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BlueHorseshoe
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Posts posted by BlueHorseshoe
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One thing that has happened since 2000 is the explosion of the internet and on-line banking across the world. This has enabled mom, pop and uncle joe to take positions, and change those positions every time they read an internet news story on their i-phone.
I think that what you describe above has led to an increased directionless-ness (did I make that word up?) across all timeframes. There are more and more market participants, and fewer and fewer of them are doing the same thing at the same time. Whilever this is the case, I think that the market will be less and less able to sustain trends in any timeframe.
It's worth noting that two recent clean, low volatility trending periods on the S&Ps daily charts (from mid2010-mid2011, and then the current trend) have been marked by low volume - where trends are concerned, 'two many cooks spoil the broth'.
Just an opinion though.
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A slightly off-subject question, but does anyone know the official designation of the language used by the ProRealTime software (and hence many of the spreadbetting firms who white label this charting package)?
Thanks,
Bluehorseshoe
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You have nicely demonstrated that you buying pullbacks without a stop in a bull market is a good strategy.How would it work with stops?
This is one of those arrogant, patronising posts that I know people will deservedly give me grief about but . . .
MightyMouse, go and look again at the second equity curve that jswanson has diplayed. Have a good look at it. Think about what has been required to produce that equity curve - how simple and robust the trading rules are. Take a good long look at that equity curve.
Now why on earth would you want to add a stop-loss? (It's a rhetorical question).
Bluehorseshoe
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Hi jswanson,
Thanks for yet another interesting post and study.
The swing strategy that I trade is very similar to the one you use in your 'buying weakness' example. My entry criteria are a little more sophisticated (or that's what I like to tell myself!), but my equity curve in the S&P bears very close resemblance to the one you display, complete with the big one trade drawdown from last August. So although I know you're only presenting it as a study, I think that with very little tweaking it can form the basis of a good mechanical strategy. Incidentally, the precise criteria you use - 200SMA trend filter and 3 higher/lower closes - has been offered as a complete ETF trading system by Larry Connors.
I believe that you'll most likely find the optimum filter MA length in your test above to be 180 periods, or thereabouts. Which leads to the inevitable question - should this be optimised?
Then there's the subject of other markets. The Euro, which is one of the few super-liquid markets still capable of supportant a breakout trading style, is a no-go, although you would have been profitable with this strategy in the Euro until about five years ago. Oil was similarly profitable, though here the equity curve flatlined more recently, yet without any significant drawdown. Gold has been very kind, and in the past twelve months there have even been trading opportunities to the downside! The Dow has been great, and with suprisingly less correlation to the S&P than you might expect. European indices tend to be mean-reverting as well, and the Nikkei can also be good, although I don't trade it.
Does anybody else trade with this type of strategy on a daily chart, and if so, what does your porftfolio contain?
What I would also love to see is a study of this type of strategy in Interest Rate products - it's on my 'to-do' list but I haven't got around to it yet . . .
Thanks again,
Bluehorseshoe.
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Thanks for an interesting post!
If you take the approximate dates when your research shows that trend-following in the S&P has clearly begun to fail, and then look at some of the major trend following funds, you'll notice that many of them underwent 'major system modification' around this time. Dunn Capital is a great example - having traded over about a twenty-five year period using exactly the same strategy they were finally forced to reassess how they operated. Obviously most of whatever they changed remains hidden from public knowledge, but the information that is available shows that they massively increased the number of markets traded. Other newer firms such as Winton Capital have taken a similar approach - they are ludicrously well diversified.
On a slightly different topic, I think a fairer comparisson could have been achieved by using the optimal lookback for each market. As things stand it could simply be the case that a 50MA is a totally unoptimal setting for the ES, but a perfectly optimal setting for the Euro. I know this isn't the case, and that the point of your argument holds true, but it's worth mentioning.
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Been there, done that.And in the end didn't amount to much difference.
