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  • #1,181
  • Oct 7, 2017 2:09am Oct 7, 2017 2:09am
Quoting Copernicus
{quote} Nice discussion. You hit it on the head Pip with the statement "providing you can distinguish them and filter them "....which now steps into the world of curve fitting. I personally believe a truly robust strategy is a composite of both divergent and convergent systems that are 'switched on all the time" as the practice of 'measuring the state of the market' is something that only can be achieved after a sufficient data set has been provided....and you are inevitably always behind the 8 ball. If market conditions vacillate in both divergent...
I had to read it twice to understand your post C
I have yet to investigate risk weighted return in my 'journey'. I am at a point in my journey where I give up being a position trader trading 100+ floating positions designed to absorb market shocks but I am not there yet. I am still a bit of a believer in a hybrid approach to trend+countertrend following in a single account. I am attempting some tests this month to see if a combination of W1+D1+H4 via breakout (trend following) and H1+M30+M15+M5 bounce (countertrend). Entries are easy and universal for me. I am finding it's the exists that become tricky in a hybrid approach. Just curious.... how much % max drawdown you target for and how long have you been able to achieve it?
Staying in my lane...
  • #1,182
  • Edited 2:50am Oct 7, 2017 2:24am | Edited 2:50am
Quoting VEEFX
{quote} I had to read it twice to understand your post C I have yet to investigate risk weighted return in my 'journey'. I am at a point in my journey where I give up being a position trader trading 100+ floating positions designed to absorb market shocks but I am not there yet. I am still a bit of a believer in a hybrid approach to trend+countertrend following in a single account. I am attempting some tests this month to see if a combination of W1+D1+H4 via breakout (trend following) and H1+M30+M15+M5 bounce (countertrend). Entries...
Hi Mate

My life over the past few years since my career from funds management took a swerve has meant that I have had to don the research apron while waiting for my contract tenure to play out in my current job.

Here is what I plan to play in addition to a few other tricks up my sleeve which factors in the real costs of trading very conservatively including slippage.

Either discretionary (almost systematic) across 24 instruments which is described in my thread but takes a bit of screen effort but has a far better risk-weighting than other alternatives I have tried to muster up. This has been scaled to achieve a max hypothetical drawdown of 20% (currently around 10%) with a CAGR of 27.8% over a difficult time for trend following (7 plus year horizon). The system is a divergent strategy that exploits short term bursts of momentum:

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Or Fully automated across 45 instruments with a longer track record (17 plus year horizon) but reduced risk-weighting performance scaled to a Max Draw of 40% (currently a max draw of 38.3% in 2009) and offering a CAGR of 11%. This is an all sesason blend comprising 5 separate systems targeted for varying market conditions of both divergent and convergent nature.

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Both are still a work in progress.
  • #1,183
  • Oct 7, 2017 2:25am Oct 7, 2017 2:25am
Quoting Copernicus
{quote} PS Great post H....but you are probably sick of me saying that. ....but I am not so sure they actually encourage all forms of math-based system play despite their apparent transparency using tricks of the trade to exploit human bias. https://www.reviewjournal.com/local/...-casino-chips/ http://www.telegraph.co.uk/news/worl...blackjack.html
On the one hand we say math-based systems loses, at the same time gamblers that won big with math-based systems are called out as "cheaters". Are we certain and consistent with this math-based system conclusions ?
  • #1,184
  • Oct 7, 2017 2:32am Oct 7, 2017 2:32am
Quoting mzvega
{quote} AMVT trades change in demand/value TA trades or follows changes price……. Both come from 2 very different "schools of thought" From an auction market theory perspective Price is nothing more than an advertizing mechanism. It's its part of the "price discovery process". The Price/ticker/quote is advertizing. It moves to solicit and encourage trade (looking for a response) It moves in search of participants in order to facilitate trade. Different prices at different times attract different TF participants. Price auctions too high in search...
Hi Mz, I have been reading your posts without scratching the surface to fully understand the underlying mechanics of auction process. Primarily because I cannot run a backtest on such a strategy. To all those who have mentioned tick charts, how do you validate if your strategy has long term survivability and consistency? On M1 timeframe, I can only go back a few months which is just not enough imo to objectively quantify the validity of any strategy. Care to shed some light on how you did it? Also, your auction process seems more applicable to futures instead of retail spot fx.

