For you, Technical Analisys lovers!

Discussion in 'Technical Analysis' started by abogdan, Jan 3, 2004.

  1. abogdan


    Could not resist. Skewed distribution curve is a norm. Perfect Gauss distribution is a very rare occasion. This explains why there is an intraday volatility. For example, average intraday volatility of stocks like KLAC, AMAT, QLGC etc. is around 2.2%. I have done some analisys: If you take daily price moves and for each day you take either (High - Open) or (Open -Low) which ever is greater then divide it by Open you would get daily guaranteed price move (Up or Down). For KLAC, for example, there were no days in the past 400 trading days when this move (up or down) was less than 1.045% (Let' say 1%). So, draw a horizontal line each day that starts from Open price. If Bid is higher than this line go LONG 1000 shares. If it goes to 1% right away quit till the next day. If it did not go there and Ask became lower than your horizontal line then flip your position to go SHORT but this time increase your position by 1/10 of your original position (SHORT 1100 shares). Keep on flipping each time taking new position with the shares equal to 1000*(1.1^n) where "n" is a flip count. If you manage to keep the cost of your flips <= $0.05 per share (let's say $0.01 for your commissions, $0.02 for Bid/Ask spread, and $0.02 for slippage) then your losses each time you flip are only 10% of your profit target of $0.5 per share(1% for KLAC). It ensures you that when the price finally goes to 1% either up or down you will pay for all the flips and you will make 1% return. So, if your intraday leverage is 4:1 on your capital then you have 15 flips to get you to 1% (1.1^15 = 4). So you would make 1% on your actual money. Now, if you look at KLAC data for the past year, the average amount of flips that it took to get to 1% (up or down) was 5.7! So your actual leverage that you used (on average) was 1.7. It makes your capital available for other stocks with the same strategy. Effective return will be equal to appr. 1.97% a day which will give you annualized (compounded) about 100*Original capital. Not bad! And there is no risk! You are always "with the market". If you want to be more sophisticated you can use this strategy on daily/monthly data and write Calls and Puts to pay for the flips. This way you don't even have to increase you shares and your capital usage is better. So, how is this for a random strategy?
  2. Turok


    It's an interesting conversational strategy, but it relies on a couple assumptions that will kill your account in real life.

    >If you manage to keep the cost of your flips <= $0.05
    >per share (let's say $0.01 for your commissions, $0.02
    >for Bid/Ask spread, and $0.02 for slippage)...<snip>

    That's a big IF. Spread and slippage will vary, especially when attempting to go short with the downtick rule. If it drops .25 before you get an uptick you have just taken a hit and it gets worse below...

    >Now, if you look at KLAC data for the past year,
    >the average amount of flips that it took to get
    >to 1% (up or down) was 5.7!

    That would depend on what you are counting as a "flip". Was it counted by one minute chart, time and sale data, or bid/ask data?

    If you are looking at a one minute chart and counting the number of times the candle pass through your start point then it is not even close to realistic in the long run -- even a one minute chart doesn't reflect how many times it actually passed through that point. It can jump back and forth 10 times in that minute (each of which you would have to flip according the strategy).

    If you are looking at tick by tick data, then you could actually determine the number of times it passed, but I'm pretty convinced (though not certain) that the number would be much higher then 5.7 because of noise. Prints generally don't just move up or down smoothly...because people are taking often taking both sides of the spread. So if you define a "flip" by time and sale, every time a print occurs above or below you now have to flip. But of course waiting for a crossed print can mean that the bid and ask has moved several level away and you bleed again.

    If you don't want to wait for a crossed print and instead rely on the bid/ask to cross, you will end up again flipping numerous times at the crossover point as the bids/asks "dance" around.

    >So, how is this for a random strategy?

    Let's just say it's a loooong ways from tradable.

