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<DIV><FONT size=2>As usual, you have performed some original and solid thinking.
The point regarding change of clothes is a good one and one to which I will
return in a moment after a couple of comments on the charts.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>#2 looks great in those nice long trends but whipsawed in
congestion - baring exceptionally long trends, MA crossover systems tend to run
huge drawdowns which will bury most traders because most traders are under
capitalized</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>#3 great example of point I made in #2. Quite logically you
propose that we switch to Swing Trading (or we can trade shorter time frames)
however some intelligence must make that decision and without those nice clear
MA's laid out, one can not readily see when the market has switched until some
long lag in time has take place.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>#4 more chop/chop in a nominally trending market and some
large drawdowns - I've run rigorous tests on MA systems and they plain out fail
in most markets. Colby and Meyers, who tested dozens of popular indicators
across a variety of markets found the same thing.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>#5 very tradable yet but not in the time frame displayed using
MA crossovers - a quick look suggests losses or perhaps a nominal profit with
some very large drawdowns which would bankrupt most traders</FONT></DIV>
<DIV> </DIV>
<DIV>
<DIV><FONT size=2>Back to the change of clothes - I live in a part of the
country which is generally sunny with moderate winters and cool summers however
the daily temperature range is significant. Obviously, a wide variation in
clothing is required. Yesterday, I wore two layers when I went out to play golf
at 7a (38d), stripped off a layer by 9a (55d), shorts and short sleeve
shirt when I went to town in the afternoon (72d), and slacks and jacket when we
went out in the evening (60d and falling). My selections were based on a
combination of experience, observation, and intelligence acquired from weather
reports. It would be rather difficult to build all of this into a
system.</FONT></DIV>
<DIV> </DIV></DIV>
<DIV><FONT size=2>Ultimately, in trading one comes down to system or
discretionary or some combination. Trading a variety of markets successfully
both long and short requires a great deal of human intelligence and selectivity
regarding the type of trading pattern (trading or trending), market psychology,
inter-market influences, and time frame. I think that the point we were trying
to make is that ultimately, most systems which have been employed successfully
in this great bull stock market, will crash and burn in trading or bear markets
- too many of them have been over optimized for a trending bull market. But now
we say ... we have to change tactics ... so we must program the beast to be more
intelligent or we must know enough to switch to an alternate system or an
alternate time frame. But then the market psychology changes and we have to
change tactics again. And then "established" inter-market relationships change
and we have to change tactics again. Ultimately, we must either acquire a super
trading model or we must learn enough about price patterns, inter-market
relationships, market psychology and other factors so that we can apply our
human judgement to the markets. Anyone who has attempted to program simple price
pattern recognition, which comes so naturally to the trained eye, knows how
difficult it is to develop that super model. This is why the long term survivors
apply some degree of discretion to their trading - either in selecting which
trading systems to use in which markets or a fully discretionary methodology
which does not rely on system signals at all.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>Earl</FONT></DIV>
<BLOCKQUOTE
style="BORDER-LEFT: #000000 2px solid; MARGIN-LEFT: 5px; MARGIN-RIGHT: 0px; PADDING-LEFT: 5px; PADDING-RIGHT: 0px">
<DIV style="FONT: 10pt arial">----- Original Message ----- </DIV>
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black"><B>From:</B>
<A href="mailto:OnWingsOfEagles@xxxxxxxxxxxxx";
title=OnWingsOfEagles@xxxxxxxxxxxxx>Gitanshu Buch</A> </DIV>
<DIV style="FONT: 10pt arial"><B>To:</B> <A
href="mailto:realtraders@xxxxxxxxxxxx"; title=realtraders@xxxxxxxxxxxx>Real
traders</A> </DIV>
<DIV style="FONT: 10pt arial"><B>Sent:</B> Thursday, September 30, 1999 8:24
PM</DIV>
<DIV style="FONT: 10pt arial"><B>Subject:</B> OEX Swing m/c, Trading sytems
and markets</DIV>
<DIV><BR></DIV>
<DIV><FONT size=2>I'd like to take the other side of this debate, for devil's
advocate purposes - Clyde has not said anything so far in defense of his 15
min swings posted this AM. </FONT></DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><FONT size=2>I mean no disrespect to Ben and Earl, and I say that
specifically such that we focus on the merits and demerits of statements and
numbers being tossed around and not of the people stating them:</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>Lets start with this issue of system rigor (being good
through bear and bull markets).</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>Intuitively, it provoked this reaction: How can one use the
same system for opposite polar phenomena? Isn't it kind of like saying that
cotton T-Shirts are the only top one should wear in summer and winter
regardless of where one lives, because cotton is the only "safe" fabric for
human skin.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>Let us say we backtest and foretest and undertest and
overtest and find something that can capture every wiggle, penny, and deutsche
mark from anticipated price action. Aren't a few non-systemic issues to be
handled first?</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>For example, the issues of </FONT></DIV>
<DIV><FONT size=2>a. Timeframe of trade v/s efficacy of system</FONT></DIV>
<DIV><FONT size=2>b. Account capitalization and appetite for risk while in
duration of trade</FONT></DIV>
<DIV><FONT size=2>c. Opportunity cost of capital blocked in any specific
trade.</FONT></DIV>
<DIV><FONT size=2>d. Staying power (psychological fortitude to take system
triggers and follow-through on the trade day after tiring day)</FONT></DIV>
<DIV><FONT size=2>e. Plain old fashioned discipline, and the willingness
to stick it out through times that disturb the system's rhythms and therefore
our trading rhythm.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>I wonder how many of these can be simultaneously
gamed into
a system. Any system. How can a computer program unknown human behaviors?
