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Dump it Here (7 Viewers)

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Yup, anyone that does proper analysis and understands systems would not seriously suggest that a random system CONSISTANTLY beats the index. That is just a naïve statement.

View attachment 122479

There's a great article by Andreas Clenow HERE on the subject of why randomness will beat the index / funds.
I think people should read that article.it actually highlighted what i king of felt when commenting the fact i understood index beaten by random if asx20 falling behing small caps
Market weighted indexes will always consistently be beaten by a (selective) random system.
This is big as this means we should compare our system not to index plus div but to a non market weighted index plus div.
Is there even such a thing here in OZ?
I hope this will not be forgotten and lost.
On the other end, as opposed to financial advisors, i care less about beating the index than the actual number of $ on my account
At the end of the month.i see no joy in only losing 40% if the ASX is down 50%😊.but we need benchmarks
 
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1. I think that there is broad agreement that trading discipline can be considered an 'edge'. Trading discipline can be enforced through (blind) adherence to a systematic entry/exit signal. Your systems that you have made public certainly fall into this category, at least superficially.

2. Which moves us onto the second type of edge, which is a market truism or anomaly, that can be exploited through buying or selling financial instruments. This edge can be articulated in a sentence. If you cannot articulate your edge in a sentence, you probably have no edge. Now, as already stated, it can be a Type I edge (see above) or a Type II edge. A Type II edge is a stronger edge and will have a much higher win%. The issue can be ROI. (see below).

3. Your systems superficially (what we on the forum can see) is a Type I edge. That is not to say there isn't a Type II edge in there, simply not disclosed to the forum.

4. Based on the results: I would conclude a Type I edge.


From the above, some might conclude that I am 'negative' on a Type I edge. Untrue. Type I edges have a very important characteristic that a number of Type II edges do not possess: the ability to really let profits run. Type II edges (tend) to have definite profit targets or time-in-trade limits. You close the trade when the profit target is achieved and/or time expires.

An example of a Type II edge (this is an example: it is NOT A REAL EDGE) could be 'Seasonality': buy/sell at the start of the month, close at the end, based on seasonality data. The edge lasts 1 month. Profits cannot run past that 1 month period. However, if your success rate is 100%, you may be satisfied to trade that edge, in spite of the fact that your profits are capped.

I don't know this, but looking at a number of systems that appear on the forum, they all look like Type I systems. Now if that is true, then I can refute my previous argument re. the requirement to take 100% of all trades thrown up by the system.

A Type I edge is largely a discipline based edge. There is no Type II edge present, therefore, taking a sample from a sample is irrelevant, as the edge, discipline, is present in every trade taken. There is no Type II edge to be blunted through the trading of a smaller sample.

However, selecting trades based in some form of statistical hierarchy, is simply fooling yourself. If you are trading a Type I edge, all trades are equi-probable.


jog on
duc
All the systems i trade have a cut loss, let profit run as their #1 principle
I then try to tweak the entries and refine the exits to improve returns but all type 1 edge.
Who would i be to believe i could find a gem or forecast a black swan.😊
Your type 2 edges are more complex and rely on market errors or lags, potentially exploiting human fear or greed twisting momentarily market behaviours.
a type 1 edge is based on human imperfections and our individual potential to improve
A type 2 on market imperfections.
 
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Just out of curiosity i did a similar test on the xjo ( asx200 ).

TEST Conditions :
- All tests are random selection within asx200 universe.
- Trades occur on a weekly timeframe, so it will randomly buy and randomly sell Monday open only. ( i probably should have done daily )
- Tests from 2000 to present
- Norgate Constituents and survivorship bias friendly.
- There is no brokerage applied.

yellow = xjo.
blue = random position size
green = volatility based position sizing
red = vola + filter c > 52W ma.

A lot of funds don't make it into the red.

1617836828700.png

Oh in case anyone is wondering ... there are 16 blue dots out of 150 that failed to beat the XJO index.



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Just out of curiosity i did a similar test on the xjo ( asx200 ).

TEST Conditions :
- All tests are random selection within asx200 universe.
- Trades occur on a weekly timeframe, so it will randomly buy and randomly sell Monday open only. ( i probably should have done daily )
- Tests from 2000 to present
- Norgate Constituents and survivorship bias friendly.
- There is no brokerage applied.

yellow = xjo.
blue = random position size
green = volatility based position sizing
red = vola + filter c > 52W ma.

