trend following delusion shattered
- Thread starter hank rollins
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I just completed a study covering seven years of trading on SPDRs (the etf SPY).
Buying weakness had a much better risk/reward potential than buying strength.
I defined "buying weakness" as buying limit at the so-called pivot point level S2. Buying at S1, R1, or R2 were inferior strategies.
I defined "risk/reward potential" as maximum profit over maximum drawdown over a 1,2,3,4,5,6,7,8,9 and 10 day period.
I should add that the SPY at the start of the study was right at the same level as at the end of the study, so there was no bullish or bearish bias. I also did not take into account dividend payout, or management fees.
I should also add that back testing only tells us what happened, not what will happen. Statistics have limited value in open systems such as the markets. That said, the study covered a lengthy period, and many, many potential trades, probably enough to be regarded by many as statistically valid.
Buying weakness, I might add, from my limited testing, has not worked well with small cap Nasdaq stocks. With the S&P 500 index as a whole, it worked well since early 1999, even during the 2000-2003 bear market.
Thanks smiling for sharing this. Question, how did buying strength compare to random entries? P.S. I like how you test your entries, I do sort of the same thing. I believe it is extremely important to test entries alone, and find good ones, before proceeding with the rest of the methodology.
p.p.s. Do the results change if you limit the period after entry to only the current trading day? After all, S1/R2 etc are only based on yesterday's trading, so why should those levels mean anything one or two (!) weeks from now anyway?
As do all of your "scientific" studies, methods and theories as they relate to the market. They are also based on, and exist in, the past. So, what, then, is your point? Where does that leave you and your "tools?"
Uh excuse me...
We have gone through this a few times. Its old news.
Those of us who make a living in this business use all kinds of tools to extract money from the markets. Most of the misguided and amateurish crap in this thread comes from folks who really aren't working, but are simply dilettantes.
Once a trader learns how to use the tools of the trade, it is a strong conceptual understanding that keeps him or her on the right side of the market.
Only an "incompetent" would present the idea that trends are illusion, and only here (ET) would anyone take them seriously.
Steve
We have gone through this a few times. Its old news.
Those of us who make a living in this business use all kinds of tools to extract money from the markets. Most of the misguided and amateurish crap in this thread comes from folks who really aren't working, but are simply dilettantes.
Once a trader learns how to use the tools of the trade, it is a strong conceptual understanding that keeps him or her on the right side of the market.
Only an "incompetent" would present the idea that trends are illusion, and only here (ET) would anyone take them seriously.
Steve
sure, that's easy.
look at any 10 price charts in the same time frame now.
write down what the next move (s) will be based on the "trend" clearly shown on each of the charts. OR if you are a true believer, actually buy/sell a contract or stock in the trend direction.
let me know what happens. some will win, some will lose--but the percentages will be no different than chance. just like some trend followers will be succesful, and some will not--this has nothing to do with the validity of the trend following concept.
if you flip a coin 7 times and you get heads 7 times in a row, are you in a heads trend?
ps. do people really pet dollars?
As with many threads, understandably, contributors can be talking about different meanings.
What is a 'trend'?
The best approach is to exploit the market you trade in on a whole day basis. So here you are only in fact dealing with what you see: the downmoves and upmoves of the day, namely the days gyrations (eg YM). It may be that a main gyrational leg is a trend or mini-trend to someone. I don't fight over terminology.
For me I exclude the notion of 'trend' and only harness the market. You need to free your mental capabilities and adopt a neutral mindset. If you can then acquire or develop an accurate methodology you can next start to go about the task of extracting money daily and using the market as a cornucopia to start your fortune.
What is a 'trend'?
The best approach is to exploit the market you trade in on a whole day basis. So here you are only in fact dealing with what you see: the downmoves and upmoves of the day, namely the days gyrations (eg YM). It may be that a main gyrational leg is a trend or mini-trend to someone. I don't fight over terminology.
For me I exclude the notion of 'trend' and only harness the market. You need to free your mental capabilities and adopt a neutral mindset. If you can then acquire or develop an accurate methodology you can next start to go about the task of extracting money daily and using the market as a cornucopia to start your fortune.
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