Short term trend following is something I'm considering but I haven't put much effort into yet.. basically I'm trading mean reversion now, but it would probably be useful to do both. I'll start another thread soon (maybe today) with some examples from the equity curve, etc. I won't be able to give away the symbols though. I'm in the market roughly half the time right now.. always nearly 50/50 long some short some.
you made it evident that you are a contrarian and to do that with stocks it is necessary to choose quality stocks just to keep out of trouble. The ratio of money velocities for the long to short parts of quality stock cycles favors wwhat you do so you owlud be in the markket less than 5o % of the time ordinarily. You are trading using data that is derived from bar durations that are too slow compared to the bar duration that would let you optimize. So this sets the scene for the potential you are not attempting to deal with. And from that potential you can determine the potential of what you are doing. Skip discussing leveraging of capital. I am just going to speak about the money making from investing capital and profiting from that. For anyone trading stocks long just using the "natural" cycles, the daily potential is about 4 to 5% per day for any amount of capital up to that required for holding 100,000 shares. This is not a compounding situation; rather, it is one where profits are swept and used for other endeavors. The reversion to mean on these trades is when most people are not holding. This is the period after the trade (long) was completed and the stock is simply being observed. You may be trading these type stocks short to get the reversion values. since the stocks are quality ones and mostly traded for the long potential profits, the short trade profits are less and they take less time to collect. The ratio of times (long to short) is 3 cubed to 2 cubed. So you are doing more trades, each lasting less time and the profit per trade that you get is less as well. To do 1% a day, for you, is way below optimum. You are not in the market sufficiently in the first place and apparently, so far your model does not deal with the source and application of capital. This means that you model is not cueing potential entries when exits are occurring. As I initially suggested there is some quirk in your reasoning, fundamentally. To get to the point of reversion to the mean there are two prior and a priori considerations that have been acknowledged. Both independantly and collectively are supperior to your action periods and they are exclusive of your action periods. You are designing to behave and act in only the higher risk periods of potential money making while at the same time you ID and choose not to act in better times for the respective equities. If you want toconduct some valuable research time (reading) you should attend to becoming knowledgable about the proclivities of "informed traders" and also you must begin to consider how the very successful work in the marketplace as "front runners". the methods and even designations for such as yourself, are rarely found; there is a reason ( in fact, sets of reasons). Getting to the place of thinking that you have discovered how to make money (and still use a caveat like not losing, ever), puts you precisely your the place of not having much wiggle room for itrative refinement. One person baited you early on about how work is done as the foundations get fulfilled and new horizons appear. while these do not occurs as baited, it is possible that when they do occur; it is unwise to have been heading against the grain. Reversion to the mean can be clearly understood and seen as only half the trip. The mean is actually the place where money velocity goes from acceleration to deceleration. When I read you, I get the impression that you feel the mean is the end of the deal. My query to you was based on where I believed you to be. Now with your response, I see that I have overestimated the distance you have travelled so far. Their is a lot of "messiness" being discovered of late regarding the activities of professional traders. you have not, as yety, encountered what is being examined by those with their conventional yardsticks. in the direction you are headed, it is more difficult to vcome up with fixes than most any other directions available for choosing.
I see a lot of typing but nothing that makes sense. Every post you make has the word 'velocity' about 500 times.. You make assumptions about my strategy, I am not going to give that away. It is based on mean reversion but not mean reversion of prices.
Am I to understand that making 1% on full trading account equity per day on a consistent basis is less than outstanding? Are you actually saying that traders ought to be consistently earning up to 4 or 5% on full account equity on a daily basis? And all this against a background of minimal drawdown? Is this what you are actually suggesting?
Well, hopefully (tomorrow) wed. morning it'll be ready.. I've mainly fixed the quote filtering issue, well enough to start running live anyway. I'm running on about 3 hrs sleep so hopefully I can make it. I'm cobbling together the code for the main realtime loop. In testing it is very easy because you just fly through the data as fast as it can be read, but in realltime the even main decision-making loop needs to be called. It's not a big deal, just something that has to be done. The first week is going to be very-very rough, and then only very rough for some undetermined time thereafter.
1% consistently over how long? that's the key question. if you take anybody and give them enough cash to trade, i'm sure they can manage 1% a day over maybe 5 days? its all about the distribution of the returns. the guy maybe lucky enough to earn 1% for 5 consecutive days before blowing up his account. on the other hand, how about a consisten 1% a day for 1 year and then -100% the next day. i wouldn't want that system - its a typical system where a 6 sigma event happens and the account blows up. like option premium selling. so the answer is it depends on the period in which you measure those gains. give a short enough period even mom and pop can do it with enough capital. but if you say make 1% per day for 10 years, then hell no. i'll bet that all of the people who has said made those sort of returns has had a massive drawdown. the fact that your system is market neutral may decrease the likelihood of having a system meltdown, but you have to be careful of drawdowns and the length of backtest. but if everything passes, and your data is clean, no unobtainable prices, etc then go for it. out of curiousity, since you have backtested the system, what is the system's 3 year monthly sharpe ratio?