  3. abogdan


    I have pictures for each day in December. You can look at eSignal Bid/Ask charts your self.
  4. ig0r


    That looks like at least 3 flips though (B/A traded down to the bottom green line, yesterday close? up through upper green line, and back down lower, the final flip), either way, interesting idea. You trading it ab? :)
  5. Turok


    It's not a big deal, but the chart you posted was not a T&S chart, but rather a bid/ask chart. My specific quote that you post is related to the prints from the T&S.

    Also the chart you post does not have the resolution to determine what it happening right at the line even for the Bid/Ask.

    At any rate, it appears now from your last post the the bid/ask is your chosen flipping trigger and you are welcome to assert or even prove that this trigger does not dance around the crossover level calling for many repeated flips -- that proof would still not make the system tradeable by any means

    Generally I proposed that the noise will at times cause an unduly large number of flips on some trading days and that this will kill the gains you make on other days.

    Generally I proposed that your slippage will at times be greater than can be 're-earned' through upping your position (especially on the short side) since of course the larger the position you take to overcome the slippage loss the more slippage you get.

    I still stand by both of those general positions.

  6. DT-waw


    Did you tried to code your strategy and backtest it on the last 400 days of KLAC intraday data? How about doing the same thing with other stocks, futures?

    I'll repeat Turok's question: what time frame do you use in order to decide whether the horizontal line was crossed. Bid/ask, last trade price, closing prices of 1-min bars, 5-min bars?

    What will happen if:
    the price is down 0.95% from your hor. line, (profit target is not reached) and then comes back to the line, rises 0.95% above the line? In other words, your target isn't hit during the session. You'll hold overnight?
  7. DT-waw


    Here's a sample chart from 5th March 2002 Dax futures, with a horizontal line from the open, 5 min bars.
    It shows the problem: if you use N-min bars, your entry price can be significantly away from the horizontal line, in the worst case, it can be at the session low/high.

    If you flip every time last trade price is above/below the line... well commission&slippage costs can kill you. Anyway, it would be the best to see backtested results.
  8. abogdan


    Thank you for your interest. The concept that I described in my original post, of course, a bare bone, rough idea. In some of my previous posts I already stated that I do not recognize Price vs Time bar charts as they are misleading and could not be basis for some of the most fruitful strategies. The reason being is that the actual supply/demand functions (Bid, Ask, BidSize, AskSize) can actually act as natural filters. For example, if you go long when the Bid Price is over certain level and Bid Size is higher then XXXX and you go short when Ask Price is lower then that level minus some delta you are actually creating a very interesting time invariant natural filter. The charts that you are looking at and optimizing you strategies on do not allow you to do that. Most common software programs (TradeStation and similar to it) do not allow you to run optimizations on Bid/Ask/Size charts. The strategy that I presented with a lot more modifications that I have not described is working in our office. Yes, there is a problem with the shorting on a down tick, yes, there is a slippage that is sometimes greater then we expected, yes you have more flips on some stock that you are expected, all of it is true! But I have never said that you can implement what I described as is! Use you brain, calculate the optimal strategy using multiple stocks portfolio and you will easily overcome those issues. The reason I created this thread is because I would like to emphasize the importance of data that most of you strategy developers and technical analysis lovers do not consider useful.
    Regards to all of you.
  9. jem



    I thought your comments were interesting but a bit bombastic regarding t/a and the fact that you "proved" it did not work.

    Then I saw this thread, and thought well I experimented with stuff like that and and the slope of the open to high vs open to low and found it to be just like picking off trends.

    I suspect what you have noticed may suffer from survivorship bias or just too much data mining.

    I also see you are a vendor.

    Consequently, I think it would be fair to request that you produce P&L stamens supporting the above profitability you mentioned.

    If you are making money with a good technique that is not B.S. then you should not have to be so cryptic. Prove and they will come. Including me.
  10. ig0r


    Through the few posts abogdan has made on this board, I don't think it's too hard to see that he is not only generous when giving out ideas but also not at all interested in getting any customers/subscribers out of the ET crowd. He merely shared an idea, he has nothing to prove to you or anyone else :)
    #10     Jan 4, 2004