Thanks for the reply. It's been on my long list of 'things to look into'. It just went to the bottom of the list! I think my assumption was less to do with how it might impact theoretical strategy performance, and more about whether it would improve execution - obviously several of you have tried this in live trading and found no substantial improvement though.
On a fairly closely related topic, has anyone experimented with or becktested swing trading strategies using (obviously very large) range bars, as opposed to daily?
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If this is the same ELD file that I have (bound to be - the programmer eKam mentioned in the thread rings a bell), then to view the calculations the indicator performs, take the following steps:
- Open the EL Development environment from the TS 'View' dropdown menu.
- Select 'open'.
- In the drop down, select 'Functions'
- Find the relevant 'VChart' function file and open it.
And now you're looking at the Value Chart calculation. The link to the Stendahl article is a useful intro, however there are almost certainly better ways of using it than those he suggests (ironic, seeing as he's the creator!).
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don't trade forex.my finance teacher said: currencies have no god.
In my native language it makes more sense. But he means that you can never know where
the currency is going to move unless you think long term( i guess)
That translates perfectly in to English - I know exactly what you mean
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Hi,I'm investigating which trading application to use in order to automate my trading. I'm very interested in TradeStation but need to know whether something is possible in EasyLanguage before I go ahead and open an account.
Is it possible to create a strategy which references two different time frames, for instance if the SMA6 and SMA14 are positive for the day AND the SMA6 on hour has been crossed by the market then buy or sell or whatever.
Is this possible? Could someone send me a basic example? I'm a Java programmer so know programming and will understand the example I'm sure.
Thanks for your time and help.
This is very, very easy to do with EL, and I'm sure if you're programming with Java it won't require much explanation. The code to create an order condition would look like this (assuming by 'positive for the day' you mean trading above the SMA):
If C of Data1 > Average(C of Data1, 6) and C of Data2 > Average(C of Data2, 6) then . . .
The important bit to grasp is that you must set up your chart so that you've inserted the two relevant timeframes as Data1 and Data2. This is very easy - just right click, insert symbol, add the symbol which will appear as a subpane, right click, and adjust to the appropriate timeframe. If this second timeframe is only required for reference by the strategy and you don't need it for visual on-screen reference, then you can hide it.
Obviously Data2 could be a different symbol, allowing you to make trading decisions based on more than one instrument. However, you can't mix symbols with different delays in the same window, so here's a handy tip: find another derivative that is heavily arbitraged against the one you cannot insert and use that as a surrogate reference. For example, you can't mix the $TICK (based on NYSE data feeds) with the @ES futures (based on CME data feeds). But you could substitute the SPY Exchange Traded Fund (NYSE) but still use this to trade the @ES futures in most cash-session scenarios.
Hope that's helpful.
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Learning how to program fluently enough to perform accurate backtests, and also learning about all the pitfalls of backtesting (there are very many indeed), will require quite a bit of time and effort.
The good news is that it will probably be the most profitable and worthwhile thing you'll ever do in your development as a trader, and it can also be great fun (as well as tremendously frustrating!).
Good luck!
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I'm not a fundamental trader, so I can't give you any advice on selecting markets to trade.
Given that you'll be makin g decisions based on the strength of your convictions (unless you're taking a more quantitative fundamental approach), then I would imagine you would want to trade those markets about which you have the strongest convictions.
One key thing to develop will be your 'philosophy' about particular markets. A revealing question to ask yourself is: 'do I, on balance, expect that this particular market is more likely to continue in the direction it is going, or reverse and head back where it came?' For me, for example, for the Euro I would consider the former to be the case, and for the S&P500 the latter. So I want to try and trade trends in the Euro, and trade counter to the trend in the S&Ps.
Most new traders have completely unrealistic expectations about what they will achieve and how soon - you don't seem to be burdened with such expectations - so you're already off to a great start!
Good luck!
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Of course attaching special meaning to magic numbers is dubious (imho). A 150 tick chart is likely to be just as effective as a 144 tick chart.