Your earlier post on "which comes first? The High or Low?" during backtesting was spot on !
Staying in my lane...
  • #1,185
  • Edited 5:33am Oct 7, 2017 2:35am | Edited 5:33am
Quoting skyway
{quote} On the one hand we say math-based systems loses, at the same time gamblers that won big with math-based systems are called out as "cheaters". Are we certain and consistent with this math-based system conclusions ?
Nup....but for politeness and to continue the discussion we adopt a conservative non-threatening posture. We only nuke them when the discussion and fun has ended :-)

PS We also for simplicity don't raise the topic of expoitable zones of a roulette table under bias and for simplicity settle on a single pocket.
  • #1,186
  • Oct 7, 2017 2:40am Oct 7, 2017 2:40am
Quoting Copernicus
{quote} Hi Mate My life over the past few years since my career from funds management took a swerve has meant that I have had to don the research apron while waiting for my contract tenure to play out in my current job. Here is what I plan to play in addition to a few other tricks up my sleeve which factors in the real costs of trading very conservatively including slippage. Either discretionary (almost systematic) across 24 instruments which is described in my thread but takes a bit of screen effort but has a far better risk-weighting than other...
I meant in live or forward testing.
Staying in my lane...
  • #1,187
  • Oct 7, 2017 2:43am Oct 7, 2017 2:43am
Quoting VEEFX
{quote} I meant in live or forward testing.
Here is the forward test (Multi-timeframe) since Jan 2014 which needs to be re-scaled and has been adjusted over time that I am now running parallel with my backtest which excludes SWAP and slippage.

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  • #1,188
  • Oct 7, 2017 3:32am Oct 7, 2017 3:32am
Quoting hanover
{quote} Sure. And the casinos themselves implicitly acknowledge that physics can be used to beat roulette: that's why numbers relating to the popular even money bets (red/black, odd/even, high/low) are sequenced alternately around the wheel, so that only the most accurate physics can deliver a viable edge (i.e. miscalculate by just one pocket, and you hit the opposite result next door, and lose your bet). And croupiers, balls, etc get 'rotated' regularly, and wheels are re-set or replaced, as added precautions against possible bias.{image}...
Couldn't explain it better, H ... Public brainwashing ...
Market is not random but unpredictable
  • #1,189
  • Oct 7, 2017 3:42am Oct 7, 2017 3:42am
Any thread relating the market to a roulette wheel should be thrown in the rookie section...

you can buy and you can sell wow

there’s a bit more involved than the turn of a coin
Time hides Nothing
  • #1,190
  • Oct 7, 2017 4:20am Oct 7, 2017 4:20am
Just some food for thought ... During up days the low of the day is set first most of the time. During down days it is the high. Either the high or low of a day is set almost always before 2:00 pm (GMT) (during the London session). Couldn't that be a simple edge?!
  • #1,191
  • Edited 5:33am Oct 7, 2017 5:22am | Edited 5:33am
Quoting Copernicus
....but I am not so sure they actually encourage all forms of math-based system play despite their apparent transparency using tricks of the trade to exploit human bias.
Indeed, blackjack is a very different animal to roulette.
___________________________
Quoting skyway
How is the gambler able to use electronics that goes undetected by the security surveillance ?
I believe that it's almost impossible nowadays, but some (like the Eudaemons) achieved it back in the days when surveillance was much more lax.
  • #1,192
  • Oct 7, 2017 5:41am Oct 7, 2017 5:41am
Quoting VEEFX
{quote} Thanks C. In your experience (since you are a guru in diversified trading!), have you come across any manual or automated spot FX-only strategy which caps max DD per month to 15% (or annual @ 20% or weekly @ 10% or daily @ 5%) and successful for 3+ yrs. I am at the juncture of switching my trading style from trend following (breakouts) and hybrid to solely countertrend(bounce). I find Countertrend/bouce is giving me getting control over drawdowns but I think consistency will go down (I hope not). ++ What in your opinion is the best course...
Mate....trust me when I say this. I am no guru and still have my trainer wheels on in portfolio management. Enough to make a good living but not enough to be regarded as a good pro.

