Keeping It Simple

Discussion in 'Index Futures' started by dbphoenix, Nov 27, 2002.

  1. #21     Nov 28, 2002
  2. dbphoenix


    If you don't play the reversals, it's as simple as can be.

    #22     Nov 28, 2002
  3. dbphoenix


    My response to your original post was that I had found the method you described to be less than satisfactory, which was and is true. If you consider that to be "defensive", maybe you should stop following me around. Otherwise, stop whining.

    #23     Nov 28, 2002
  4. db what did find unsatisfactory in inandlong's method as outlined here? did you actually trade it or backtest it?
    #24     Nov 28, 2002
  5. inandlong offered the ingenious MA crossover system sometime ago. when asked about exits he produced nothing. so if i was inandlong, i'd be quiet.
    #25     Nov 28, 2002
  6. dbphoenix


    It's not so much what I found in his method as what I found in MA XO methods in general. Or any XO method, really. And I've both backtested them and traded them.

    XO systems seem to be simple, but unless they're qualified to the point where they seem to be unreasonably difficult, you'll lose too much at the top and the bottom and much of what you do gain you'll end up giving back in chop. For example, the caution is given that you need a "nice" intraday range with "good" volume. But defining "nice" and "good", while necessary, does tend to complicate the picture, as does defining "obviously trending".

    One problem has to do with entry. This particular iteration of the method says that one should "enter at the open of the next bar following the cross". The reason for this, as I'm sure you know, is that the cross isn't "done" until the bar is finished, i.e., while the bar is being formed, the shorter MA may bob up and down through the longer MA. Therefore, one can't be sure there really is a cross until the beginning of the next bar. So far, so good. But entering at the open of the next bar following the cross may not be quite so simple as it sounds since one will most likely have to use a stop limit entry in order to get the open price. If he doesn't, he will either have to accommodate slippage or risk missing the trade altogether, which is one reason why backtesting can often be misleading. XO methods in particular have to be tested in real time.

    One of the chief difficulties in developing what one considers to be a simple method that he can rely on for more than very specialized circumstances is that he may develop it during a strongly trending market and enjoy great success with it. Such is the case with XO strategies. However, just about anything will do well in a strongly trending market. Whether it's an XO strategy or not is beside the point. When the market begins to trend not quite so strongly, or begins to chop, he finds that his "simple" method requires considerable qualification or even abandonment.

    You commented earlier that the method I described could hardly be called "simple". This is largely because of the qualification. I don't think it's fair when presenting a strategy to put it in such simple terms that it becomes simple-minded. Buying the breakout of the first 30m bar and trailing with a 5pt stop sounds about as simple as it gets. But when one starts trading it for real and encounters problems, he then discovers that it's not nearly as simple as first thought.

    The simplest form of the strategy I presented is to enter when 2pts outside the opening high or low, set a 5pt loss limit, get to breakeven as soon as possible, then leave it alone until the trendline is broken. But anyone who's been burned by "simple" strategies will see right away that one must define "enter", "opening", "as soon as possible", "trendline", "broken". Plus there are all sorts of signals that experienced traders will pick up on with regard to the length of the bar, whether it's shaved or not, how much the bars overlap, where all the various support and resistance levels are and thus where hesitation can be expected and so on. But to include all of that would make even the simplest strategy sound impossibly difficult.

    Therefore, keeping it simple while not lying to people is an important consideration, at least to me. On the other hand, getting into a lot of minute detail which may even be extraneous is not helpful either. In many ways, it's like driving. Most people who've driven for several years consider it to be pretty simple. But there is an extraordinary amount of detail that has to be conveyed to a beginner, most of which will become automatic fairly rapidly. Same with trading. With this particular strategy, for example, if one doesn't understand trend or how to distinguish between trend and chop or how to determine strength of trend without using indicators (or even with using indicators) or know what a reaction is or how to find a reaction high or low, then this strategy will make no sense whatsoever. However, backing up to explain trend and chop and reactions and so on doesn't make the strategy complicated; it simply provides a context. God knows there are plenty of experienced traders on these boards that still get sucked into chop, but that doesn't necessarily mean that there's anything wrong with their strategies or that their strategies have to be made more complicated in order to address the problem. Most of the time it's just a matter of paying closer attention.