Are you sure, BlowFish? I'm sure I once saw a John Carter vid where he said that it is a magical number . . .
On a more serious note: one thing that jumps out reading back through this thread is that everyone keeps referring to the same time frames: 1, 5, 10, 15, 30, 60 mins. Now given that most traders lose money, and assuming we set aside preconceptions about self-fulfilling prophecies etc, then wouldn't it make more sense to employ reference timeframes that are not commonly used by other traders?
In other words, why haven't you configured your charts for 4, 7, 18, 43 minute bars? Or, for that matter, 144 minute bars!
Hope that's thought provoking (ps I lifted this idea from an old Joe Krutsinger book where he discusses 180 min bars).
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Following my previous post I thought I would try and provide something to back up and hopefully clarify what I was describing. The following is code for an EL strategy that buys the ES at 1700 GMT - or the midday 'doldrums', in other words. It's only a demonstration, so the entry time was chosen at random (as was the decision to buy, rather than sell).
The important part here is that the stop loss is outside of normal volatility (at 3 standard deviations), and the profit target is within it (at 1.5 standard deviations). I've also added in an instruction to buy only when an RSI shows that the market is oversold - this is not essential. And then a few suggestions for other optional filters (trend and 'headroom') are given in square brackets.
You can run your own backtests, but over a ten year period the Profit Factor was 1.44 and the average profit per trade was $32, with total net profit of about $16k (that's without any deductions for slippage or commission).
{
** Copyright © 2012-2013 BlueHorseShoe. All rights reserved. **
INTRADAY VOLATILITY SCALPER - @ES 15MINS - VARIABLE STOP AND TARGET
DISCLAIMER: This EasyLanguage strategy has been provided as an educational example to demonstrate a potentially profitable aspect of the relationship between intraday market ‘noise’ and exit orders. It is neither a solicitation nor an offer to buy or sell any type of security or financial derivative. No representation is being made that any account will or is likely to achieve profits or losses similar to those described. The past performance of any trading system or methodology is not necessarily indicative of future results.
FUTURES TRADING CARRIES A SIGNIFICANT DEGREE OF RISK.
TRADE ONLY WITH CAPITAL THAT YOU CAN AFFORD TO LOSE.
}
inputs: n(3);
if t=1700 then begin
if RSI(c,2)<20 {and c>average(c,1000) and h<highest(h,20)-((0.5*n)*(StdDev(c,10)))} then
buy this bar;
end;
setstoploss(n*(50*(StdDev(c,10))));
setprofittarget((0.5*n)*(50*(StdDev(c,10))));
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only for a simple and clear reference as to where market is relative to the recent past - but generally no.For me - I wont sit and wait for a bar to close, but when trying to automate things, or when using backtesting I will use it as opposed to just highs and lows.
Thanks. Pressumably your trading methods aren't dependent on closing prices, so you don't need to worry about discrepancies between backtesting and intra-bar real-time trade entries?
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I've become interested in this potential edge of capturing points off the daily low (Green Rat) so I began to create some studies.This is a fascinating study and exactly the sort of thing that I joined this forum for. Might it be worth posting this as a seperate thread to avoid pissing off TheRumpledOne?
Do you have any ideas yet about how you'd go about buying close to the daily low? Have you looked at how the average low-to-close ticks are impacted upon by the long term trend? Have you considered a study to generate a volatility-neutral average low-to-close tick reading?
Looking forward to reading more - please PM me if you do move to a seperate thread.
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I find it funny when someone says it works on a 5min bar, but does not on a ten minute bar.....to me it does not make much sense.....anyone else know?
This makes sense up to a point, I think. When I test something I normally expect it to work on broadly adjacent timeframes. This is actually a great way to create a 'quasi-unseen data set' on which to test a completed strategy. Though the new timeframe test data will bear a resemblance to the development data, it will also provide a new set of specific data points. This can help in identifying over-optimisation, and also tends to give a more realistic representation of how the strategy might perform in real time trading.
