Quote from stephencrowley:
Short term trend following is something I'm considering but I haven't put much effort into yet.. basically I'm trading mean reversion now, but it would probably be useful to do both.
I'll start another thread soon (maybe today) with some examples from the equity curve, etc. I won't be able to give away the symbols though.
I'm in the market roughly half the time right now.. always nearly 50/50 long some short some.
you made it evident that you are a contrarian and to do that with stocks it is necessary to choose quality stocks just to keep out of trouble.
The ratio of money velocities for the long to short parts of quality stock cycles favors wwhat you do so you owlud be in the markket less than 5o % of the time ordinarily.
You are trading using data that is derived from bar durations that are too slow compared to the bar duration that would let you optimize.
So this sets the scene for the potential you are not attempting to deal with. And from that potential you can determine the potential of what you are doing.
Skip discussing leveraging of capital. I am just going to speak about the money making from investing capital and profiting from that.
For anyone trading stocks long just using the "natural" cycles, the daily potential is about 4 to 5% per day for any amount of capital up to that required for holding 100,000 shares. This is not a compounding situation; rather, it is one where profits are swept and used for other endeavors.
The reversion to mean on these trades is when most people are not holding. This is the period after the trade (long) was completed and the stock is simply being observed. You may be trading these type stocks short to get the reversion values. since the stocks are quality ones and mostly traded for the long potential profits, the short trade profits are less and they take less time to collect. The ratio of times (long to short) is 3 cubed to 2 cubed. So you are doing more trades, each lasting less time and the profit per trade that you get is less as well.
To do 1% a day, for you, is way below optimum. You are not in the market sufficiently in the first place and apparently, so far your model does not deal with the source and application of capital. This means that you model is not cueing potential entries when exits are occurring.
As I initially suggested there is some quirk in your reasoning, fundamentally. To get to the point of reversion to the mean there are two prior and a priori considerations that have been acknowledged. Both independantly and collectively are supperior to your action periods and they are exclusive of your action periods.
You are designing to behave and act in only the higher risk periods of potential money making while at the same time you ID and choose not to act in better times for the respective equities.
If you want toconduct some valuable research time (reading) you should attend to becoming knowledgable about the proclivities of "informed traders" and also you must begin to consider how the very successful work in the marketplace as "front runners". the methods and even designations for such as yourself, are rarely found; there is a reason ( in fact, sets of reasons).
Getting to the place of thinking that you have discovered how to make money (and still use a caveat like not losing, ever), puts you precisely your the place of not having much wiggle room for itrative refinement.
One person baited you early on about how work is done as the foundations get fulfilled and new horizons appear. while these do not occurs as baited, it is possible that when they do occur; it is unwise to have been heading against the grain.
Reversion to the mean can be clearly understood and seen as only half the trip. The mean is actually the place where money velocity goes from acceleration to deceleration. When I read you, I get the impression that you feel the mean is the end of the deal.
My query to you was based on where I believed you to be. Now with your response, I see that I have overestimated the distance you have travelled so far. Their is a lot of "messiness" being discovered of late regarding the activities of professional traders. you have not, as yety, encountered what is being examined by those with their conventional yardsticks. in the direction you are headed, it is more difficult to vcome up with fixes than most any other directions available for choosing.
