Momentum Chaser

Acceptance that I control my implementation, but I do not control the market. - Rob Booker

I like this thread. I have found through much trial and error that the number or inputs (fixed optimizable variables) used in a strategy to create an entry trigger has a huge correlation to the sustainability of the system and the system's ability to perform well into the future. Fewer inputs = higher probabilty to continue to perform profitably is the premise that seems to work best for me. Most of the strategies that I am currently writing and using use a maximum of 3 inputs, with only 2 inputs or 1 input being even better, in my opinion. This tends to construct simpler strategies, that are more loose to the market, with the less possibility of being over curve fitted. When looking to construct few input strategies, I tend to use inputs that might not be the first choices for many, since many basic indicators have more variables than I allow myself to use. For example, most oscillators have a length, a high line and a low line and possibly other inputs that help to calculate the oscillating line. That totals 3 or more inputs, so I am maxed out. If a strategy had a moving average and an oscillator then I would be at 4 inputs minimum, which exceeds my guidelines. Some inputs that are useful to me are Time of Day, Percent of a Range, On Balance Volume or other items that only have 1 input to calculate them. Percentage calculations tend to self adjust to changing market conditions better than fixed Length inputs. Most of my systems are Always in, flip flop, breakout style systems. The idea is to always be in position to chase the new momentum of the market. I agree with Suiya that the time to reoptimize is on a regular basis or when the market has changed and the system is begining to fail. The decision to be made at that time is whether the system is failing or the market is just not moving enough to be profitable with a breakout style system. Momentum Chaser Steve in San Diego

While it is true that these are all highly correlated markets, there are some large differences in the way that they trade every day. I like to trade where there is the most movement and trend. I look at these markets from a mathematical standpoint by looking at 3 things: The AverageTrue Range In Dollars The Open to Close Range to Average True Range Ratio The Current Initial Margin Amounts. Currently as of March 3, 2012. The 10 day Average True Range computed in US Dollars for the 5 markets is as follows: TF $1,501 per day range EMD $1,366 per day range ES $647 per day range YM $544 per day range NQ $532 per day range So, my observation is that the same intraday swing in the TF is almost 3 times a large in dollars as the YM and 2.3 times as large as the ES. Or put another way, if your goal is to make $500 per day trading one of these markets, you would have to net approximately 1/3 or 33% of the daily range in the TF, 37% of the EMD, 77% of the ES, 92% of the YM and 94% of the NQ. How well they trend during the day can be looked at by the Open to Close Range to Average True Range Ratio. This shows the percentage of a candlestick body vs. the high to low range. Current 10 Average Values are: TF 51% EMD 40% ES 41% YM 41% NQ 40% This suggests to me that the TF trends better during the day, while the others back and fill more. My own theory for these differences is that there are fewer scalping systems attacking and ruining the daily trends in the less popular TF and EMD, which can be seen in the lower volumes and open interests in these contracts. The 3rd thing that I look at is which market gives me the "best bang for the buck" in my account by using the Current Margin Rates. I usually compare this by testing my automated system results over a period of time using the same style of system on each market versus the margin rate. A simpler comparison is the compare the Average Daily Range in Dollars versus the Margin Amount. Current Tradestation initial margins are: TF $7,535 EMD $7,500 ES $5,000 YM $3,750 NQ $3,500 To compare: TF $1,501 ATRinDollars / $7,535 Margin = 20% EMD $1,366 / $7,500 = 18.2% ES $647 / $5,000 = 12.9% YM $544 / $3,750 = 14.5% NQ $532 / $3,500 = 15.2% I look forward to your comments, Momentum Chaser Steve

Yes, I also use what I call a Disaster Stop. Large enough to not get hit very often, but somehow comforting in a wierd sort of way. Happy trading, Momentum Chaser Steve in San Diego

I have found the VWAP to be very useful as an automated system trigger tool. If you have Tradestation or similar tools, I found it useful to be able to vary the reset time of the VWAP and not use the default of either midnight or the close of previous session. I have found all other moving averages to be "teaser" indicators which look good to the eye but are useless in real trading. Just my opinion, Momentum Chaser Steve in San Diego

I have been using the Tradestation Walk Forward testing for about a month now and have been running some of my dozens of previously written systems through it to test for robustness. The key to robustness seems to lie in overall simplicity of the system. For example, none of my systems with more than 2 inputs will walk forward test well. Those with 0 to 2 inputs generally forward test with robustness. My preferred style of systems are always in, flip flop, reversal systems using minute based charts and no indicators. I love breakouts from a market occurance, time reset systems and variable opening range breakout systems, as they have proven to me to be best at catching enough of the major market movement to be profitable, and in general, usually test and trade with more total profit than In-0ut-Target-Stop systems. What I mean by two inputs or less is, for example, an oscillator like RSI, requires (1) a length input and 2 stationary lines (2 and 3) for a total of 3 inputs, which walk forward testing seems to frown upon. Something like a time of day (1) and a dollar amount above and below the close at that time of day (2) would only be two inputs. Just my two cents, MomentumChaser Steve in San Diego