BlueHorseshoe

Regardless of whether you can see order flow or not, you can certainly sell when it goes up and buy when it goes down. And doing this can form the basis of a viable approach, especially if you align yourself with the longer term trend. The problem with many vendors (not directed at you!) is that they advocate momentum based systems for inappropriate markets. In the ES, most of the time, by the time you've had triple confirmation from all their indicators that the market is moving in your direction, then the move is over. The ES never really goes anywhere (you can prove that to yourself with very simple statistics) - much better to short it when it's rising and buy it when it's falling. I totally agree with you on Carter and a wet paper bag though. ZDO - I agree with you on 'context' and stops - although in a previous thread I think I once disagreed with you on this point. I changed my mind Managing an exit in the way that DB suggests is probably a good route, but I think that he underestimates how much experience and confidence is required to do that with consistency. BlueHorseshoe

If you're more interested in the relative value of Value1 than the absolute value, then you could just divide it by 100 or 1000 or whatever, to strip some of the decimal places out, before calculating Value2. This is what you've done manually in your second example. BlueHorseshoe

Does nobody want to talk about this!?!? BlueHorseshoe

Hardly a dictionary definition, but . . . A leading indicator is exactly the same as any other kind of indicator; what differs are the claims made by its advocates . . . Both types of indicator use the same data to derive their calculations, but a 'leading' indicator is supposed to be able to say something about future price (or whatever) behaviour, whereas a 'lagging' indicator is claimed only to say something about past price behaviour. This is the reason why I am instantly turned off when people talk about price "finding support" at a moving average - pure nonsense! BlueHorseshoe

Hi Steve, The general concept that you're exploiting has now become pretty clear, I think, even though you haven't gone into details about how the distributions are calculated. It seems sound to me. Can you tell us a little about execution? For instance, on a pullback that meets your criteria, what process do you follow? Could you show one or two specific entry prices on, say, a one minute chart, rather than just the arrows pointing to a bar? I think this would be very helpful. Would you be able to discuss a few failures of the pattern, and say whether you think these failures were in any way predictable, or were unavoidable? I'd also be very grateful if you could discuss a little about how this concept could be applied in a few other markets (if it can) - how does it need to be adapted (if it does) to trade something like oil or the euro? Many thanks, BlueHorseshoe

Hi, This has never worked for me either, but only from the home page; it works fine as soon as I leave that initial landing page. BlueHorseshoe

What happened with the ES there towards the close? After that failed push up to 1408.25 it seemed to go a little crazy with the flutter and 85k contracts traded . . . BlueHorseshoe

I've attached two pdfs. They each show the EC for a strategy in the ES over a ten year period. A non-optimal parameter was used for reasons I can't be bothered to explain, but that's unimportant. The first pdf shows the results trading a single contract. The second pdf shows the results with the fixed-fractional formula I gave above, with starting equity of 20k and a maximum risk per trade of 5%. In the period to the right, immediately after the first very nasty single-trade drawdown, and including the second nasty single-trade drawdown, I was trading this strategy with a 20k account. My plan? Well the idea was to start out fixed-fractional, and then develop a formula that systematically reduced the percentage of equity risked per trade as the equity increased . . . If anyone wants to chat about this or other similar MM ideas then that would be great - position-sizing simply isn't discussed enough on here. BlueHorseshoe SPR Graph.pdf SPR Graph with Fixed-Fractional MM.pdf

I think that possibly one of the reasons that this topic generates so little interest, even from those who do fully appreciate the role of MM in successful trading, is that there's relatively little scope for discussion or development, especially unless one is prepared to get involved in more complex mathematics. This is a great shame - I'd really like to see this thread attract more contributions. Here's my generic wording of something very simple and, I think, pretty well known - the formula for a fixed-fractional position-sizing: TotalEquity=InitialCapital+ClosedOutP&L (TotalEquity/100)*PcntRiskPerTrade=RiskEquity Risk=USER DEFINED {usually based on some kind of volatility measure - eg it could be something like 2*ATR - this is essentially the 'stop-loss' size for a particular trade} PositionSize=RiskEquity/Risk A trader needs to specify the initial capital, the percent of the total equity to risk on any one trade, and the actual dollar risk for any given trade (this amounts to knowing where your stop would be). Also, you'll need to round the PositionSize up or down to the nearest whole contract/tradeable unit. As I mentioned to someone yesterday, being able to vary this with a finer granularity than the minimum 1 contract for futures is one of the few concrete advantages of things like spreadbetting. It means that your position size can be increased or decreased to the equivalent of a fraction of a contract, which can be very good for small traders trying to build an account. If anyone wants actual EL code to test the application of this within their strategy, just say and I'll post it. BlueHorseshoe

