How to research and verify trading ideas

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Hi Talontrading,

I just want to thank you for this thread. Before I read this thread, I was just thinking about learning price action. Now I see how we could incorporate fundamental into trading to enhance the probability of success.

This is a good thread. A bit advance, but I'll get there.

PA
 
Companies being deleted by changing Place of Incorporation would be considered corporate actions and would not be traded. Correct? You would use SPY to hedge the addition side?
 
Quote from talontrading:


4. Then we get to the art. I'm not being arrogant when I say this, but I'm one of the best 2 day - 2 week swing traders I have ever seen. I have returns of well over 100% for many years running.. without any significant drawdown. The slumps that I have had are most likely MY fault.. I had some personal issue or some bs going on in business or life that took energy from my trading.. rather than a problem of the markets or the methodology.

The real problem with this kind of trading of course is scalability. Can you generate those kinds of returns in a 500M fund? Absolutely not. 100M? Probably not, and you will be restricted enough getting in an out of positions that it's no fun.. however.. 25M? Yeah.. you can do that.. year after year. So it's not enough to attract institutional money to the fund, but it's certainly enough.

One of the curious things about my swing trading is that it has remained elusively unquantifiable. And believe me, we have tried. Computer science guys, physicists, mathematicians.. brilliant guys from schools like Chicago and MIT.. we tried this many different ways including the one that almost works of using some of the same algorithms used in facial recognition software.

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Swing trading – now I’m all ears sir.

Given that your swing method is “Unquantifiable”, and given that I’m primarily a musician (for the “Art” side of trading) perhaps I can see a bit of what you see if I can see some of your past swing trades. So would you be so kind as to list a number of your past swing trades that worked, and a few that didn’t too. The symbol and date of entry would terrific. Additionally, perhaps you could also point to some current setups that you would be considering for a swing trade.

This would be most appreciated.

Thanks
 
Quote from size:

Rather than looking like an idiot, you have gained my respect, and I am sure most reading this thread would say the same. Over the past few years I have only checked in to this site every few months or so, but this thread has been holding my interest.

I know that you do not like to optimize, but have you (or anyone else here who did the backtests) tried filtering out those stocks which had earnings reports within the holding period? I think the logic of doing that would fit into your way of thinking, since an earnings report is event which randomly interrupts the expected action, though I suspect the positive and negative impacts of might balance out over time.
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Size - I am pretty sure I have seen a published study where the earnings reports in the holding period actually add to the returns of the system, implying future earnings surprises tend to be in the same direction as the last one. It was old so it may be worth checking if still true though. Also one of the good things about the earnings surprise strategy is you end up with big portfolios, so a lot of stuff washes out (as long as it is uncorrelated with earnings surprise), I mean across stocks more than across time.

Talon - I agree with Size that you don't look like an idiot! Getting goaded into showing a bit of temper is not the same thing as coming off as an idiot. You are talking credibly about some interesting stuff not often discussed on ET. If you keep up the thread I will definitely follow along. Also if you announce the articles you mentioned on ET I will look for them.
 
Here's a paper that has my favorite way to measure earnings surprise. They call it ABR - it is the 4 day abnormal return around the earnings date. It seems to work better than the accounting based measures (recently too) and is much easier to calculate. And if you combine it with an accounting measure it is even better - filtering out stocks where the earnings surprise looked big but the market didn't move, and stocks where something other than earnings caused the move.

I think this might be where I saw the results on earnings releases during the holding period too, but I don't have time to look through it now to check.

Edit- the paper won't upload tonight. It is Chan, Jegadeesh and Lakonishok 1996.
 
talon;
i noticed that youve suggested not trading the es to start, and instead to trade stocks.
i currently only have a futures acct available. which (if any) contracts do you suggest i look into?
 
NOTE TO POSTERS:

Once again, I've had to go through a thread and eliminate the waste generated by folks that don't seem to know how to behave like an adult. This thread belongs to the OP. If you wish to dispute the OPs strategy, theory, belief, meaning of life, whatever...do so in a civil manner. Slinging feces around like a child doesn't serve anyone.

Future posts of such nature will be deleted and offenders risk having themselves banned.
 
Hopefully, interest in this topic resumes……I’ve always been curious on the shortcomings of how I’ve approached strategy development so I’ve been reading this thread with great interest.

My goal in strategy development (and trading) has been to keep it as simple as possible using a blend of (what I consider) common sense, statistics, and testing.

On approach….as I mentioned, I heavily gravitate towards simplicity. For one, I focus on a single futures market and within that market only trade the AM session so am a day trader. This specialization lends itself to subtle observations on market tendencies from which I develop my setups. Next, here’s roughly the set of steps that I go through towards developing, testing, implementing, and monitoring various setups:

1) Review intraday chars daily looking for patterns of market behavior that repeats itself.
- while I only trade the AM session, I review the full day as prior day TA/PA often influence the next days open.

2) Once I’ve identified a possible idea, backtest it by hand against 3-4 months of data to get basic statistics on performance and tune trade parameters.
- also find that backtesting by hand gets my head and hand in the data at a deeper level.

3) If hand backtesting works define parameters and automate backtesting against 1-3 years of data depending on the setup

4) If longer term backtesting presents positive results, update trading plan to include all specifics of trade setup, entry, trade management, etc..

5) Begin trading using small contract size gradually increasing if results are consistent with historical backtesting.

6) Track weekly/monthly performance to ensure that performance is reasonably consistent with historical performance.

7) Tune as appropriate for market changes – volatility, etc..

8) If performance deteriorates for unknown reason, reduce contract size.

9) If performance deterioration is not temporary, stop trading setup.

I don’t want a massive inventory of setups and am not looking to automate. Just looking to keep my day simple, profitable, predictable, and painless. So as I said, I’m curious on others view how this AS A PROCESS of systems development – major flaws, disadvantages, etc..
 
Seems that all of the responses from 'whoisjohngalt' were removed from this thread. Shame, thought he had some good posts and added to the origional premise of this thread.
 
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