    I'll grant you that the strategy does require some thought, but that doesn't necessarily make it complicated. If one doesn't want to think, then a mechanical strategy is probably the best choice. But this isn't a mechanical strategy. Never claimed it was. But it is a lot simpler than consulting TICK, TRIN, MAs, stochastics, an MACD, an ADX, etc., then trying to make some sort of decision before the time is up. And, so far, I haven't seen any evidence that traders who use all that are able to achieve superior results, unless I'm willing to take their word for it, which of course I'm not. And their strategies are usually secret anyway, so what good would it do if I were?

    I've gained the most from reading ideas presented by people who are actually doing it and are willing to be specific about exactly what it is they're doing, rather than reading some "idea" that somebody found in a book or article somewhere but actually knows little or nothing about. If what I've presented here gives somebody an idea, terrific. If not, then posting it was not a huge effort. But at least there's nothing "secret" about any of it.

    #26     Nov 28, 2002
  7. But you're not, traderkay, and proper grammar specifies that "if and were" go together traderkay, not "if and was."

    Written correctly then, it should read ... "so if I were inandlong, i'd be quiet."

    I'll overlook the simple errors in construction and capitalization, since this is a thread about keeping it simple.

    Perhaps you need to reread my earlier post re: the ma's, because the exit strategy is contained in the last sentence of the first full paragraph. Here is a clue for you if you have trouble finding it traderkay, the sentence I'm referring to begins with the word "Exit."

    You have a good day now and don't hesitate to try again. You are 0-2 with me, maybe the third time will be a charm. Unlikely, but give it a go. C'mon sport.

    #27     Nov 28, 2002
  8. dbphoenix


    Incidentally, LongShot, if you feel shaky on trend or reactions, feel free to ask. Putting a chart together is no trouble.

    #28     Nov 28, 2002
  9. db,

    Not unlike others, I enjoy reading what other members have to say about simple methods. So when I see a new thread titled Keeping It Simple, I am going to check it out. Had the thread said Keeping It Simple by dbphoenix, I would not have checked it out.

    If you think that is following you around, you must get a real charge out of the letter carrier each day.

    Btw, I agree with you that simple does not mean mechanical. For this reason, backtesting a moving average crossover method with software will usually not produce "satisfactory" results. Even doing it by hand will produce results that are not going to be very good at all.

    The usual problems are that people do consider simple to be mechanical, and tend to get stuck looking at only one or two candidates in maybe two or three time frames.

    I offered simple solutions to these common problems in the second full paragraph of my first post on this elegant thread. Don't get sucked in to just one or two instruments, and wait until the longer ma is obviously trending. A bump up is not obvious. A nice 30-45 degree slope, empirically measured, is.

    Traderkay writes very little and says nothing, you write a lot and say nothing. You two should PM each other. It'd be sort of like using invisible ink.

    #29     Nov 28, 2002
  10. dbphoenix


    Odd that you would jump from The Importance of Simplicity over to here since the only post here was mine and, as you say, you're not interested in my posts. I guess you just didn't like the wallpaper over there.

    Since you're such an astute reader, I'm sure you didn't miss my pointing out that I had both backtested and traded methods such as the one you offered. But as for your "simple" solutions, they are only superficially so until you define your terms. For example, "obviously trending". Are you defining "obviously trending" as any slope from 30 degrees all the way to 45 degrees in any timeframe? If so, what aspect ratio would that be?

    You're not required to read them. Nor are you required to respond to them. Like I said, for a moderator, you have a lot of growing up to do.

    #30     Nov 28, 2002