A lot of funds don't make it into the red.

View attachment 122502

Oh in case anyone is wondering ... there are 16 blue dots out of 150 that failed to beat the XJO index.



\
was actually thinking doing the same , thanks for sharing the results
 

MovingAverage

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Just out of curiosity i did a similar test on the xjo ( asx200 ).

TEST Conditions :
- All tests are random selection within asx200 universe.
- Trades occur on a weekly timeframe, so it will randomly buy and randomly sell Monday open only. ( i probably should have done daily )
- Tests from 2000 to present
- Norgate Constituents and survivorship bias friendly.
- There is no brokerage applied.

yellow = xjo.
blue = random position size
green = volatility based position sizing
red = vola + filter c > 52W ma.

A lot of funds don't make it into the red.

View attachment 122502

Oh in case anyone is wondering ... there are 16 blue dots out of 150 that failed to beat the XJO index.



\
What do the X and Y axis represent?
 
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x = MDD
Y = CAR

One final one just to get people thinking ..

This is what happens when we add a market filter.

In this case i am only trading while XJO > 10Week XJO ( 64.74% exposure ) and am in cash for the rest.

View attachment 122504
you just need to narrow the range of your results and you have a decent system.interesting to see the behaviour on market going nowhere or down like japan in last 20y or for specific periods here;
the tide raise all the boats
 
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Trading results of approximately 600 trades (over the last two years)
I could be mistaken but I believe the stats below are in line with trading a "trend following strategy" & nothing spectacular.

The dust has settled
It appears the dust has settled on the differing opinions of what constitutes an edge, the definition of an edge & how a trading strategy is able to capitalises on an edge or "perceived edge". Randomness was also canvased as an edge. I'm first to admit, all stated positions had merit. Without an open mind, you forego the right to learn

Expressing an opinion
When posting in the "Dump it here" thread, it's not about winners or losers but having the right to express your views in a friendly manner. I for one enjoyed the banter immensely.

Now changing tact
I want to explore why "trend trading systems" have a low win rate.

More to follow.

Skate.
 
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41%-win rate is highly frustrating
Let me state the obvious, "trend trading systems have more losers than winners". The few positions that do win are the reason why this style of trading is successful & profitable. At times waiting for a trend trading strategy to develop into profits can be a hard ask - a step too far (for some).

So, why do trend followers have a low win rate?
I wish I had a definitive answer but I'm yet to find the main reason that is constantly causing me grief. It's really annoying at times when you enter a new position only to experience a quick pullback, which at times makes me want to take the "Lord's name in vain".

Pullbacks at times are hard to handle
Pullbacks could be one reason for a low win percentage of a trend trading strategy or it could be the "main reason", I just don't know. What I do know is @peter2 has capitalised on these pullbacks more than once. A pullback can happen right after a breakout or later in the trend, but these pullbacks cause all trend traders a lot of grief. Reducing pullbacks with this style of trading is not an easy issue to overcome.

More to follow.

Skate.
 
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A (2006) quote from the Duc
I am saying by setting a stoploss, you control risk.

Stop-loss & pullbacks
Following on from Duc's statement. A stop-loss is a handy tool to have in your toolbox having the ability to reduce losses whilst controlling your risk. A stop-loss exit works with any trend trading strategy.

Stale stop exits
A "stale stop" exits correctly implemented keeps all my strategies in rotation mode by disregarding the non-performers quickly that may be a contributing factor (in my case). Having a generous stop loss can eliminate much of these shallow pullbacks but at times leads to deeper losses. Trading is always a trade-off.

Trend reversal
In my case, trend reversals can be "more annoying" than the original pullback. We have all experienced a pullback far enough that triggered our stop-loss only to see it reverse back into the trending direction. I said it's "annoying" but I should have said it's "BLOODY ANNOYING" to reinforce the view from my perspective.

More to follow.

Skate.
 
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Pullbacks happen with such regularity it’s highly frustrating
Most trend-following systems are very similar because of the breakout entry methodology. Jumping on breakouts might appear different with some strategies, but they all tend to "buy & sell" around the same time.

