Do markets change? Trend Following.

OK. Now that you mention about systems...

Which of the following would be considered a "tweak"?

1. Optimization and implementation of a parameter. For this sake, let's say it's like referenced bar for a Breakout like x in calculating HighestHigh(x).

2. Taking the mean bars of the last 30 swings and applying it on the HighestHigh(x).

3. Crabel like filtering. ORBs filtering signals based Macro chart conditions.

4. Tweaking the models using Greeks... "calibrating" based on the underlying.

5. Windowed Parameter.

6. Out-sample averaging.

... I ask this because the term tweak can mean alot of things. All of the above can be considered a tweak. So before I start some discussion, it would help if you can tell me what your basis / definition of a tweak is.

How about we start there?

 

Mike, another question... related to tweaks...

What's your stance on Mechanical and Automated Trading System? Should all good systems, in your definition, be able to be automated or not?

For a system to be automated, the datas need to be quantified in some way for the computer apply. It can start from a simple OHLC, Bid/Ask to ranking the significance of the news using semantical analysis. So... if you stand on the automation side, what's your take on Quant. Funds, that are not trend following in nature?

What I'm really asking is.... what do you consider a good system and why?

 

TSGannGalt asks some intelligent questions. They present a good opportunity for the knowledgeable practitioner to demonstrate a firm grasp of his trade.

I predict however that any answer from Trend Following is likely to be uninformative.

 

Do you have a link to that pancake flat curve ?

 

Herewith

 

I was asked to write an article recently for Active Traders Magazine. The subject I chose was the demise of the Original Turtle Rules as markets changed over the years. I assume it is going to be published this month or next. Explanations and charts abound. The article also sets out a few simple measures which might put such a system back on course (at the expense of making it a rather different system!).

As you will note: trend following systems DO NOT self adapt. Markets DO change (at least over the normal span of a trader's active working life) and most rational traders would agree that on-going research and cautious alterations are a fact of life for the trader who wishes to avoid bankruptcy.

Also see a post on the Trading Blox Forum by Sluggo. Sluggo is a man who is not often wrong.
http://www.tradingblox.com/forum/viewtopic.php?t=6219&postdays=0&postorder=asc&start=20

It pays to take care who you listen to.

 

Much to my amusement I note that my article is previewed in "Futures and Options Trader" December 2009, Vol 3, No 12 together with a picture.

I must be careful not to make this sort of thing a habit. Pots calling kettles black and so forth.

 

Price change in markets is the basis for trading to make money.
Here, people explain their views on how markets evolve and they characterize the nature of markets changing. There are several factors under consideration and there are characterizations of markets form many points of view.

The OP has compared buy and hold to an alternative: taking advantage of price movement using market trading orders more frequently as time passes. He considers different position holding terms (periods of time) and taking advantage of market dynamics. As an author, he has documented this.

To begin the thread, he quoted from “Trend Following” a comment which asserted an unchanging aspect of markets which specifically addressed the reliability of trend following for traders.

My frame of reference is only 50 years of active trading. I am not a person who considered the buy and hold orientation. Instead I have just focused on one thing. I call it "taking the market's offer" and, for me, it is THE measuring stick of how well one can do.

Trend following, in my terms, is the essence of: taking the market's offer. In 50 years I haven't noticed any difference in how price change works in markets. Techniques for measuring and quantifying and qualifying markets have changed. Broadly varying semantics have always been a facet of the financial industry. Integrity is usually absent and has a bearing on making money.

For anyone who is acquiring an intimacy with the markets, you can count on their internal unchanging ways as a foundation upon which to build.

The estrangement most have with the markets comes from the inductive emphasis that consumes their pallet. Huge informational resources exist for gaining intimacy with the market. But anything tainted by induction is not going to be fruitful. Once the facts or information is extrapolated, in effect, a wild goose chase begins and it can be shaped in any way desired.
All of the above paints a broad picture and scopes and bounds the general trading opportunity.

For those who embark on market participation, there is a wonderful lesson related to their integrity awaiting. Cheating to make money IN markets isn't possible. Cheating in the financial industry is one of its cornerstones.

I will express a viewpoint by taking all of the above into consideration and I will introduce considerations handled by other in order to have a clear opportunity to take advantage of the market’s offer. There many reasons to respect those who work hard to move forward a general understanding of markets. It is also possible to consider and respect breakthroughs in trading when they occur.

Two breakthroughs are available to all who work to forward the means of trading: considering the solution to the riddle of induction and considering the use of deduction in formulating.

