|
PureBytes Links
Trading Reference Links
|
Steve...
Like your post! You won't find any divergence in what I'm saying :-P
I've put in a hugh amount of "man-hours-years" testing(mostly stocks,
short term) to look at the validity of volume and divergences in
mechanical systems. IMHO, back testing using out of sample and
walk-forward data has no equal in quantifying an indicator or idea. We
can all point out individual instances that worked flawlessly but what
are the odds it will work the next time? If I've tested it thoroughly
and the idea works 70% of the time I have something to go on. Isn't
everybody a system trader anyway? Don't discrectionary traders have all
the rules in their heads and know how often something works?
On volume... as far as tests I've done, I've only seen insignificant
help on win% and returns with the adverse affect of lessening the
robustness of a simple system. The way volume is affected by the
different players how can I tell who's behind the push? Unless I ignore
volume and just look at price.
For divergence, using RSI and other momentum indicators vs price,
testing showed absolutely no help, in fact I found more situations where
the divergence worked to indicate the continuation of the move rather
than a reversal. I've seen many examples of divergences on a chart that
looked beautiful but checking it on hundreds of issues over many years
it looks like the odds go way down.
It seems that the longer I've done this the more I rely on just price
and all the rest is a distraction.
If anyone is interested, I base my testing process mostly on what I've
read in 2 books:
Design, Testing and Optimization of Trading Systems by Robert Pardo and
Smarter trading by Perry Kaufman
Just in cast... I don't have any connection with these authors, have
just benefited from their advice.
Best... John
steven poser wrote:
>
> I think you have to be crazy to make buy/sell decisions on volume alone.
> First of all, you can do fine with just price. If you do technicals on
> currencies, you do not have volume (I dont think the futures help any).
> But, I use volume simply as a warning. If volume is low on a move, then
> I will be more likely to believe a singal that tells me the move is
> over, but I still wait for the signal. In my mind, it should be used for
> confirmation of a trend, and that's all.
>
> Open interest probably to a degree is more useful. The problem is that
> outside of the U.S., some of the exchanges, I am told, do not report it
> properly. You also have to be careful of the underlying trend in o.i.
> Recently, the much heralded liquidity problems in the bond market, were
> probably partially behind the sharp drop in o.i. in bonds. If you used
> o.i. to get out of bonds cause o.i. was falling, you missed one of the
> greatest rallies in bonds ever. Also, I have found at the end of long
> runs, while you get the divergence with o.i. falling as the trend
> completes, it does not necessarily rise as prices reverse as everybody
> closes positions for a bit until they figure a new trend has started.
>
> Divergences are another fun and exciting thing. I do not know how many
> times I have people tell me that there is a divergence in some
> indicator, so they are reversing their position. This is very dangerous,
> unless you have a reliable system that tells you to do so anyway. One
> place that I hear it is when RSI or momentum do not confirm a move. If
> these indicators do not make a new high, but are moving sharply up, I
> cannot imagine why anybody would get out. You are marked to market on
> price, not momentum. It is a warning that must be watched, but how many
> momentum divergences have ultimately been erased (at which point you
> throw in the towel, jump in, and that turns out to be the signal to
> reverse).
>
> Steve Poser
|