I may have a solution for you which is right up your alley in terms of what I think is your trading philosophy. I just need to turn the non forex instruments off and get your required result. Leave it with me for a bit....and I will get back to you.
  • #1,193
  • Oct 7, 2017 5:42am Oct 7, 2017 5:42am
Quoting hanover
{quote} Indeed, blackjack is a very different animal to roulette. ___________________________
The good thing about friendship is that we can agree to disagree on some minor matters :-)
  • #1,194
  • Edited 6:44am Oct 7, 2017 5:49am | Edited 6:44am
Quoting VEEFX
{quote} Hi Mz, I have been reading your posts without scratching the surface to fully understand the underlying mechanics of auction process. Primarily because I cannot run a backtest on such a strategy. To all those who have mentioned tick charts, how do you validate if your strategy has long term survivability and consistency? On M1 timeframe, I can only go back a few months which is just not enough imo to objectively quantify the validity of any strategy. Care to shed some light on how you did it? Also, your auction process seems more applicable...
I may have used the word "tick"…… I wasn't implying that I traded tick charts, A tick chart is still a linear 1 dimensional series of data

Frequency distributions
https://www.forexfactory.com/showthr...48#post9022648

AMVT is applicable to any market that produces ticks, every market is an "auction market"

AMVT has a standard for testing the validity of a traders trading strategy or for testing new ideas, as long as the trade initiated is defined by AMT. For those familiar with AMVT use it for "proof of principle"

You can generate a Figure of Merit for your model. That measure is the ratio of potential (opportunity) to the risk (P/R) on a trade by trade basis. With a little work you can calculate the P/R ratio from the trades you have completed.

Model/Market Evaluation: The Concept of Figure of Merit
You can evaluate any model you use by taking the entry price and checking what the market did after entry. You entered and the market immediately went against you. You had little opportunity to make a profit. Or, you entered and the market went your way. The market offered you an opportunity to make a profit. You probably did not exit at the top (or bottom), but if you had you would have made the maximum profit possible. This maximum is what we call potential or opportunity. Virtually every trade has opportunity. Every trade carries risk. For most cases risk is the stop you placed on entry. The ratio of opportunity divided by risk is the Figure of Merit (FOM). FOM puts you in a position to evaluate both your model and yourself. If your trade is in a certain market that typically offers little opportunity, you probably should find a different market to trade. If the average potential (opportunity) is small compared to the average risk, again you have a decision to make. If opportunity is adequate and your returns are not, you need to examine the "you" aspect of your trading.

Markets change. Opportunity, the average maximum profit one could make from a trade, may change over time. Today's marvelous model may be tomorrow's dog. If you regularly measure the opportunity of your completed trades, the FOM, you can tell when your market is going into a funk.

Experimental Standard
Measuring the effectiveness of a trading procedure or model is more complicated. The market situation in which the model operates is not in equilibrium. This makes finding a closed mathematical solution of the optimum unlikely. The trading function is different for each trader and is fundamentally unknowable in general. Yet, an experimental standard can be developed. The primary condition is only that a trade be initiated at the breakout point defined by AMT. Other subsidiary conditions relating to time can be applied for special cases, but for the basic standard for day trading, we specify that all trades not otherwise closed out will be terminated at the close of the trading for the day. Conditions, then, are two: enter on the AMT breakout, exit no later than the close for the day. No information is needed on the explicit model followed by the trader.

Potential
A trade can be either profitable or unprofitable. The best possible result comes when the trade is not stopped out but exits on a close that is the highest post entry price (if a long trade) or the lowest post entry price (if a short trade). Normally, the best open-trade price occurs not at the close, but at some intermediate time after initiating the trade. The best open-trade price is the Potential of that trade. Potential is always positive or zero, while the actual trade may win or lose.

Potential measures a trade's maximum possible return. Potential plays a role akin to the index in CAPM. It is a quantity against which the trade's performance can be measured. Unlike the index - portfolio comparison, the trade return - Potential ratio cannot be greater than 1. That is, the return on a trade cannot exceed the potential. Further, a portfolio may decrease in value, but still be considered successful if it beats the index. The return - Potential comparison is absolute. Potential never 'loses', it can not go below zero (before costs). But the trade can lose. A losing collection of trades (portfolio) is just a loser. There are no mitigating circumstances of the sort in CAPM.

The absolute nature of Potential makes it the 'ideal' measure, within the limitations of the initial condition of the model (entry price). Turning things around, the Potential is a measure of the effectiveness of the selection process. Potential also qualifies the trading model. Markets are qualified by their potential too, some offering a lot, some a little. Over time, some high potential markets abate, some low ones improve. Potential measures the performance of a model, evaluates a market's tradeability and provides a check on selection processes

Pasted from <https://www.forexfactory.com/showthr...om#post8568946>
Markets are not efficient, rather they are effective - Jones
  • #1,195
  • Oct 7, 2017 7:56am Oct 7, 2017 7:56am
Quoting VEEFX
{quote} Thanks C. In your experience (since you are a guru in diversified trading!), have you come across any manual or automated spot FX-only strategy which caps max DD per month to 15% (or annual @ 20% or weekly @ 10% or daily @ 5%) and successful for 3+ yrs. I am at the juncture of switching my trading style from trend following (breakouts) and hybrid to solely countertrend(bounce). I find Countertrend/bouce is giving me getting control over drawdowns but I think consistency will go down (I hope not). ++ What in your opinion is the best course...
V

Here is the result of EDTT (a discretionary approach) described in my thread. The strategy I now adopt is a short term swing breakout with a max daily hold of approximately 11 days or so. I step through the process of portfolio construction from this post to this post and provide heaps of examples of the technique deployed. It is a bit of an epic read but is pretty important if you want to step into diversification in a managed and logical way.

