The one thing I never understood...

Lewcifer · Nov 4, 2008

Quote from Corey:

In my personal experience, 'time' is a confounding variable. In fact, I do everything I can to remove it. I find that prices move relative to information -- whose closest proxy we have is either volume, or better, significant (and I leave the definition of that word up to the readers as an exercise) price movement.

Very well said, and that statement espouses my personal trading philosophy as well. I use range bars in both my manual and automated trading, to consolidate the time component into a range - thus priming it for multivariate analysis.

dtrader98 · Nov 5, 2008

Quote from bluelou:

dtrader98,
You're welcome. VHF is vertical horizontal filter, I think. You should be able to find it on any of the technical analysis sites.

-Lou

Hey bluelou,

I ran some of the numbers on the link you referenced. Although, his idea is very intuitive and simple (which I like), there is a pretty strong systematic error bias that you should be aware of.

1) He asserts that brownian walk should give D=1.5, H=.5
I ran his formula over many trials of a brownian walk and it averaged only 1.4 (H=.6).
This is also the number he arrived at after huge runs of monte carlo. He tries to explain it away, by explaining some difficulties in generating true brownian walk (particularly non infinitesimally small sample steps). However, I ran the same exact series I generated on a true R/S algorithm and I get exactly H=.5 as expected.

So you might try to calibrate and or even look at the linearity of the D and H values over a sweep of different types of behaviors (trend, rand, mean rev, etc..) as it may need to be calibrated.
The extreme ends (i.e. perfect white, and perfect ramp) are also slightly off;
uniform white h= .14
GBM rand h = .6
trend ramp h= .93
I have not yet verified if the intermediate ranges are linear, either.

Haven't even looked at forward relationships or actual market series yet. But these systematic biases need to be calibrated and compensated for, if you want to have an accurate numerical reference for regime types.
Just something to consider.

P.S. I got your point on VHF; interesting, but treading into pseudo understanding of underlying reasons IMO (as you mentioned random vs. non-random).

bluelou · Nov 5, 2008

dtrader98,
Thank you for the feedback. VHF is like all of the other TA indicators. A very primitive filter, but it can get the job done.

If you're using an off-the-shelf stats/econometrics package such as Matlab would you mind sharing your simulation workfiles for the Hurst work? I should get back into using my econometrics s/w and have never used it for simulations. I have Matlab, EViews, SAS, and can get academic versions of everything else.

Thanks again,
Lou

Indrionas · Mar 3, 2009

Quote from Corey:

When there is no wind blowing, do you take out your sail boat? The same goes in trading: why use a trend following system if no trend exists (given a specific instrument and time frame)?

Hi,

I would argue that the sail boat argument is not appropriate in this case.
The problem in trading is that trends occur randomly. Therefore you see them only after the fact, when opportunity is already missed.

Every time I developed a trend following system that used some sort of trend signal (predictive model), I got bad results.
When I developed a trend following system that didn't look for any signals (anticipating model), did not measure any conditions, the results I got were positive and much better.

The point I'm trying to make is that anytime you measure market conditions, you're looking at the past market conditions. If you are trading the past conditions at the present, it's no better than random (at least that's what my experience was).

bluelou · Mar 3, 2009

Quote from Indrionas:
Every time I developed a trend following system that used some sort of trend signal (predictive model), I got bad results. [/B]

I'm not trying to play games with you here but the model wasn't strictly trend following if it was also predictive.

Indrionas · Mar 3, 2009

Quote from bluelou:

I'm not trying to play games with you here but the model wasn't strictly trend following if it was also predictive.

Yes, sorry, it's just a matter of definition. "Trend model" would be a more suitable name for it.

Corey · Apr 4, 2009

...talk about a thread necro :eek:

ventus · Jul 21, 2009

Quote from pneuma:

This is what I do. I trade 9 systems concurrently, of three distinct types that are stastically non correlated. This provides a consistent risk adjusted return and lower drawdown. Since the systems are non correlated, all can be traded from the same float as each utilises captial at different times.

If you looked at my performance to date, you would be saying "what credit crisis?".

A couple of hints:
Track more than the instrument you are intending to trade - that is track the index or advance decline line etc, and the stock.
Work on improving the performance of all the systems as they work together, not on individual systems - a system that has an average performance can significantly improving the group performance.
If you take this approach, trade all the systems all the time or don't trade at all. Currently i can't take short trades (gov ban), thus I don't trade any systems. Hello holidays and beers at market open!

pneuma

bingo. everything you need is right there in pneuma's post. read it carefully.

there are really only three market conditions at any given time. learn them, trade them all, and trade small. the frequent trading will compound your account quickly with very little drawdown.

tickzoom · Jul 21, 2009

I agree with the last two posts concept. I found it works for me. It's just difficult to do unless you build your own software or (dare I say it) use tickzoom.

I'll join a discussion of the different markets.

I tend to use 4 major market conditions like so...

Trend, CountTrend, Chop, and Sideways

But it's easier to even split them into LongTrend, ShortTRend, CounterLongTrend, CounterShortTrend, LongChop, ShortChop, and Sideways.

That makes 7. I'm curious and willing to learn how you come up with 9.

Perhaps, the transitions between them? Or variations on the sideways.

Dunno.

Wayne

zzt · Jul 21, 2009

Quote from Corey:

People always seem to be looking to develop the holy grail system. They start simple, and make the rules more convoluted as they cover corner cases ... and eventually the thing is a jumbled lump of spaghetti that doesn't even make fundamental sense.

So here is a little bone I am throwing out there ... chew on it. I am not saying it is right or wrong ... it just seems to work for me.

Instead of trying to write the holy grail indicator, why not spend your time identifying the current market condition? What does that mean? It means, write a system that identifies whether the market is favoring a trend following system, a mean reversion system, a fading system ... et cetera.

Then, and this may be blasphemy, trade a very, very simple system whose bias is in line with the current market condition. Stop trying to write the perfect algorithm that can trade 100% of the time, and start writing the perfect algorithm that can trade 10% of the time. Then, when that time comes, trade it!

Diversity, then, would be achieved by trading multiple (ideally non-correlated) assets.

You see, this is why fund managers outperform over a short time period, then fade back into obscurity. It isn't because they had any insight ... it was more that the market aligned to their bias. Taleb's "Fooled by Randomness" and all that.

So if you can identify which bias the market is favoring ... you can trade that strategy...

Or maybe that is all just a bit too obvious...

sounds to me like your trying to create the 'holy grail' system, you think everyone else is wasting their time on.