Nevertheless, there are significant differences between distant timeframes (5min and daily, say), owing to things like intraday volatility. There are plenty of strategies which, if you ignore commission and execution costs, perform the same on 5min charts as daily charts. Once you factor in the costs of trading these strategies then lose money on a 5min timeframe. That's because commission and execution costs are fixed across all timeframes but average profit per trade is not. This is the danger inherent in focussing too much on metrics like Profit Factors rather than actual dollar returns.
Sometimes the above is what people may be referring to when they specify a particular timeframe for a strategy.
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5. So I guess the question is – how do I identify the “noise level” so I can put my stop right outside that noise, not ever letting the trade get close to my 2% loss max per trade, etc.?
'Noise' is typically defined using a measure of volatility, of which the ATR is an example. You could also use Standard Deviation or, if you can program, the 'Volatility' function from which the DMI+/- is derived. There are also countless other more sophisticated possibilities, none of which are certain to perform any better.
The way that I would approach this issue is to think 'I want my stop loss to be outside market noise, and my profit target to be inside it'. Such an approach should, in theory, present the possibility of profit without necessarliy having an edge in the entry criteria. Assuming that you had a 'neutral' (or random) entry, at zero, and that market noise caused price to oscillate by +10 and -10, and you were buying, then you'd want a stop at -12 and a profit target at +8, for example.
Of course, in reality, this is a huge over-simplification. There may be more upside noise than downside noise. The noise level will change after the position is established. And assuming that your entry provides a significant edge, then your approach to noise may need to be different. A trend-follower, for example, places their stop within noise, and their target outside. They still have positive expectancy.
Another thing to consider is that you are only looking at 'noise' within a particular timeframe. If you didn't have a stop in place and allowed price to wander significantly against your position, then this adverse excursion is a perfectly normal amount of noise in a higher timeframe, and you can therefore anticipate a corresponding amount of upside noise within that higher timeframe.
I personally trade without stops (to all intents and purposes) - I have a percentage win rate that might make plenty of people on this forum jealous . . . But I don't have a PL statement that would make very many people jealous at all. One thing has a tendency to even out another.
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Here's a question: do any of you who trade using closing prices use a 'line on close' chart as opposed to bars, candlesticks etc?
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when it’s really only great for a tiny few developing traders and is only truly useful practice for a tiny portion of the universe of systems...Yes, I can't imagine anyone wanting to trade a long term trend-following strategy gaining much from simulated trading. Or not unless they wanted to sim trade for about ten years.
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We are all watching the same market, but one trader uses a 5 minute bar, one uses a 1 minute bar, another a 30 minute bar, another a 10K vol bar, another a 5K tick bar, another an 8 range bar, and so on. These are just data presentation mechanisms, and the market does not have a concept of any of them; they are purely our creation. The close of a bar is a snapshot of a price traded in the flow of market activity.What are your thoughts? If you use the closing of a bar as a part of your trading, or if you feel that a bar's closing price is important, can you explain and convince me (or others)?
I couldn't agree more, especially when it comes to intraday trading, as you say.
Except that you missed a bit . . . In addition to the fact that you're trading 5mins, I'm trading 3mins, and Joe Soap is looking at a 20min chart, there's also this to consider: you and I could both be looking at five minute charts, but if my five minutes are staggered by, say, just one minute, then I'll be looking at a rather different chart to you. If price moved a lot in that 'sixth' minute, then your five minute candle will be a nice long one, and I'll have some crummy little doji.
So I agree: intraday closing prices are a completely arbitrary construct in which a discrete time structure is imposed on continuous price data.
And yet I only take entry signals on a bar closure. Why on earth would I do that? Because I'm working with a backtested strategy that uses the indicator value on the close.
Another thing to consider: when a trader says 'this works on five minute charts', this isn't necessarily to do with the close. If it doesn't work on daily charts, then its just as likely that it would work on a five min chart using the low price, and wouldn't work on daily charts using the low price. This seems slightly logically inconsistent with my earlier statement - perhaps its because I haven't eaten all day . . .
