Have you had a chance to test this on any time period where the market is not in a major freefall? -bbc
Yes and no. My first tests were done on the period 8/1/2002 - 8/30/2002. The results were losses of less than the cost of commissions. The dow ind. had risen about 100 points over this time, but although I can't remember exactly how, I believe the filter changed somewhat. You'll notice in the comments section of my post that I have addressed this issue in part. Basically, I think I'll need some mechanism to filter out when to apply this system.
Same filter, formula and conditions. Filter applied 10/1/2001 (Produced 19 tickers). Tested 10/1/2001 - 11/30/2001. Dow Ind. rose ~1000 pts. through this period. Small profit. The biggest problem I see so far is the # of winners vs. losers. I also still think it would really only work "real-world" using a more general market barometer.
I ran a few more backtests and found the system to be too poor to continue testing. Anyone have any other ideas for filters or systems? I have begun systematically going through the indicators listed at IncredibleCharts.com. Incredible has grouped the indicators by type and each has a summary of use, history, and method of calculation. This is my philosophy on indicators and their potential benefit: If one were to take the charts for all stocks, print them on translucent paper, and lay them on top of one another, the final product would be a mass of black ink. In other words, the universe of stocks cover the entire spectrum of price behaviour. From this mass of black ink one can begin applying filters based on indicators. When these filters are applied, what remains are stocks with a common property. This common property is the "shape" of the indicator, and the new "shape" of the stock universe. Here is an analogy: All stocks, taken collectively, are like a block of marble. Indicators and filters are like a chisel. When one applies the chisel to the marble, what remains of the marble has a new shape - sculpting. In studying the indicators I am initially not looking for buy/sell signals, but for the essential properties of each indicator. With this knowledge, I should be capable of molding the stock universe for certain price patterns, for example, head and shoulders. Maybe I am not concerned with head and shoulders but am with stocks about to "break-out," I should be able to skulpt this too. Anyway, if anyone can see what I am getting at and has any ideas, I welcome them. -rlb
Hi a, DSPG has had two really strong days - I missed them. I think this is a synopsis of how I my market expertise has developed thus far. I feel like I am hovering around what's right, not quite able to grab hold, but I can see it. Anyway, I am taking a break from trading and been pouring my efforts into my trading setup/systems development with AmiBroker - hence, the lack of substantive input here at ET. Looks like your special 6 are splitting into two different factions right now! What's going on?
Well, it looks like the Pro-Saddam semiconductor stocks are going against the Anti-Saddam semiconductor stocks. BRCD, which I bought two contracts on, a month ago already I guess, has done decently, it was around $5 four weeks ago, $5.80 now. AMD which I had also traded when it was $5.30 two months ago, is now at $8.45. Nobody trades the SSF on these two stocks, and they could have done quite well with them both.
congrats, you are now eligible for PAA (post-aholics anonymous) it's good to see the folks at ET took the time to honor your achievement
Actually I think I totally disagree with this. I think if you laid the charts over one another, for the most part they would track each other fairly well. There are of course a few sectors that are countermarket, but the main difference would be some move further and faster. Going through each indicator is a waste of time. They all pretty much measure the same thing, momentum.. Run stochastics, rsi, macd, etc side by side and you will see they are almost identical. To trade effectively you first need to decide if you are a trend player or fader. Then you need to decide if you are a breakout player or a pullback player. It all proceeds from those decisions. If you want to trade with the trend, then you need to know what the trend is. A moving average or trend line answers that question. If you want to trade trend reversals, then you are probably looking at patterns, plus oscillator divergences. A breakout player will trade new highs, pivot breaks or volatility breakouts. A pullback player will trade retracements or oscillator crosses on shorter time frames. The April Active Trader mag has an excellent longer term system for trading commdities using the trend and a pullback entry. Big stops, big profits.
You bring to bear an excellent point. To start, I am trying to mold myself as a trader of all markets. I believe the "big" money is in trend trading, but that this "big" money gets lost in the market chops. This, I have read is the big drawback to moving averages and their derivatives. As a result, I hope to develop as one who is cogniscent of the big picture and then capable of playing the market according to the market. To exemplify: I believe the market, in general, will be trading in a range - let's say Dow 6000-12000 - for the next 10-15 years. But, after this time the market will be ready for another bull market somewhat akin to the 1980-2000 bull market. This is very large scale though and may be distracting my point. More specifically, I want to find a way to identify trend vs. chop. I am a beginner and this is a beginner's quandry, but one I feel needs resolution before I can move forward. You say that studying indicators is a waste of time and I can see why, as an experienced trader, you would say this. Can you elucidate your point? I would guess, a guess to be sure but, that the study of all indicators though not directly useful would yield a greater cogniscece of what one can do, what is available, what has and has not been done. Another question: As a beginner how does one decide to fade or to follow a trend?, breakout or pullback?, or for that matter short-term, swing, or long-term trader? I hope I have not been too wordy, I appreciate your input greatly. Thankyou, RLB
Great post AAA. The goal then, if one is a systems trader, is quantifying these ideas. Once done so, entries and exits can be constructed. In my experience, breakouts and trend following are easier to quantify. I also think many charts laid over each other, especially long term, would be very similar to each other. Even then the non correlated charts would be highly correlated with the other non correlated charts.