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This a "late to the party", but I hope still may be useful.
I repeatedly read that no one (non-interventionist) trading system works in all markets. I believe that position is based on a too narrow take on what couints as the trading system. If you add a (TA) layer that defines what "type of market" one is facing and then develop the conditions for trading that type of market, seems to me that you have a system that works in all types of markets. When one has multiple systems for a given market type, it may be the case that the "type" definition needs to be more nuanced.
I believe that in all market participation whether based on TA, fundamentals, or a combination of the two, one is ultimately faced with the same inital binary choice: take the trade or not, which after taking the trade becomes leave the trade or not.
Rather than predicting what may happen to your choice set (fundamental or technical) some time in the future, your choice set needs to correlate in some fashion with a positive future outcome.
The advantage of TA is that the data may be more public and perhaps less easily manipulated. Whether one is using TA or fundamental analysis the same thorny problem persists which indicators or economic metrics to use, and then the problem transitions to how to apply them.
After solving all that, if you make the foolish(? choice) of showing your method to somebody no better than you are at the endeavor, you need to be able to deal with the likely event of that person showing you a bunch of hugely profitable trades that your system missed. That makes clear that before you even start the process, you have to decide what counts as a "good system". If you've done that, you have the ability to respond: So what?
For me the hardest thing to have recognized (which led to a sign over my desk:
You don't have to trade today.
I hope that the party isn't over. In any case, you wash, I'll dry. Or vice versa?
If the participation in the market went reall well, maybe we just have to put it in the dishwasher...
AS Roy Rodgers used to say:
Happy trades to you...
--- In equismetastock@xxxxxxxxxxxxxxx, Bob Waits <bobwaits2@xxx> wrote:
>
> The two major benefit individual investors have over mutual funds or
> hedge funds are: we typically have a much smaller portfolio to manage
> in $$ terms, and we don't have to worry about beating our benchmark
> every quarter. In short, we are way more nimble and we have taken care
> of half of behavioral issues just by being independent investors. Now
> if you add technical analysis or systems investing, we have taken care
> of 90% of the behavioral biases.
>
> Regarding why long only funds don't adopt this strategy, two reasons
> come to mind -- this is a high turnover strategy and most long only
> funds try and keep their annual t/o below 100%; and two, their size
> does not permit them to extract alpha out of this opportunity
>
> Regarding hedge funds: their size could be a problem; they are too
> smart to use a simple systems; and three, majority of them are
> fundamental or macro driven hedge funds.
>
> What I like about TA
> over fundamental is that in TA, you come down to a point where you have
> to decide between one or the other. In fundamental analysis, an analyst
> has to predict at least three key drivers and each of those drivers is
> dependent on at least three other drivers.
>
> Fundamental analysts say that no one can predict the direction of
> the market, but love to predict all the drivers and also the fact that
> the P/E would go up-- a bit hypocritical, IMHO.
>
> I personally have one major macro economic driver that I use
> systematically and then one fundamental factor that I use depending on
> the macro driver. This is overlayed by two systems. One is mean
> reverting and the other is momentum. I might add one more mean
> reverting and momentum in the future to diversify and if they offer low
> correlation to the other two.
>
>
>
>
>
>
> ________________________________
> From: pumrysh <no_reply@xxxxxxxxxxxxxxx>
> To: equismetastock@xxxxxxxxxxxxxxx
> Sent: Sun, February 14, 2010 11:31:50 AM
> Subject: [EquisMetaStock Group] Re: Wall Steet Journal on System trading
>
>
> Bob,
>
> You are right on track.
>
> The Google trade is a dead giveaway. Notice that it did not appear on Altucher's radar until the 3rd of October. At this point the 4x2 begins. Remember, I said that I have the book. In it he discusses using a momentum trigger. I don't remember whether it was bollinger band or a short term rsi but one of those is the trigger he used. I checked the chart and indeed the 3rd is a day when the close drops below a RSI(3) threshold of 30. I didn't check a bollinger band.
>
> Notice also that he held the trade for a 2 bullish days before he sold it... just happens there were more bearish days in between.
>
> The whole trade just seems a bit agressive for a hedge fund especially when you consider that google was in a bearish trend.
>
> Preston
>
> --- In equismetastock@ yahoogroups. com, Bob Waits <bobwaits2@ ..> wrote:
> >
> > Preston:
> >
> > I am using Amibroker and maybe I have accedantly come up with a better system or something, but backtesting between Nasdaq 100 between 1988 and 1991 (that's as far back as my data goes, I get very good results and for S&P 500, between 1982 and 1991, I get fantastic results.
> >
> > Let's assume for a second that my backtest is wrong i.e. I actually have a slightly different system, which I don't, and that Jake is right with his backtest. The reason could that since 1987, the markets are much more auto correlated or serially correlated. That's mostly because of globalization where movements in Hang Sang influences US markets and vice versa. Technical analysis works fantastic when there is auto correlation.
> >
> > So, the bet you have to make is: will auto correlation persist? If not, come up with a system that works when correlation and auto correlation breaks down. Or, as Bob Precher said, you could have two systems: one that works during impulse waves and the other that works during corrective waves, although the correction since 2000 has behaved more or less like an impulse wave.
> >
> > Whether you are following TA or funda or macro, through analysis or systems, one reaches a point where he/she will have to decide between two choices . If that decision is right, the alpha could be massive. I still have to come up with a system that works in all markets. What one may be able to do is simplify the decision further by overlaying a trigger -- so I would go right if x factor occurs and left of x does not occur. But "chose" you must.
> >
> >
> >
> >
> >
> >
> >
> > ____________ _________ _________ __
> > From: pumrysh <no_reply@xxxxxxxxxx s.com>
> > To: equismetastock@ yahoogroups. com
> > Sent: Sat, February 13, 2010 10:37:17 PM
> > Subject: [EquisMetaStock Group] Re: Wall Steet Journal on System trading
> >
> >
> > Seems that Jake has a different perspective on this:
> > http://econompicdat a.blogspot. com/2010/ 02/simple- way-to-data- mine.html
> >
> > Here's the catch...positive momentum.
> >
> > The real question is whether a hedge fund would trade the system.
> >
> > Preston
> >
> > --- In equismetastock@ yahoogroups. com, "formulaprimer" <formulaprimer@ ...> wrote:
> > >
> > > LOL, Read the posts on the bottom of the blog of the link. Pretty much explains it all... The only 4x2 4x4 that works is on a truck !!! Even then you get a Toyota sometimes... If you used the system the last 3 years you would have been whipped out due to markets falling for more than 4 days in a row and if they did go down four days and then only went up one day and collapsed... All capital would be gone so can't go back into the market to get money back... Notice profit is the missing equation here. There was none.
> > >
> > > --- In equismetastock@ yahoogroups. com, Bob Waits <bobwaits2@> wrote:
> > > >
> > > > Not strictly Metastock related but more systems related. James Altucher says he has traded the 4x2 system for years, and it works:
> > > >
> > > > http://bit.ly/cs0ZnU
> > > >
> > >
> >
>
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