What do they start with? Eyeballing price action? Flipping a coin? Surely they had something to guide their initial opinions.
Yep, I too have been working on two Systems; a Market timing system and now a Stock buying System. The advantages of a Bear Market, time and opportunity to work on such things.
If you're trading, it shouldn't matter to you if the market is going up or down. You can make just as much shorting a bear market as you can buying a bull market.
Yes, it's just Shorting (Indexes) requires better timing due to the speed with which it'll fall. Then there's the usual drifting up of the Market.
Yes. And remember that there's always a force pushing markets up and that is people's wishful thinking and their lack of other places to put money. Who really wants to invest in bonds unless there's no option?
I believe the edge is found within filtering. “Don’t confuse a brain for a bull market.” There are hard pennies trades, Which might represent 95% of the trades. Where you lose money, hairs and a good chunk of faith. There are easy dollars ones, Which might represent 5% of the trades. Where you double your account, capillarity and god like beliefs. If only we could have the patience, To wait for the perfect setups. Market > Sector > Industry > Stock > Setup > Entry > Exit Better buy gold wrong than shit right. Filtering is the holy grail I believe. At least … for me. + Maximizing Reward to Risk. I am not James Simons. Sorry.
Great Post Finding a Trend is easy, so the Chop becomes the problem. Maybe perfecting both Trend following and Support n Resistance trading is the way.
Components of Building a Model Primary Components, Switches Switches will be acquired by thoroughly testing specific market price action which will then be separated into non−trending and trending samples. Through the unique use of switches, combinations will then be implemented. Switches can be more easily explained as a method the trading model must use to gain permission to place a trade or to implement other strategies such as money management. Non−Trending Switches First, consider the market to be traded and its respective volatility. Tests should be conducted to understand what the underlying structure of each particular market is. Most markets will fall into some category of tradable ranges that reoccur over time. Non−trending ranges rather than trending price action will dominate most markets. Each market must be individually examined and it must be determined what is the predominate price action and volatility. Once it is determined that non−trending price action is the predominant makeup of the targeted market, concentrated efforts of model building and testing can begin. The primary objective should be to encapsulate the non−trending price action with an algorithm that is as profitable as possible. It should be noted that when viewing the system statistics they might appear to be lackluster. This can be attributed to the losses, which will occur when the subject market trends. The primary objective to building a non−trending model is to specifically isolate, with as much accuracy as possible, those particular price traits, which are most prevalent in the data series being tested. Trending Switches As previously stated, the particular markets primary price movement and volatility need to be considered when performing research to build a valid trending model. It is a valid statement that most all markets exhibit some trending tendencies given a long enough look back period. However, the algorithm that it would take to capture some of these extremely long−term trends would most likely simulate a buy/sell hold strategy. The assumption that the trend is your friend is a mistake and should be avoided. If indeed a theory exists that a particular market has a higher tendency to trend − this may be valid – however, the data needs to validate this theory. One of the primary pitfalls of the human eye is the ability to focus in on that which it wishes to see, especially when a preconception exists, rather than the underlying statistical analysis. The objective is to determine if there are, shorter term consistently replicable price actions which can be utilized and capitalized upon. These short−term identifiable trends are most likely to have fewer occurrences than their counterpart non−trending price action. Through validated testing mentioned earlier, there are some markets which show trending characteristics as the primary market movement. Combination Switches As the name implies, this method of combining different strategies, attempts to capture the bulk of a market price movement. There are certainly other personality traits that markets can and to tend to exhibit. Through extensive testing, it has been determined that the majority of markets can be primarily broken down into two parts: trending and non−trending. This two−part method will be a solid foundation to build a system upon. Create and design each model to specifically perform its role as accurately as possible. Then combine the resulting models using a switch algorithm. This results in the models being combined to reach the final objective of profitability on a single market. It should be noted, that overall profitability of each system tested independently will more than likely be less than desirable. However, the objective is to create two components, which then perform their specific tasks independently. The desired effect of the outcome when combining these models is to have greater profitability than any one single model could have operating independently. This process is achieved through the utilization of switches, which are programmed in various combinations. This is a very valuable concept and allows one to avoid many fallacies inherent in trading platform software programs. The whole concept of switches allows clearly conceptualized ideas to be isolated. A very simple example of the switch concept shown below: • If such and such then switch 1 = 1 • If such and such then switch 2 = 1 • If switch 1 + switch 2 = 2 then do this Mark Brown
I saw an interview with Simons last year in which he explained that his initial trading setups were simply deviation from a mean. While that eventually stopped working, as it did for me, his initial success led him to continue in the markets.