I would be curious as to the timeframe in which they did well; how did they fare in bear markets? (2000-2002). The market condition in which their strategy was employed was the sole factor for their profitability. I wouldn't say it was random, b/c random implies long or short... their strategy actually worked better than random in the bull market environment. Conversely, all the hubbub about buy+hold being the best way to go can find its roots to the tendency of the markets to drift up as well. The flaw with b+h, though, is that one suffers through huge drawdowns, and if you happen to retire or need your funds during those drawdowns, you may be SOL. MPT attempts to smooth out the equity curve.
Couple of things here First, there are resources to test results in the public domain that show the advantages to refining your exits...I am talking about texts that you could purchase over at Amazon..PM me... Second..."the markets" have exhibited a general upward trend since inception. If one could isolate specific trend elements they could do just as you have mentioned with opens and make good money..I refer you to my posted charts showing long term trend against the background of a Linear Regression Channel..The one I like to look at often is the Weekly with my own blue channel lines in place.. Good luck Steve
they've had this perma bull mindset for the last three years. and while their pnl was highly correlated to the overall direction of the month (so for instance this Jan was great..May not so great) they rarely had a losing month. I haven't done the research but I'd be willing to bet that each year the number of down days equal up, regardless of overall market return. I think the logic was simply that no-one knows the direction of the spx in the first hour of the day, so you may as well be consistent with the entry, and then look for opportunities along the way. And these guys were masters when it came to taking advantage of opportunities. In the end I like to think after watching how they managed positions that they weren't so much going long, as fading vol. Their position mgmt and exits were what counted, the entry is simply there to put them in the game.
Hi there. Interesting that you guys mention testing random entries. I just ran some simulations some days ago with this subject in mind. While I´m far from being a pro or an expert in statistics, I have come to truly understand the importance of a good and robust liquidation technique. In my tests, I generated about 1000 passes for various parameter combinations of a simple chandelier exit combined with random entries and wide stops. The results surprised me: most of them were quite profitable. Sure, the risk-adjusted performance metrics are horrible, but this showed me that if you give the market enough room, and simply follow it wherever it goes, trailing your profits along the way, over time, you will be profitable. To me at least, that means that a good exit can be an edge in itself. Therefore, one could say that a "edge", a system, a method, can be composed of smaller "sub-edges", that contribute to the whole. Of course, I would never trade a system that entered the market randomly. Just from a psychological standpoint, that would be a mess. What I concluded from this exercise is that entries control your initial risk. Consider that most common trend following systems have a rather low win/loss ratio, about 35%. To compensate for this, they make use of wide stops, giving room for market noise. However, if you come up with a slightly better entry method, you can tighten your stops, allowing for bigger positions (if using fixed fractional money management), and improve your returns. Just my two cents anyway.
can't speak for systems. All the traders I know, including myself, are disgressionary. Though I do believe at the center of any disgressionary trader is a crude system, whether we believe it or not. And I'd imagine exits could be random as well, only then the entries would have to be well managed. Guessing if you shorted MMM any time the SPX ran over 9 pts off of consumer sentiment..and let's say you are forced..no matter what..to cover an hour and a half later at the prevailing mkt, but could cover earlier if you wished and add to the position if you wished before that random hour and a half marker, you would still on average be profitable provided you managed the position well. Note: I don't reccomend anyone trying the above.
Isn't this the question to be asked of all TA? What is truly indicative of future supply and demand, and what is just coincidental?
tireg,where did you get that article from 96? is there a link to it and other similar materials? Thanks for your post, I learned alot from it. Eric
Here's another piece from Eckhardt. Again, the idea is concentrating on the whole trade, not specifically entry or exit. "If you make a bad trade, you have money management, you have a whole bunch of things that will come to your aid, and you're really not in so much trouble if you make a bad trade. But if you miss a good trade there's really nowhere to turn. If you miss good trades with any regularity you're finished, you're doomed in this game." I don't have a date for this quote, but I saw this one on Michael Covel's site. This is particularly true of trend-following systems, as a small number of winners determine the outcome of the whole game. In a high frequency trading trading system with a higher win rate, missing a trade may not have as large of a consequence. Another part of the trade-off between the system types; neither is better, just up to the trader to use whichever one feels more comfortable with.
on the point of position sizing - are you thinking in terms of the Kelly ratio type methodology, i.e. scale up when the odds are greater and vice versa? - here's something i have not clarified for myself with respect to this issue: if you have an idea of the distribution of your odds, then why not just take the trades with the highest odds and thus keep the position size constant or mostly stationary? i.e. if position is sized in relation to odds, wouldn't the maximum/optimal return on your capital be achieved when the odds are the highest, so why dilute it by trading when the odds are lower than the highest bracket?