To overcome the synchronisation of trend traders
As trend traders tend to "buy & sell" around the same time I take the view it would be to my advantage if I entered before them. I achieve a quicker entry by using the mathematical brilliance of Perry Kaufman & John Ehlers. Both of these have developed low lagging indicators that I have recently posted about. Using low lag indicators gives me an "edge" when it comes to the competition (other traders). Simply, I want to get in & out of a trend "first" (my trading advantage).

I'm not alone
Most trend-following systems have experienced drawdowns over the last few months - that's quite evident from the posts of others. Trading in a sideway market can be beneficial at times but those times are far & few between.

It's prudent
I should point out at this stage that all trend-following systems need to trade when the markets are bullish to achieve good results. Conversely, trend trading systems will struggle to produce reasonable profits when markets are down-trending or going sideways.

More to follow

Skate.
 
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Here is the kicker
Trend trading strategies have a habit of producing large drawdowns in bearish markets. It's just a (bummer) trading in all market conditions.

Summary
I've touched on one reason (maybe two) why my trend trading strategies all experience a low win percentage

(a) pullback within a trend, or
(b) by using a stale-stop exit as a rotational tool.

I'm more mellow these days
I'm sure there are other circumstances that add to the low win rate percentage - like the failure of a trend continuation, poor timing, or a mirid of other things. It may be just a coding issue on my part that exacerbates my frustration. Being a more mellowed trader, I've learned to "roll with the punches" while fully accepting that "the market will give me what I deserve".

Skate.
 
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1. 41%-win rate is highly frustrating
Let me state the obvious, "trend trading systems have more losers than winners". The few positions that do win are the reason why this style of trading is successful & profitable. At times waiting for a trend trading strategy to develop into profits can be a hard ask - a step too far (for some).


2. Pullbacks at times are hard to handle
Pullbacks could be one reason for a low win percentage of a trend trading strategy or it could be the "main reason", I just don't know. What I do know is @peter2 has capitalised on these pullbacks more than once. A pullback can happen right after a breakout or later in the trend, but these pullbacks cause all trend traders a lot of grief. Reducing pullbacks with this style of trading is not an easy issue to overcome.

More to follow.

Skate.


1. Trend trading systems, need trending markets. Pretty obvious.

2. Stock markets (Coffee, Gold, Silver, Oil) amongst others are 'speculator' driven markets. Which simply means (generally) there is more chop. Fundamentally driven markets, Currencies, Bonds, are (generally) more driven by economic data and big players. Speculators have less influence, hence, less chop. Aggregated derivative markets have as their driving force speculation, but, in a diluted format due to the traded instruments being derivatives, eg. S&P500 eMini as opposed to the full S&P500 future.

By designing a trend following system to trade an inherently speculative market, which is prone to swings in, let's call it 'sentiment', but it actually encompasses a number of other issues, I think your systems have done a stellar job.

jog on
duc
 
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Just a note:
a 41% win rate is still a dream for me in most cases.
I do sometimes reach this but eith pathetic average exposure and so underwhelming results
I actually do not focus much on win rate.i still want to avoid depression
 

MovingAverage

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41%-win rate is highly frustrating
Let me state the obvious, "trend trading systems have more losers than winners". The few positions that do win are the reason why this style of trading is successful & profitable. At times waiting for a trend trading strategy to develop into profits can be a hard ask - a step too far (for some).

So, why do trend followers have a low win rate?
I wish I had a definitive answer but I'm yet to find the main reason that is constantly causing me grief. It's really annoying at times when you enter a new position only to experience a quick pullback, which at times makes me want to take the "Lord's name in vain".

Pullbacks at times are hard to handle
Pullbacks could be one reason for a low win percentage of a trend trading strategy or it could be the "main reason", I just don't know. What I do know is @peter2 has capitalised on these pullbacks more than once. A pullback can happen right after a breakout or later in the trend, but these pullbacks cause all trend traders a lot of grief. Reducing pullbacks with this style of trading is not an easy issue to overcome.

More to follow.

