Those rules were for markets which displayed strong trending capabilities, and they did work for a substantial amount of time in the NASD and Russell markets. Of course, as T-Dog mentions, once something is known to work (and I'm sure traders knew those markets had strong trending capabilities before this work was published) it has a tendency to become less effective. The answer to that one is actually pretty simple ... just find the new correct combination of trading rules which can be applied to the markets and be able to make a consistent amount of money. Only this time, don't publish them ... Regards, JJ
Apparently you have not read carefully. Hsu & Kuan were not discredited. In fact, they used the same "Reality Check" that Dr. Aronson used in his work. Finally, I replicated some of that research myself and obtained my own results, which I have been trading quite profitably. One of the limitations that comes with reading about research instead of doing your own, is that the effectiveness of those rules can change at any time and if you are only reading the work of other reasearchers YOU will never know that it did. Jimmy, unfortunately you are correct in your comment about not publishing research. I do my own and encourage others to do the same. Best to all Steve
How true this is. One can critizise or compliment whatever someone else does but until they actually do the work themselves do they realize the limitations or benefits of the results.
If money management means position sizing, that is to say what fraction of ones capital to commit to each position, then no money management system can salvage a trading system based on a signal with no information. The signals must have some positive expectation in order for there to be a long-term expectation of profits. However, poor money management, specifically investing too large fraction can produce losses from a signal that is informative. This was proven by Kelly and has found it way into the optimal fraction. Given the probability of a wining signal, and the average size of the win and loss, the Kelly formula tells the fraction of capital to commit to maximize the logarithmic growth of capital. If the term money management means something other than position sizing, I would like to understand how the term is being used. David Aronson
I read Dr. Castaldo critique. He misstates several things about Reality Check, invented by White, a method I use in my book. First, reality Check does not use Monte Carlo. It uses bootstrapping. They are different. Second, RC does not generate pseudo price series, as Castaldo alleges, but rather uses bootstrapping to generate the sampling distribution under the null hypothesis that none of the trading rules tested have returns that exceed zero. This is very different that what Castaldo's critique of Hsu describes. What Castaldo describes is the Monte Carlo method used by Ostler and Chang in their test of an objective version of the Head and Shoulders pattern on stocks. So he seems to be confused about what RC does. BTW, the pattern does not work on stocks according to the Chang and Ostler study. David Aronson
Well Dr. Aronson, there is not a lot to say except that I agree with your critique of Alex Castaldo's comment. As you can see by now, few if any of the members here have a background on which to make any intelligent comment. Those who do comment (Marketsurfer comes to mind) rely on the ignorance of the audience in order to make their point. As you can imagine, there is plenty of unintended comedy to be found here. I hope many here will find your book of interest. Frankly long ago I tried to suggest to new ET members that it would be a good idea to take a year of basic statistics and learn to use Excel before trying to trade the markets. Not much response to that suggestion. I particularly appreciate what you have tried to do in part I of your book. I think anyone who wishes to obtain professional status in this industry can benefit from the comments you offered there. Good luck Steve
Yes, it reminds me that joke about why you should not try to teach a pig how to sing: 1. You waste your time 2. You annoy the pig, anyway ! But, I guess, if there is only one person who learn from you, it is still worth the effort. Let's hope !
I, too, don't believe that money management can save a poor strategy. However, I believe that money management encompasses more than (initial) position sizing. From my own perspective, it includes initial stop placement, an initial scaling out point, the amendment of the protective stop for the remainder of the position, and so on. The argument can be made that these elements fall more within the realm of strategy than money management. To that possible comment, I would respond: where does one end and the other begin? Some entry methods are better geared toward short-term movement than extended movement. To the extent that this is so, the position (money) should be managed to accommodate its strength and minimize the risks associated with its weaknesses. Therefore, as I see it, money management does not end with initial position sizing.
of course thunderdog. you are right fwiw, i trade index futures for a living ALL my setups have predefined stops (different for deifferent setups) and predefined initial and secondary target tertiary and 4th target (assuming that sizing ) are more discretionary. i also think a big thing about mmanagement, at least for me, is always setting stop immediately before entry and never widening a stop ever. i can move it in based on various criteria but NEVER NEVER NEVER outwards that's all money management stuff
I haven't read a decent TA book in about 5 years. I received my copy of Evidence Based Technical Analysis yesterday and I still have not read a decent TA book in 5 years. No offense to the author whom I know has posted in this thread, but what a waste of time and money. Market Surfer, you are just plain FULL OF SHIT calling this the best TA book ever published. If you didn't get paid from the author he at least must be a close personal friend. Nothing useful in this book whatsoever. NOTHING!