PRICE ACTION vs BACK TESTING

Andyroki · Sep 3, 2009

MoreYummy

"Andyroki: Does it work for currency also? and future?"

Sorry, program does not do historical currency or futures only stocks.

just21 · Sep 3, 2009

Quote from Cheese:

There is not really any such thing as Price Action. So called PA uses nothing but price? Wrong. If it did all you would need is one only single market price on the screen changing as price goes up or down. So called price action uses the history of price on the screen up to the current latest second price. That price is on a chart and the preceding patterns up to the latest price are assessed for determining whether you buy or sell. So instinct or remembered observation is being used instead of indicators to decide buying or selling. Either such human observation or alternatively indicators may not be good enough for good trading, especially so for amateurs.

Now lets consider back testing. It is limited and fallible. It relies on usually OHLCs of daily sessions over a given period. OHLC is not useless but it is very insufficient as an input. Hence the frequent disappointment experienced by the hordes of back testers always sustaining themselves on obstinate ignorance and blind faith.

So where is the starting point? The starting point is observing where the money is. As obvious as it is, it is not obvious to many. The money is in the daily gyrations of a volatile and liquid market. A gyration is a swing up followed by a swing down (or vice versa). Generally I use, arbitrarily, 35 points, bar close to bar close, as the minimum for a swing (ie CL,NG,YM). The gyrations are where you begin your studies with a view to making yourself rich.

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Sounds like market profile.

eusdaiki · Sep 4, 2009

Quote from kiwi_trader:

Price action can be tested.

It is more difficult to do with a computer than filtered (indicator) action but it is doable. Alternatively it can be done by a person who is sufficiently aware of the tendency to fool oneself in such work.
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Will you care to expand?

I can see that you can back test using all data from the DOM feed, but what indicators/parameters do you use to define rules that allow a computer to back test price action?

JaiSreeram · Sep 4, 2009

A good and interesting post, Cheese.

Googled the net for more information and found the following:

-> http://www.theessentialsoftrading.c...-isnt-just-about-evaluation-a-trading-system/
-> http://seekingalpha.com/article/154868-back-test-harris-private-bank-system
-> http://books.google.co.in/books?id=...m4WeBw&sa=X&oi=book_result&ct=result&resnum=2
-> http://www.investopedia.com/terms/p/price-action.asp
-> http://investopedia.com/terms/b/backtesting.asp
-> http://www.tradeology.com/priceaction.html
-> http://www.tradingpriceaction.com/
-> http://www.trading-strategies.info/node/17
-> http://www.dacharts.com/articles/Buffy_on_price_action.php
-> http://www.qvmgroup.com/invest/archives/5642
-> http://seekingalpha.com/article/154868-back-test-harris-private-bank-system

TraderSystem · Sep 16, 2009

Thanks for the wonderful links, JaiSreeram They explain really well a lot of things. Thanks!

daveb351 · Sep 16, 2009

2 articles & code in TASC(12/2001 & 7/2005) by Massimiliano Scorpio, though on detecting reversals, should work to back-test price bar action and give you statistics of their probable success.

JaiSreeram · Sep 23, 2009

Welcome, TraderSystem

Quote from daveb351:

2 articles & code in TASC(12/2001 & 7/2005) by Massimiliano Scorpio,though on detecting reversals, should work to back-test price bar action andgive you statistics of their probable success.
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daveb351, could you please provide the links for the above? Thanks! It seemsMassimiliano Scorpio is an expert in key reversals, is that correct?