How to research and verify trading ideas

[fundjunkie]

Quote from talontrading:



Buy the close of this bar when:
1. it is above the 50th percentile of the past 200 days' closes.
2. it is below the 10th percentile of the last 15 days' closes.
3. It is the third consecutive close down.

Exit conditions:
1. Sell when today's close is higher than the 50th percentile of the past 5 day's closes.

My first reaction/question on reading this is how do you handle the long term upward drift of many markets? Do you detrend as a step 0?

Apologies if I've stepped in here and missed some fundamental piece of information. I've not read the entire thread.


Thx
D

 

[talontrading]

No need for apologies.

You're overthinking... no need to detrend anything... use the simple rules I posted exactly as they were given as a starting point. There's nothing significant left out... we trade a slightly different parameter set but it's basically the same thing.

Quote from fundjunkie:

My first reaction/question on reading this is how do you handle the long term upward drift of many markets? Do you detrend as a step 0?

Apologies if I've stepped in here and missed some fundamental piece of information. I've not read the entire thread.


Thx
D

 

[xtrader99]

Quote from talontrading:

<sigh>... ok then... for those folks here's another kind of idea:

Buy the close of this bar when:
1. it is above the 50th percentile of the past 200 days' closes.
2. it is below the 10th percentile of the last 15 days' closes.
3. It is the third consecutive close down.

Happy Thanksgiving! This is a purely technical idea that works. Discuss? Questions?

Removing condition 1 would yield better performances for the buy side. (At least for equities). Basically a dip buying strategy that has always been working well but hard to scale up.

 

[talontrading]

This is certainly something that should be considered. Not sure I know what you mean by "hard to scale up" though.

At any rate, people looking at this idea should consider the ramifications of removing condition 1. Though I haven't run the test I am sure it would dramatically increase performance, but....

What comes after the .... in the previous sentence?

Quote from xtrader99:

Removing condition 1 would yield better performances for the buy side. (At least for equities). Basically a dip buying strategy that has always been working well but hard to scale up.

 

[4XQs]

...increase risk?
...increase volatility of your returns?
...mandate lower position size?

 

[JScott]

Attached is the low-budget quantitative analysis of this strategy going back three years. I used the DIA this time as a proxy for the DJIA – which had a few more signals. No fancy performance strategy, just a quick check of entry, exits and heat (risk). No stop baked in a la Talon, but a big stop isn’t needed based on this limited data sample.

Note: Entry signal was only after close was “less than” day before for three days in a row . . . not exactly the same as “three red bars” like I said before. I’d say that a little flexibility with the definition of “consecutive close down” might show many more, very good signals.

Also, percentile of 5 day close is often = 50%, but exit was determined when it exceeded 50%.

I like this strategy because it is surely very uncomfortable for nearly all traders to buy/sell into the face of momentum. Wouldn’t bother me if proper homework was done.

See attached for a summary of manual backtesting if you like. Thanks.

Keep trading.

J.Scott

 

[cvds16]

Quote from talontrading:

The basic idea behind a percentile is to rank the observations and then take the Nth percent of the observations, interpolating if necessary.

This is a pretty simple concept.

Using Microsoft Excel and data available from Yahoo I calculate for AAPL that the 10th percentile of the past 15 days is 200.16

I still don't get it: I see about four different ways to calculate this over the last 15 days at first glace, there might be more if I think this through: do you use closing price, range, volume-adjusted prices, ... What seems 'obvious' to you isn't it to me, so I would like to see the actual calculation. And, yes, I know what a percentile is ... I just don't get what 'raw data' you take into account from which you calculate your nth percentile ... (it might be me having a major hangover from last night ) so giving the details on how you get the 10th percentiel of the last 15 days of aapl would be nice ...

 

[talontrading]

closing price. the system as i gave it here only requires closing price. now, it might be smart to use highs / lows, but as a starting point i just gave closes.

Quote from cvds16:

I still don't get it: I see about four different ways to calculate this over the last 15 days at first glace, there might be more if I think this through: do you use closing price, range, volume-adjusted prices, ... What seems 'obvious' to you isn't it to me, so I would like to see the actual calculation. And, yes, I know what a percentile is ... I just don't get what 'raw data' you take into account from which you calculate your nth percentile ... (it might be me having a major hangover from last night ) so giving the details on how you get the 10th percentiel of the last 15 days of aapl would be nice ...

 

[cvds16]

maybe I overlooked something in going over things: from what I understand now you just take the closes ... and then the nth percentile ...

 

[cvds16]

ok, our last messages crossed, thanks, I get it know ...