When Indicators Don't Lag

[i am nobody]

Look at this rather poor current win rate. No systematic edge, just letting winners run until conditions change. Entries dictated by MACD, only MACD.

+16.5
+0
+2.75
+5.25
-2.75
-3
-1.75
-3.5
-4.5
+9.75
-3
+37.75
+11
+2.5
-1.75
-4.25
-4.25
-5.75
+5.5
-10
+2.75
+4.25
-4
+17.75
-1
-6.25
-6.5
-3.25
-3.25
-6.25
-5.25
-0.25
+9

(12w,20l,1b/e)

To trade this in ES you need 8846$ for maintenance margin, because max drawdown is 48%.
The profit is 2212$ supposing that the profit per trade is net included commissions and slippage. So 25% profit for a drawdown of 48%. Average net profit per trade is 1.39 points. For me that's close to zero, not much margin for error.

 

[fortydraws]

So far it disproves your postings regarding unworthiness of indicators.

You have me mistaken for someone else. Find one post of mine where I say anything about indicators being "unworthy" or anything of the like - you won't find one. In fact, just recently I posted the following:

Well, I have always believed there is more than one way to skin this cat. I use scribbles, others use MACD. Interestingly (or maybe not) I've recently entered the exciting field of trading system design and my first entry into the field is a bond system that uses a form of MACD to allow me to automate the trigger. But the scribbles are my preferred method for my discretionary day trading.

Don't be so "shoot from the lip." Backtesting can accelerate the process of coming up with a consistently profitable trading plan. That is a fact. IMO< one should use whatever tools one has at his or her disposal to accomplish one's goals. Backtesing is a potent tool. You seem to be the one posting about backtesting being unworthy of one's effort. I am certainly not making posts judging indicators be of no value.

 

[fortydraws]

So I must be a very lucky guy so far.

Well, my point would be you do not know if you are simply the beneficiary of short run luck or a long run edge. Winning systems will have periods of drawdown and losing systems will have periods or profitability. The long run is what matters. Until you have tested the long run, then you do not know if your results are expected or variance.

 

[dbphoenix]

Well, my point would be you do not know if you are simply the beneficiary of short run luck or a long run edge. Winning system will have periods of drawdown and losing systems will have periods or profitability. The long run is what matters. Until you have tested the long run, then you do not know if your results are expected or variance.

I knew a guy at TL who'd spent nine years "forward testing" his system and had not by the time he gave up been able to do more than break even.

 

[fortydraws]

I knew a guy at TL who'd spent nine years "forward testing" his system and had not by the time he gave up been able to do more than break even.

Unless his system only traded a few times a year, nine years was was probably (at least) eight years too long to stick to that system, imo. Which is why skipping the backtesting is really a suboptimal choice: Why ignore all that free information? But then again, I think most who come to this game do not understand the role of "information" in playing this game. Of course, if probabilities and payoffs are likewise ignored, those ignoring information are logical in their ignorance, because there would be no "value" in any information. I, of course, disagree with that view.

"If the input symbols to a communication channel represent the outcomes of a
chance event on which bets are available at odds consistent with their probabilities
(i.e., "fair" odds), a gambler can use the knowledge given him by the received
symbols to cause his money to grow exponentially. The maximum exponential
rate of growth of the gambler’s capital is equal to the rate of transmission of
information over the channel. This result is generalized to include the case of
arbitrary odds." J. L. Kelly Jr., from "A New Interpretation of Information Rate"

 

[dbphoenix]

To trade this in ES you need 8846$ for maintenance margin, because max drawdown is 48%.
The profit is 2212$ supposing that the profit per trade is net included commissions and slippage. So 25% profit for a drawdown of 48%. Average net profit per trade is 1.39 points. For me that's close to zero, not much margin for error.

This is not unprecedented. I was looking at the results of someone's automated system the other day, something he'd spent considerable time and effort putting together and of which he was quite proud. Only problem was that his results weren't much better than what I get from my savings account.

Though I suppose he was having more fun than he would watching his savings account grow.

 

[dbphoenix]

Unless his system only traded a few times a year, nine years was was probably (at least) eight years too long to stick to that system, imo. Which is why skipping the backtesting is really a suboptimal choice: Why ignore all that free information?

Testing was anathema. But that's been pretty much the case with every beginner and struggling trader I've encountered over the past 17 years. Those who are doing it for fun, of course, see no need to go through all that. But to go on for fourteen years trying to find a winning strategy with nothing more than guess and hope suggests problems that won't be solved by testing. Or at least the kind of testing which is the subject here.

I'm reminded of the geniuses in '99 who thought they had the tiger by the tail because of these approaches they'd developed which were just raking in the money. Of course, a year later . . .

 

[romik]

This is not unprecedented. I was looking at the results of someone's automated system the other day, something he'd spent considerable time and effort putting together and of which he was quite proud. Only problem was that his results weren't much better than what I get from my savings account.

Though I suppose he was having more fun than he would watching his savings account grow.

Let's wait and see in that case. This is ramora tactics, follow the sharks, let them decide upon direction of the market.

 

[dbphoenix]

Let's wait and see in that case. This is ramora tactics, follow the sharks, let them decide upon direction of the market.

Or follow price, which is more reliable.

 

[romik]

Or follow price, which is more reliable.

MACD does follow price, I look for patterns that indicate weakness or strength. This one pre-drop is a very strong pattern indeed. Have a nice Easter!