This entry was posted on Sunday, December 23rd, 2007 at 10:30 am and is filed under Education, Trades, market commentary, system trading. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
It has been 4 days since I mentioned a simple trade setup using the T2108 and the Ultimate Oscillator. I wanted to show you what that list of ETF’s have done since then with a screenshot:
(click to enlarge)
As you can see from the original 7 symbols mentioned 2 have hit their profit target of 3% (FXI and HHH) and of remaining 5 we have a spattering of small moves and one down 3.47%. Of course that is one of the ones I randomly picked to mention to you for this example. A big part of trading is accepting responsibility for you trades and in this case I will clearly pass the buck to my wife. You see when I wish to randomize my entry signals with no bias I usually yell from the office to my wife “honey pick 2 of the these…VTV EWS EWJ VNQ XLY HHH FXI” , well she picked EWS and VNQ. So this lag is clearly her fault and I wipe my hands clean of all responsibility. But seriously I suspect these exits to begin to trigger over the next few days and weeks.
I hope all the readers have a great holiday and maybe in some small way this blog has helped you to look at the markets in a slightly different way. And ultimately that may help you and I in our quest for positive returns.
Have a Great Holiday!
Dave Johnson
December 23rd, 2007 at 7:43 pm
Dave,
Thank you very much for your generous sharing of trading knowledge and experience. It’s helped me a lot since I started experimenting with Wealth-Lab a short while ago.
If it’s not too much of a request, some time in the future, could you please suggest a few good chartscripts available on WL site that could be used as a starting block for further development? I’ve looked at some of them, such as the popular “a seventeen-liner”, but I’ve felt they’re not very practical, in terms of # of open positions, and also, many times it seems like these scripts advocate “averaging down” in a losing trade, which reminds me of the Paul Tudor Jones’ quote: “Losers average losers.”
I can see that, if an index or a stock remains in a bull market, averaging down may work, but that’s a big if. Even in a bull market, averaging down at the wrong time can be very expensive (in both capitals and time), and sometimes fatal, unless the investor has a very deep pocket. This may be why position sizing and risk control are so important in trading systems.
Happy Holidays to you and your family.
Rob
December 23rd, 2007 at 10:02 pm
Rob:
First off thanks for the kind words
Yes I think I could address that subject in future.
But here are some things you should look at with any script, especially a dip buyer.
1} Position size - having 1000 holdings would be safer than 2 , would you not agree? So if safety is a concern I would lean to the larger number of holdings.
2) What systems would you run in conjunction with it? Obviously a good complement of a dip buying system would be a trend following system. In strong markets exposure is low in a dip buyer and high in a trend system. In weak markets dip buyers have higher exposure and trending systems would have lower. Thus somewhat equalizing exposure.
3) “averaging down” as you say is in the eye of the beholder- why not modify the script to buy only once for each symbol. But the power in dip buying is not the disparate symbols but in buying weakness. What period in history makes you the most “scared” and design your system to have survived that along with making money on the 1000 other dips. It is a balance
I have made on average 40% annually trading systems like these for 6 years running. I get to keep that money. And each time my exposure rose I never liked it…..yet it worked. So if this singular system which represents only 30% of my portfolio were to have a 35% drawdown….what is that overall? Less than 12? I can live with that. And maybe I have another system that would have done ok in that “new” environment.
Keep testing. When bringing systems live understand the role that system plays in your overall portfolio.
This post may be helpful to read.
http://thetradingdigest.com/blog/2007/03/27/are-you-diversified-no-really-really-diversified/
Have a fine holiday yourself.
Dave
December 24th, 2007 at 12:09 am
Dave - one question: is the Ultimate Osc you describe a unique indicator you’ve created or just the one that comes with Wealth-lab? I looked at TC2005 and didn’t see an ultimate osc - so I was curious. I’ve used a very similar system for a while and had great success with it.
December 24th, 2007 at 12:41 am
Yes Damian I put the link in the original post for the formula.
http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:ultimate_oscillator
December 24th, 2007 at 1:16 am
Ah yes - sorry for the stupidity. One question - one comment.
Question: so the system holds a maximum of 8 positions, or just can only add 2 per day? Not clear on this - could be that it is midnight.
Comment: Off the top of my head - I’ll have to run the backtest myself - what about ranking the stocks/ETFs that meet the criteria by, say 3-month returns - buy the top 2. Probably won’t do anything but thought I’d add where I could.
Thanks for a great blog Dave - always one of my first reads and happy holidays!
December 24th, 2007 at 1:55 am
First I say traders must reconize that they will not always pick the exact bottom. If backtesting the system supports positive expectancy, be patient, and reap the rewards of Dave and John’s laborious efforts. Dave and John I would like to thank you for all that you taught in the brevity of your chatroom. I think it would have surpassed all the currently available training of that nature if given time. Best of wishes to you both during the holidays and the coming New Year.
December 24th, 2007 at 9:53 am
Damian,
Yes we can add only 2 holdings per day and that will go to a maximum of 8 holdings. For the blog I was trying to be very cautious. There are different ways I use these signals in reality but I wanted to clearly “frame” a trade for the readers. That is what I try to do here, define conditions that have high profit per bar in backtesting.
In terms of the ranking I could see the merit in that. Although we want lots of people piling on the wrong way and running as fast as possible to the exits to help our position when it starts to turn.
Tom thanks for your comments on the chatroom. All I can say is that when looking for an edge look where your not “supposed” to look. If you are doing that I can almost assure trading mediocrity or worse.
Thanks again for the kind comments. Have a great holiday
and John and I hope to keep the blog fresh going into 2008 and beyond.