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Russ,
You are absolutely correct. what you are saying is that Slippage and
commission Kills. I run purely mechanical trading systems here at Bank of
America and it has been my experience that Slippage is the single most
important factor in any trading system.
However, this doesn't mean you can't beat Buy&Hold. We have models here
that choose to buy and sell on opportunities and these do out perform S&P.
I feel it is very important to have a range of models that 'do different
things' inorder to get a low correlated set of returns.
I also do not use intraday models but rather 'daily' models ie. I can
change my position once per day. Usually intra data has too much noise and
doesn't add any value for me.
Hope this helps
Lawrence
To: realtraders @ listserver.com
cc: (bcc: Lawrence Barwick)
From: TWA7663 @ aol.com @ INET
Date: 30/10/97 13:09:26 EST
Class: Internal
Subject: Intraday Versus Long Term Systems
I have recently been trying to find several intraday trading systems for
the
S&P that all together will exceed a buy and hold strategy. I realize that
you would not buy a S&P futures contract and keep it for several years.
However, that is the benchmark that I have used. I am sure the
professional
traders that use intraday systems will claim that their short term systems
would do so. However, I have not been able to prove that several combined
intraday systems can outperform ?buy and hold?. I have done extensive
testing with Tradestation and Excel.
To demonstrate to RTers how short term systems have problems outperforming
a
?buy and hold? or any long term system, I offer the following calculations:
Assume that you bought a S&P futures contract on 1/3/83 and continued to
rollover until 10/13/97. Without commissions and slippage, you would have
made $326,825. If you had bought one contract at the open and sold it at
the
close each day EVERYDAY, you would have only made $258,075. When you
subtract a commission of $35 RT and 50 cents for slippage(small amount) you
would have made $326,540 on the ?buy and hold? and with the short term
system
you would have lost $-807,540!
WOW! I think that is a pretty impressive demonstration of why it is very
difficult to make a profit year after year with very very short term
systems.
I am not claiming that a short term system or a combination of several
short
term systems can?t do better than longer term systems. I am just showing
why
it is difficult.
I realize that intraday systems don't buy at the open and sell at the close
but the negative affects of the short term trading, commission and slippage
are still there. In fact, it has been my experience that one can encounter
more slippage intraday than at the open and close!
If I am missing something here, then I would appreciate a counter argument
because I truly seek intraday systems that will provide continued greater
profit versus risk as compared to longer term systems. Also, I would like
to
hear from those that have ?properly? backtested their intraday systems and
have created results that exceed ?buy and hold?. I need the encouragement!
Russ
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