Do markets change? Trend Following.

[thetrendfollowe]

Though I should say that solid trend following systems should of course outperform random entry systems, as you look for breakouts or uptrends.

I personally look for breakouts in established uptrends.

My point was that random entry systems don't fare as badly as you think, and that most of the edge of trend following systems is in fact due to their trade management (exits, stops).

Great discussion by the way guys.

 

[kiwi_trader]

Quote from thetrendfollowe:

Though I should say that solid trend following systems should of course outperform random entry systems, as you look for breakouts or uptrends.

I personally look for breakouts in established uptrends.

My point was that random entry systems don't fare as badly as you think, and that most of the edge of trend following systems is in fact due to their trade management (exits, stops).

Great discussion by the way guys.

Saying "most of the edge is due to their trade management" is falling into the classic old error that caused people to focus on entries / psychology / your current poison.

It is always a combination of things that creates a good result. I can generate entry signals that perform extremely poorly with a trend following trade management style ... but well with a small target. And vice versa.

Also, there is more than one way to evaluate an entry. If you want to catch long trends would you take an entry that has a low w% but when it does work positions you for the trend?

Its the package that works not the paper, the string or the tape alone.

 

[TSGannGalt]

Quote from kiwi_trader:

Saying "most of the edge is due to their trade management" is falling into the classic old error that caused people to focus on entries / psychology / your current poison.

It is always a combination of things that creates a good result. I can generate entry signals that perform extremely poorly with a trend following trade management style ... but well with a small target. And vice versa.

Also, there is more than one way to evaluate an entry. If you want to catch long trends would you take an entry that has a low w% but when it does work positions you for the trend?

Its the package that works not the paper, the string or the tape alone.

+1.

 

[RCG Trader]

Quote from kiwi_trader:

Saying "most of the edge is due to their trade management" is falling into the classic old error that caused people to focus on entries / psychology / your current poison.

It is always a combination of things that creates a good result. I can generate entry signals that perform extremely poorly with a trend following trade management style ... but well with a small target. And vice versa.

Also, there is more than one way to evaluate an entry. If you want to catch long trends would you take an entry that has a low w% but when it does work positions you for the trend?

Its the package that works not the paper, the string or the tape alone.

it takes the average trader many years to reach this level of integration.

nice work kiwi.

 

[GreenPlay]

Quote from AFJ Garner:

Leaving that particular curve and that particular system aside, I will post another curve shortly with full disclosure of the system and the parameters and people can make their own minds up. There is no magic to generating these curves and these systems just thousands of hours work programming, observing and thinking about markets. Get a good back testing programme which can simulate portfolio trading and position sizing algorithms and you are away. Couple that with reading through a few good books like Curtis Faith's WOTT.

Quote from GreenPlay:

Beyond the typical dick-measurin' and other nonsense can hijack or derail serious comments from those with something to offer, here's my own short list: AFJ Garner ("It pays to take care who you listen to," aka Anthony Garner, who wrote A Practical Guide to ETF Trading Systems & started the thread. I also like that he doesn't promote promote promote - seems low-key on that, like Tim Knight over at www.slopeofhope.com). Also, JezLiberty, TSGannGalt (great stuff, foil for Garner, can get snarky, but let it pass- he's worth it, I think), ssb11, Jack Hershey ("My frame of reference is only 50 years of active trading. I am not a person who considered the buy and hold orientation. Instead I have just focused on one thing. I call it "taking the market's offer" and, for me, it is THE measuring stick of how well one can do."), There are a few others, kiwi trader, plyka, Muskoka Joe, et al but so far these don't post much in this thread.

Mercifully, I have nothing to promote I make my living from my own trading and have done so for many years. I wrote the book for my own satisfaction and the benefit I gained was the experience of writing some (to me) very difficult coding to produce the tests contained in the book. I had many Seykota "Aha" moments which have greatly benefitted my thinking and my trading. I would be lucky to make the price of a Mc Donald's "Happy Meal" from the book.