Induction has its drawbacks and they are observable in the work of most. You see many “workarounds” for the risk aspects of using induction. Considering if it is possible to ameliorate the consequences of using induction is important in my opinion. For instance, I find that drawdown can be ameliorated by being on the right side of the market. I also find the general probabilistic approach of induction which became to foundation for edges, can be given thorough consideration. By looking into how the entry/exit exists as a limiting case pair, I feel that a major consequence of induction can be minimized. Consider two edges becoming an identity. The exit edge may be looked at as an entry in the opposite direction. Usually, it is not, however. Examining why reveals how most inductive reason is done, instead. Induction examines data and the examination is usually singular. I assume the examinations generally follow a scientific method. It is easy to search the literature and see the results of looking at inductive research. This thread mentions a cite so oriented. Once exits and entries in the opposite direction are considered, even just inductively, then a change in practices will occur.
Adding two unused parts of induction to the tooling of those who use induction will improve their lot; namely, considering being on the right side of the market and second seeing the exit/entry in the opposite direction as an identity.

The inductive solution to both is the geometry of trending. Most statistically oriented practitioners will turn to the vast resource of statistics and will not turn to examining alternatives. Personally I used three MLR’s and measured their relative angular velocity. Using higher degrees of regression amplifies the measurements. In any event, it can be done in a variety of ways and so far it hs not come up in ET by those who use induction.

Earlier in the thread some trading “topics” were explored to get the drift on how practitioners relate to their efficacy. This allowed for considerations of trading efficiency within a context (considered important) and a market behavior understanding skill proficiency. A trader becomes equipped to carry out trading and he becomes skilled in “reading” the market’s operation. This blend is continually refined and optimized. He has edges he works and he find those edges by observing his display of the markets.

Trend following is done largely from the inductive vantage point. Almost all contributors here acknowledge by examples and by practice that is what they are doing and agreeing or disagreeing about. The performance of this group is also fairly well understood. They make a living doing aspects of it one way or another. I use the average income of medical doctors as my “make a living” unit.

If a person uses his approach and enhances it step by step, then he becomes more effective and efficient relative to the approach and relative to the market’s offer. So I feel it is a good idea to make the comparisons. This can lead to prioritizing tasking with respect to margin improvements in effectiveness and efficiency. Most inductively oriented trader could, in my opinion, concentrate on being on the right side of the market AND concentrate on understanding that their exit is an entry in the opposite direction.

Understanding the market can help with both and trading skills acquisition helps with both as well.

Both eliminate some aspects of induction that are usually counterproductive.

One very key aspect of these refinements is that trends overlap. As the research and literature of induction is reviewed, trend overlap is not a common focus or even a by-product of other research. Being or staying on the right side of the market is not an instantaneous matter; it is like the long slow curve of baseball.

One place I observe that is fruitful, is observing people whose trading edges are disappearing (whether they know it or not). This is the gross case of not staying on the right side of the market AND not using the identity (an exit is an identity with an entry on the other side). In this thread, edges failing is an a priori example of the market changing. For me (my not using induction to conclude), it is more a matter of the “coarseness” of the trader’s inductive work. Notice, for yourself, not all trader’s edges fail at the same time with respect to the market’s operating point. Inductive research has not yielded a hierarchy of market operating points. We saw Van Tharp got to 6 for markets and Larry Harris got to 33 for trader type boxes in his referenced hierarchy. The market delineations are sparse.

Coarseness of approach is examined by looking at the relationship of trending and volatility. If the market’s operating point is examined this way then it is easy to see where to tweak an approach to make it more inclusive of market operating points. What inductive research orientation gives a divergence of trending and volatility? Look at BO trading first.

IN SUMMARY, it is worth addressing the riddle of induction. If not, then the consequences of induction must be worked through. Considering trends is very fruitful in dealing with most consequences. I turned away from induction completely. By considering the market’s offer as THE standard, I found that no inductively based approaches come close to taking the market’s offer. The alternative was to not do exit/entry trading but to turn to reversal trading using the identity. To build the bridge from the convention of induction to extracting the market’s offer; it has to be understood that the market is always right and, therefore, dictates all aspects of critical thinking, modeling, design, development and applications for partnering with the market to extract the offer.

 

Hmmmm, just a basic example, you have noticed no change from the transition to decimals from fractions in market behaviour?

that is just the tip of the iceberg on how markets have altered over the last 50 year.


just the facts please,

factOrama

 

I found that, when examined, market behavior is the same and can be used in the same way as it was used 50 years ago as the basis for critical thinking, modeling, designing, developing, and pragmatic applications. In other words, the paradigm has not changed nor has its parametric measure. From this foundation, every thing works automatically without anomaly or noise.

Going from fractions to decimals was an event and you specify it as an alteration.

Another thing that is similar but more evident are things like new markets and new securitizations and forms of securitizations.

The advent of the PC and the printer and real time information have also occurred.

Insert: Over time the "size" of the markets has changed a great deal as well.

You have contributed the words "behavior" and "alterations" regarding market. That was a very nice contribution on your part.