading that is less subject to instability. The idea
comes from Richard Dennis and William Eckhardt (it may have earlier
origins, I don't know).
As for handling portfolio level diversification, money management, and
position sizing, I do not use TradeStation for these things, since TS lacks
portfolio testing features. In that regard I grew past TS long ago and use
custom software. The closest commercial package to what I use is VeriTrader
1.5 (http://www.turtletradingsoftware.com/).
I see posts that WealthLab offers some level of portfolio support. Kudos!
That is much needed in an affordable trading platform. What kind of support
does WL have for portfolio diversification, risk management and position
sizing?
Cheers,
Kevin
At 03:58 PM 1/28/2004 +0100, VK wrote:
I have seen markets being correlated for many years and then stopped the
correlation. I believe the selection of markets should have some human
logic and since numbers could give lead the wrong way. Best thing is to
diversify over many markets.
Since it seems that a lot of you also believe in diversification,
portfolio level money management and position seizing, I am wondering
how you handle this with TS effectively?
vk
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