WHAT I DO LIKE TO PROMOTE IS INTELLIGENT DISCUSSION

I have learnt much from intelligent posts by others on the old Chuck le Beau Forum and the Trading Blox Forum. And from the old Trading Recipes posts, no longer available. There are so many people on the Trading Blox Forum who have contributed to my thinking and my knowledge base: Sluggo, Mark Johnson, Garryboor, Ted Annemann, Roger Rines, ecritt, svquant and lots and lots of others including Curtis Faith (his posts are under "Forum Management"). I may have spelt some of these names wrong but you will soon discover them for yourself.

I TAKE WHAT I CAN FROM THE POSTS OF OTHERS, I TRY TO CONTRIBUTE A BIT MYSELF IN RETURN AND I PUT THE A***HOLES ON IGNORE.

Will add these to my watch-list Sluggo, Mark Johnson, Garryboor, Ted Annemann, Roger Rines, ecritt, svquant and lots and lots of others including Curtis Faith - his posts are under "Forum Management"

Good stuff from kiwi-trader confirms my initial hunch. talonrtrading and some in his thread are book-marked for future reference.

Musing about Intuitive Trading

This is a off-topic, and may deserve a separate thread. But I read something in Curtis Faith's book or in one of his posts about the fact that almost all of stock analysis is right-brained (numbers, algorithms, etc) and that he was interested in exploring more about left-brained or intuitive trading, its place in the spectrum. I can already hear the jeering - know all the arguments about sticking to your system, ignoring the urge to exit or enter our your own "gut" etc - but Faith was the king of that thinking himself - wonder if he has published on the intuitive as an edge?

Schwager touches on this in Wizards1 on "Dreams and Trading" and in Part VII of Wizards2 "Zen and the Art of Trading" (had to be kept anonymous since the trader felt he would lose clients if his method were known - give a hint at how unfavorably this approach is regarded - sheer new-trader folly!) and in the Charles Faulkner & Robert Kraus interviews (pp 481-517) - also in his own Personal Reflections in that book, and it's interspersed among Traders in Markets3 (I may have left-right confused re the brain, and need to distinguishes Schwager's confusion of Titles in the above fashion).

My own way has always leaned on the intuitive. My picking of traders I feel are worth listening to (one that will change as a work-in-progress) is in itself an example of that intuition.

But like I said, this is perhaps for another thread, so I will leave it for now.

On the Etiquette of Smack-Talk.

I can't resist noting the change in atmosphere - a new respect seeping into the tone. Just checked and found ET does have an "Ignore User" feature. If I do anything more than casual visits, I would have to put that to use PDQ to keep my own BP from spiking.

Why do these yawpers have no motive beyond ripping into anyone to make themselves feel superior? And if it becomes a group thing - one enlisting the other to gang-up on whoever the heretic is, God help that person if they sniff blood! Then it becomes a lynching, a chicken-coop pecking party!

These louts can disturb focus and tranquility if you don't watch out. Can't un-hear once you stumble into one of their slams. Unlike yelling at idiots in traffic (idiots of course, are defined as anyone not in my own car!) Thing is, in traffic they don't hear you, they are just cars inhabited by blurs. Here, there are real people, often sincere, as I am, at the receiving end.

Last item: I was amused to see all the guesswork about my "true" identity. Examples include TSGannGalt, ("Is this guy on crack? What's his deal with the Hari Krishna vibe ... What's interesting is he's trying to achieve some enlightenment and selflessness through trading with his Zen way... Can this guy be a multiple alias troll? He seems to know how to use the vBcode well) and Trend-Following - sorry, Mike. The initial reaction verged on paranoia. Some were increduous and a fw got real nasty about it (multi-alias troll? WTF?). Why is it difficult to accept that what I say I am, I am? I repeat, a new trader, and new to the mosh-pits that are the forums here at ET. I don't mind - as long as somebody has a little wit and humor, rare commodities - but what passes for smack-talk here is pretty barbaric stuff.