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Ya Todds, and I agree with Negotiator, when I say mental preparation it's actually the process of going through and reviewing the trades each night after the markets are closed, determining your exact criteria for entry, and then close your eyes and visualize that setup so you have no doubts as to what you are looking for and what you will do when that trade sets up.This is a great suggestion of Tim's for an end of day exercise. Another way to use it is as follows:
If you regularly trade intraday, then you'll most likely have forgotten the nuances of any given day's price action within a couple of weeks. Perform the visualisation that Tim recommends, then return to that previous week and use the cursor arrows to scroll through your intraday charts one bar at a time, and identify your setups (I believe some charting platforms - perhaps Sierra - actually offer high speed replays). Record your entries and exits.
Now get out your actual trading record for that week and compare your results - did you do any better on the 're-sit'? What had you learnt?
If you've got a particularly keen visual memory, then just wait longer before revisiting.
If you've got a photographic memory . . . well then I can't help!
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Brett Steenberger once mentioned a private conversation he had with the CEO of a major retail brokerage and the guy told him that 80% of their customers blow out their accounts within a year of opening them. The percentage was much higher for customers with small accounts, as they took on more risk in an effort to generate worthwhile returns.I don't remember much else about it other than that stat. Obviously must have been a futures/forex broker, I can't imagine that many people going up in flames that quickly trading stocks.
As for the longer term survival rate, I have no idea.
I recall the same Steenbarger post. If I remember correctly, there was also an interesting stat about starting account size - something like if the account was 20k rather than 10k, then the chances of survival were more than doubled.
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I think that more and more people are simply falling victim to the new wave of marketing in the "get rich quick and easy" series.I agree. The other day I pulled down an old chart pattern trading book from my shelves - Curtis Arnold's PPS - trading system. At the back was a wallet in which an old diskette must once have slotted. The whole thing just seemed so incredibly dated compared to the slick online marketeers of today - how many John Carter wannabes are out there now? Hundreds.
Personally I wouldn't be suprised to see a new wave of marketing around algorithmic trading systems arising. Yes, I know that these have been a possibility for retail traders for a good while, but I don't think they've fully come of age yet. One of the platforms was advertising on Bloomberg the other day with a slogan of 'where robots are traders' with the promise of users being able to give simple english language instructions to build a strategy. Now why did I ever bother learning EL or Java (or B.A.S.I.C. back in 1992)!?!?
As well as being a very real potential way to make money, simple algorithmic trading is also a marketeer's dream for lazy traders. Having said which, so is the ego gratification of discretionary trading . . . That's enough from me, I think.
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Some traders use a max loss limit set up with their broker instead of a stop order. This way they limit their risk to a percentage or a portion of their capital and not worry about having to maintain a stop during a trade and to prevent being wiped out during a unforeseen failure (data feed, computer, power failure, internet).This is a good tip for those trading futures.
Note that if you're in the uk and using financial spreadbetting, you will struggle to get a spreadbetting firm to accept an instruction to do this. Yes, they'll give you margin calls, but they'll often let your account run into negative equity if they think that you can afford to pay up. Many do, of course, offer guaranteed stops for a premium, which will do the same thing, or even allow perfect hedging, allowing you to be simultaneously both long and short a market.
Trend Testing S&P Emini Futures Market
in Market News & Analysis
Posted
I think that what you describe above has led to an increased directionless-ness (did I make that word up?) across all timeframes. There are more and more market participants, and fewer and fewer of them are doing the same thing at the same time. Whilever this is the case, I think that the market will be less and less able to sustain trends in any timeframe.
It's worth noting that two recent clean, low volatility trending periods on the S&Ps daily charts (from mid2010-mid2011, and then the current trend) have been marked by low volume - where trends are concerned, 'too many cooks spoil the broth'.
Just an opinion though.