When Indicators Don't Lag

Discussion in 'Technical Analysis' started by BOC, Mar 22, 2015.

  1. To trade this in ES you need 8846$ for maintenance margin, because max drawdown is 48%.
    The profit is 2212$ supposing that the profit per trade is net included commissions and slippage. So 25% profit for a drawdown of 48%. Average net profit per trade is 1.39 points. For me that's close to zero, not much margin for error.
     
    #221     Apr 3, 2015
    dbphoenix and fortydraws like this.
  2. fortydraws

    fortydraws

    You have me mistaken for someone else. Find one post of mine where I say anything about indicators being "unworthy" or anything of the like - you won't find one. In fact, just recently I posted the following:

    Don't be so "shoot from the lip." Backtesting can accelerate the process of coming up with a consistently profitable trading plan. That is a fact. IMO< one should use whatever tools one has at his or her disposal to accomplish one's goals. Backtesing is a potent tool. You seem to be the one posting about backtesting being unworthy of one's effort. I am certainly not making posts judging indicators be of no value.
     
    #222     Apr 3, 2015
    dbphoenix likes this.
  3. fortydraws

    fortydraws

    Well, my point would be you do not know if you are simply the beneficiary of short run luck or a long run edge. Winning systems will have periods of drawdown and losing systems will have periods or profitability. The long run is what matters. Until you have tested the long run, then you do not know if your results are expected or variance.
     
    Last edited: Apr 3, 2015
    #223     Apr 3, 2015
    romik and dbphoenix like this.
  4. dbphoenix

    dbphoenix

    I knew a guy at TL who'd spent nine years "forward testing" his system and had not by the time he gave up been able to do more than break even.
     
    #224     Apr 3, 2015
  5. fortydraws

    fortydraws

    Unless his system only traded a few times a year, nine years was was probably (at least) eight years too long to stick to that system, imo. Which is why skipping the backtesting is really a suboptimal choice: Why ignore all that free information? But then again, I think most who come to this game do not understand the role of "information" in playing this game. Of course, if probabilities and payoffs are likewise ignored, those ignoring information are logical in their ignorance, because there would be no "value" in any information. I, of course, disagree with that view.

    "If the input symbols to a communication channel represent the outcomes of a
    chance event on which bets are available at odds consistent with their probabilities
    (i.e., "fair" odds), a gambler can use the knowledge given him by the received
    symbols to cause his money to grow exponentially. The maximum exponential
    rate of growth of the gambler’s capital is equal to the rate of transmission of
    information over the channel. This result is generalized to include the case of
    arbitrary odds."
    J. L. Kelly Jr., from "A New Interpretation of Information Rate"
     
    #225     Apr 3, 2015
  6. dbphoenix

    dbphoenix

    This is not unprecedented. I was looking at the results of someone's automated system the other day, something he'd spent considerable time and effort putting together and of which he was quite proud. Only problem was that his results weren't much better than what I get from my savings account.

    Though I suppose he was having more fun than he would watching his savings account grow.
     
    #226     Apr 3, 2015
  7. dbphoenix

    dbphoenix

    Testing was anathema. But that's been pretty much the case with every beginner and struggling trader I've encountered over the past 17 years. Those who are doing it for fun, of course, see no need to go through all that. But to go on for fourteen years trying to find a winning strategy with nothing more than guess and hope suggests problems that won't be solved by testing. Or at least the kind of testing which is the subject here.

    I'm reminded of the geniuses in '99 who thought they had the tiger by the tail because of these approaches they'd developed which were just raking in the money. Of course, a year later . . .
     
    #227     Apr 3, 2015
  8. romik

    romik

    Let's wait and see in that case. This is ramora tactics, follow the sharks, let them decide upon direction of the market.
     
    #228     Apr 3, 2015
  9. dbphoenix

    dbphoenix

    Or follow price, which is more reliable.
     
    #229     Apr 3, 2015
  10. romik

    romik

    MACD does follow price, I look for patterns that indicate weakness or strength. This one pre-drop is a very strong pattern indeed. Have a nice Easter!
     
    #230     Apr 3, 2015
    Buy1Sell2 likes this.