Here's the deal - go to the masquerade ball naked, and you win the prize for best Costume!

Now I'll recede back to to Lurky-Land. I'd usually just go elsewhere, but there is too much good stuff here, even if it does sometimes resemble a room filled with horse-sh*t, there is a pony buried in it somewhere! You know that story, right?

Even if I can't contribute high-falutin charts and esoteric shop-talk, I can ask fairly good questions, and I think my reading of people based on their posts is fairly keen. No doubt, the confederacy of dunces is arming themselves for a fresh assault on the new guy, but I'm a big boy. Don't mind mixing it up, as long as we're having fun. Hit me with your best shot.

Meanwhile laugh some, you guys! Sheesh. Lighten up. It's only money.

GP

Seykota: "Everybody gets what they want from the Market."

 

[Mav88]

so is jack the most interesting man in the world?

 

[AFJ Garner]

.

Here is an equity curve of a triple Moving Average System suggesting that simple indicators do work rather well:

System parameters are explained here:

http://www.tradingblox.com/forum/viewtopic.php?p=38376&highlight=#38376


.

 

[JezLiberty]

Quote from thetrendfollowe:

Quote from JezLiberty:

I was wondering... there must be some edge to the entry methodology as well; otherwise you might as well have random entries with trade management. There might be some market structure that cause trend continuation(?)

Actually I have run an edge calculation on a simple N-day breakout entry and it seems to offer a positive edge:
http://bit.ly/8RpMAY
meaning that even if the "hit rate" is <50% the potential gain is greater than potential loss overall

Jez.
You would be how good random entry actually is.
Run a few tests.
I would post some here but on the work computer at the moment.

Hit rate has nothing to do with size of gains or losses.
Average win size in relation to average loss size is the payoff factor.
But you already knew that.
So I must have missed your point?

I would tend to disagree with this. I dont think Win rate % is the best measure of an edge - otherwise we would all be writing options, wouldn't we? If you believe in the Black Swan paradigm, you know that eventually you'd be ruined. Not much of an edge here - similar to what ssb11 is saying also (ie W5 not correlated to profit).

My point is that - for me - an edge is how much of an advantage any aspect of the system gives you. If you win little very often and lose it all + some very rarely, this is no edge. Hence you have to take into account both Win% and gain or payoff ratio.

This is what the edge ratio attempts to do - allowing you also the best time horizon for the edge.

PS: I definitely run some tests on random entries and see how they compare to the simple entries I did test.

Furthermore regarding random entries, here is an interesting quote from Dave Harding - who surely must have looked into these sort of things pretty seriously:

Quote from Dave Harding of Winton Capital

If you put in stops and run your profits and trade randomly you make money; and if you put in targets and no stops, and you trade randomly you lose money. So the old saw about cutting losses and running profits has some truth to it.

PPS: The link to the TMA system is broken...

 

[Muskoka Joe]

My experience is if you run a random entry with a simple dollar stop, an "n" period high/ low stop, a "n" period swing high/low or any combination thereof, it will not make any money over most intervals. The exceptions will be the outliers that have a powerful move that luckily the system was both in for, and on the right side of.

 

[AFJ Garner]

Quote from JezLiberty:

PPS: The link to the TMA system is broken...

I just doubled clicked it and it worked fine for me.

Random Entries:
Sluggo produced a system for download on the TB forum to test Doc Van Parp's assertion about random entries:

http://www.tradingblox.com/forum/viewtopic.php?t=3637&highlight=random

The system had ceased to work since Tharp wrote TYWTFF (1st Ed). Further on in the thread I pointed out that the system does work if you widen out the stop. Tharp had apparently not realised that his random entry system had stopped working. But clearly such a system can be made to work. It may not be a great system, you may not want to trade it but it does emphasise that David Harding (and indeed Tharp) have a point.

I also concluded that this is further evidence that markets do change over time.