(Yes, I did some course work on this in my MBA Human Psychology 201 term
paper).</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>Assuming they can, how long is it before some
external dynamic changes the elegance of a 2, 3 or even 4
factor model?</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>Clyde's SM (never used it myself) seems to pick probable
outcomes based on historical behavior. Where probability cannot be assigned,
he says so.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>We all know that just because something has a probability
number, the market does not need to oblige.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>So what are Ben and Earl talking about when they refer to
testing it in some bear market time periods? They have been here long enough
to know that Clyde has tested this swing thing back to 1914.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>Ben says: </FONT><FONT size=2>start 01/11/1973
- 2/13/1980 (Dow only got back to
even!!!! after 7 years)<BR></FONT></DIV>
<DIV><FONT size=2>So I did a simple MA crossover system for that period.
One sells or buys on price closing below/above the MA, uses the prior swing
high/low as a trailing stop. Decent, during that period. Indecent, during the
only non-trend period. Monthly, Weekly, Daily.</FONT></DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><FONT size=2>Learning: MA crossovers do not work in non-trending markets.
Change tactics.</FONT><FONT size=2> One size, we learn, does not fit
all.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>Maybe the humint element will tell us that price behavior
has changed from trending to non-trending before the system shock
significantly damages our account and psychology.</FONT></DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><FONT size=2>Ditto when I look at 1963, as Earl suggests. Same system,
same result.</FONT></DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><FONT size=2>And I'm not even swing trading.</FONT></DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><FONT size=2>Then I think to myself, heck, we trade bear markets in
commodities all the time. I know for a fact that Earl and Ben are accomplished
cross-market traders. Therefore, what is the big deal here anyway
?</FONT></DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><FONT size=2>I am forwarding charts to illustrate my statements, since
pictures speak louder than words. </FONT></DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><FONT size=2>Once again, I am stirring up discussion to issues we seem to
be taking for granted (e.g. 1 or 2 systems should work in all market
patterns; or a deeper issue of a trader's (the subjective humint factor)
causes the trader more harm than good - hence the need for a system to start
with).</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>A bear market is a bear market. Wealth destruction is never
any good. But we are talking trading here. Does it really make a difference
where price goes, as long as we can capture the fallout of that price move
?</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>Comments welcome. Charts follow this email, separately due
to bandwidth restrictions.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=2>Regards</FONT></DIV>
<DIV><FONT size=2>Gitanshu</FONT></DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><FONT size=2> </DIV></BLOCKQUOTE></FONT></BODY></HTML>
</x-html>From ???@??? Fri Oct 01 14:34:06 1999
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Message-ID: <003a01bf0c10$62b1e920$8088140c@xxxxxxxxxxxxxxxx>
From: "Mike Higgs" <moongate@xxxxxxxxxxxxxxxxx>
To: "Earl Adamy" <eadamy@xxxxxxxxxx>,
"Real traders" <realtraders@xxxxxxxxxxxx>
References: <00ad01bf0bb4$1d11fc40$bb75173f@xxxxxxxxx> <130501bf0c02$dcc21cc0$4a2a42cf@xxxxxx>
Subject: Re: OEX Swing m/c, Trading sytems and markets
Date: Fri, 1 Oct 1999 09:24:48 -0400
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From: Earl Adamy
To: Real traders
Sent: Friday, October 01, 1999 7:48 AM
Subject: Re: OEX Swing m/c, Trading sytems and markets
>#4 more chop/chop in a nominally trending market and some large
drawdowns - I've run rigorous tests on MA systems and >they plain
outfail in most markets. Colby and Meyers, who tested dozens of
popular indicators across a variety of markets >found the same thing.
Colby & Meyers "The Encyclopedia of Technical Market Indicators"
published in 1988 doesn't say that at all. Testing on only S&P data,
they conclude "the historical record of trading using the 12-month
simple moving average crossover rule would have been quite
profitable." What Colby & Meyers are you referring to? It seems
that C&M have reversed themselves pretty dramatically. Do they give
any indication of why?
Regards,
Mike
--
Aboard 35' Edel Cat "Moongate" in New Bern, NC
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