Skate.
My personal experience with trend trading systems (with long hold times) is they have low win % because many are based on breakout techniques...close reached a new high, close above a historical range blah blah blah. A key characteristic of this is that a lot of break outs turn out to be fake outs. Because of this it is extremely rare for breakout based trend systems to achieve win % of anything beyond 45-50%. For my live weekly I also employ a profit exit. This has pushed up the win rate to 50-55% but also improved DD. But this does come at the cost of a reduced overall net profit—but I’m ok with that. The win % doesn’t really bother me and I don’t necessary chase high win %, but what I do like for my live trading is a larger number of consecutive winners and my profit exit delivers a significantly better performance in this regard. For me, it is tough to trade long runs of consecutive losers
 
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@MovingAverage That's a very good post.

New traders attracted to the obvious break-out trading style become quickly disillusioned when their W% falls below 50%. They think they're doing something wrong. I've had people wonder why my long term W% isn't >50% if I'm a good trader.

I was going to comment that one can increase the W% of a trend following system by taking smaller profits. Pleased to see that you realise this and you also know the cost of doing this (less profit).
 
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@MovingAverage That's a very good post.

New traders attracted to the obvious break-out trading style become quickly disillusioned when their W% falls below 50%. They think they're doing something wrong. I've had people wonder why my long term W% isn't >50% if I'm a good trader.

I was going to comment that one can increase the W% of a trend following system by taking smaller profits. Pleased to see that you realise this and you also know the cost of doing this (less profit).
so the obvious question:
why would anyone prefer win rate over profit?
I prefer money in the bank to boasting power ;-)
DD is another matter as I understand accepting lower profit for better DD: peace of mind has a $ value
 

MovingAverage

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@MovingAverage That's a very good post.

New traders attracted to the obvious break-out trading style become quickly disillusioned when their W% falls below 50%. They think they're doing something wrong. I've had people wonder why my long term W% isn't >50% if I'm a good trader.

I was going to comment that one can increase the W% of a trend following system by taking smaller profits. Pleased to see that you realise this and you also know the cost of doing this (less profit).
The really major difference for me with the profit exit in my breakout is that the smaller profits results in must less volatility in returns (much tighter SD) and for my trading style I’d gladly trade off higher returns and the inevitable volatility that goes with it for reduced returns with much less volatility. I like predictability
 

MovingAverage

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so the obvious question:
why would anyone prefer win rate over profit?
I prefer money in the bank to boasting power ;-)
DD is another matter as I understand accepting lower profit for better DD: peace of mind has a $ value
Personally, I don’t care about win rate. It doesn’t mess with my head on a day to day basis when live trading and it is certainly not high on my list when accessing systems.
 
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@Skate Very interesting that your testing shows 53 is optimal number of positions whereas most trend following systems indicate 15 - 17 with most people happy to use 20. I'm trying to understand the difference between 17 and 53. My knowledge and experience would say that a portfolio with 50 positions would not beat the market index. Clearly this has been challenged by skate's work.
40 position portfolio has exceeded my expectations. One benefit and advantage of the 40 position size is that it forced me to include positions outside my normal stock universe. The 40 position target forced me to include more speculative companies. To my surprise it's these speculative companies that have provided most of the profits to the portfolio.
until I saw @Skate's results in both bull and bear markets I assumed a 40 position portfolio would match the returns of the index. So why has my initial opinion changed? The key reason is the trade management style. Skate is managing the trades ACTIVELY. He's managing the weekly trend trades like I managed the daily swing trades in the 3 year momentum thread.

@qldfrog, thank you for raising the issue of the number of positions versus the win rate.

Steve from the Amibroker forum posted:
"For the calendar year 2020 we see a different pattern -- increasing MaxOpenPositions also increases win%. I still find this puzzling. Why isn't the win% constant for all values of MaxOpenPositions?"

50 POSITIONS AMIBROKER FORUM Capture.JPG



Trend following system rule of thumb (15 to 20 positions)
Just because the majority share the view that (15-20 positions) are the accepted norm doesn't automatically make it correct for everyone. There is a saying "Wrong does not cease to be wrong because the majority share in it."

Most traders are happy to use 20 positions
That's okay, what suits one may not suit another, whereas I'm happy to use 40 positions. When it comes to trading (IMHO) there is no right or wrong way to trade - whereas the number of positions in your portfolio is subjective & personal.

Skate.
 

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