Here are the summary results of the portfolio if I switch off all non-forex instruments. It is quite a slow trader in that it is definitely manageable.

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....and here is the annual results and the equity curve.

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According to your objectives it meets the criteria with a max draw over the 7 year period of 9.84% and a CAGR of 25% with some years pulling returns of 40% plus.

Let me know if you want full automation and I can do a similar process....it just might take a bit longer.

Cheers

C
  • #1,196
  • Oct 7, 2017 8:05am Oct 7, 2017 8:05am
Quoting skyway
{quote} I was thinking more of a hunter aided with modern day electronics. https://www.youtube.com/watch?v=-m1Jui2LcgI {quote} How is the gambler able to use electronics that goes undetected by the security surveillance ?
Always thought trading was like fishing
In detegere possumus omnes mortui sunt
  • #1,197
  • Oct 7, 2017 8:07am Oct 7, 2017 8:07am
Quoting Copernicus
{quote} V Here is the result of EDTT (a discretionary approach) described in my thread. The strategy I now adopt is a short term swing breakout with a max daily hold of approximately 11 days or so. I step through the process of portfolio construction from this post to this post and provide heaps of examples of the technique deployed. It is a bit of an epic read but is pretty important if...
Thanks C think I need to look into this
In detegere possumus omnes mortui sunt
  • #1,198
  • Oct 7, 2017 9:16am Oct 7, 2017 9:16am
Quoting Copernicus
{quote} Different .................

....................... It is your risk management and not your ability to predict price that is central to this game of chance.
He who survives longest laughs loudest. You can side-step the entire random or not random waste of breath argument provided you assume that fat tails exist. If they exist, then the market is non-gaussian, then risk management is the way to exploit them with an open profit condition to your system/s....as simple as that. You set the trap with risk management in your system that...
Ok!! This is what means to think different; focus on the solution, not on the problem!
Risk management is a true edge, which you described it in your usually elegant way and have been complete and clear.
I bet a very few really know what risk management is, no one so called guru ever talks about it; maybe now someone will start to move to the right direction.
I came up with something very simple and easy to apply, it is not a complex system as Copernicus' has built, so there are many ways to build something good, once you have understood the concept.
The main matter is that it is counter intuitive to a common mind (meaning a no trained mind), so a completely different perspective is needed to see it first, and to truly understand it second, because it goes against a normal perception of things.

Very good post Copernicus, albeit I'm wondering whether we are begining to go beyond what we should.....not too many gifts?.......
  • #1,199
  • Oct 7, 2017 9:48am Oct 7, 2017 9:48am
Very impressive arguments presented so far on both sides concerning probability theory, and most of you are correct to some degree. However there is one major flaw with all of your theories. Probability theory relates to mutually exclusive events, like rolling a die:one roll has no bearing on the next. Trading is not a series of mutually exclusive events, it is highly structured and completely dependent on events that occurred previously. You are attempting to apply probability theory to structured events, which is impossible. Markets don’t move up and down randomly. When you understand this, you will stop trying to apply a logic designed by nature to one designed and artificially created by man....
  • #1,200
  • Oct 7, 2017 10:11am Oct 7, 2017 10:11am
Quoting nealpek
Markets don’t move up and down randomly.
It depends on the semantic meaning of "randomly". Maybe there are forces that make the market up to a particular degree deterministic. However, there still is a random component. And most of these external forces are also random in terms that you don't know when they occur.

Quoting nealpek
When you understand this, you will stop trying to apply a logic designed by nature to one designed and artificially created by man....
Correct. But since we see a random-like behaviour of the market we can model it as it is random indeed. And even if there are occurences that are mutually exclusive, we can model the (pseudo-)random market by using observable characteristics and distributions that already contain the invisible dependencies. As I said earlier: The perception depends on one's point of view. Some believe it is fully deterministic, other think it is partially deterministic and partially random and others see deal with it as it is totally random. A dead-end discussion. Let us accept each others' points of view.
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