I think that walk forward optimisation is useful, but not bulletproof. One of the difficulties with what you describe is that performance may or may not be normally distributed around the optimal value. So in the future, rather than the optimal value becoming one of those surrounding values that you describe, another local maxima swells to become the new optimum. That's a complicated question, and I don't have any kind of an answer to it. It will probably depend on your circumstances. A retail trader can open an account with a 10k balance and say 'I'm going to trade this through hell and high water, and I'll keep on trading until my broked tells me I don't have sufficient equity in the account to continue'. A fund, on the other hand, couldn't take that approach - there are too many restrictions on how well they must perform, maximum acceptable drawdowns, and the likelihood that investors will withdraw funds. Similarly, though you or I may be willing to do this with a 10k account, would you be comfortable doing it with a 200k account? I know that I wouldn't. A money management formula can be optimised/curve-fit to the historical risk associated with trading that strategy. Money management can only improve on what's there, so if by 'poor system performance' you mean a non-profitable performance, then it won't make its performance profitable. However, I too think that money-management is essential to long term success for most traders. BlueHorseshoe

That makes a little more sense - I must have read the 'donchian' part in someone else's post rather than one of your own. In an imbalanced market, isn't "value" more likely to proceed in the direction of the imbalance, rather than counter to it? In an strong uptrend, isn't the probability greater that "value" today will be found to exist at a higher price than yesterday? Would I be correct that because the BBs are just a visual aid, and not system critical, the system hinges upon knowing how the blue price distributions are created? Cheers, BlueHorseshoe

Hi Steve, I've not looked at this thread for several days, so just catching up . . . Am I correct in thinking that the generalised approach is to take longs below the midline of a 5/10 day donchian channel, and shorts above it, when price hits a bollinger band? I'm sure there must be more to it than what I've described . . . By using the distribution in this way you seem to be combining both a short term (BB bands) and a longer term (Donchian mid) expectation of reversion to the 'mean' (I always use that term to refer to any situation where a market spends most of its time backing and filling, as opposed to movements towards an average of any specfic type). This seems sensible to me, but perhaps not to others. You mention trend - where does an evaluation of trend come into the picture, how, and in what frame of time reference? Many thanks, BlueHorseshoe

Wouldn't this give two donchian channels with mid lines? BlueHorseshoe

Hi Predictor, I'm sure if you google this you'll find loads of competent programmers who will do it for a fee. If you guarantee them a regular flow of work they'll probably do it cheaper. BlueHorseshoe

I hope you don't think that I have any interest in Bollinger Bands just because I recently posted a few quick tests on here. They were for other people's possible benefit - I have no interest in things like Bollinger Bands at all . . . BlueHorseshoe

Thanks! BlueHorseshoe

Hi Horace, You're correct in thinking that there will be a lot of traders doing the same thing. I'm currently reading "Street Smarts", which is rather an old book now, and that contains strategies such as 'the Anti' which aim to exploit exactly what you describe. Here is an idea that may be useful to you that might allow you to improve the profitability of your approach without worrying about the bid-ask. This is especially relevant if you're trading the ES, as it often struggles to produce sustained moves, even when the pattern you describe works perfectly. Rather than wait for price to break out of the congestion (ie a reconfirmation of the original trend), establish a position as the pullback occurs. Buy the pullback; not the breakout that follows it. Sometimes this will mean that there is an adverse excursion after you have entered a position, but your actual fill price is unlikely to be worse than it would if you seek a confirmation breakout move, and sometimes it will be better. I've attached a chart showing what I mean. I hope that suggestion is of some help to you. Not that I'm aware of, but you could easily program one, or pay someone to program one for you, or ask someone on the forum who can program for your platform very, very nicely if they would do it for free. I've had absolutely shed loads of free help from people on TL with programming queries, and what you're after isn't very complicated to produce. BlueHorseshoe

Don't worry - you're not missing out on anything if you can manage without them - they're dull as hell! It's interesting that you mention relating entry/exit/market behaviour concepts to position sizing. This is something I've never been keen to do - the only element I tend to feed into a position sizing formula is the available equity. I think part of why I have preferred to keep the position sizing aspect seperate is that I know that the postion sizing formulas definitely "work", and for mathematical reasons they are certain to continue to do so - whereas my judgements about market behaviour may not be so accurate! Something I've always wondered - did successful traders on the floor tend to use any concrete formula to size a position, or was it usually done on a discretionary basis? BlueHorseshoe

We must have been typing at the same time, as I just repeated your point here below - sorry! BlueHorseshoe

There's a good interview here with William Eckhardt in which he makes a good many relevant points: William Eckhardt: The man who launched 1,000 systems One of the problems that I see with continual re-optimisation is that the optimal future parameters are always likely to be different from the current ones; therefore when a trader identifies an optimal current value for their system they are always better off chosing a parameter other than this to use. One thing that I have been meaning to get around to researching for ages now is whether trends in optimal value over time can be identified and predicted in any way. As a very simple example, if the optimal value for an MA for trading the ES has fallen by ten over each of the past five months to a current optimal value of 50, is it possible to conclude that this trend will continue and thus predict the optimal value for the coming month as 40. This predicted optimum could then be used in live trading, rather than the current optimum of 50. One problem with this is local maxima within the space we explore when we backtest systems. Another problem is sample size - most 'AI' type strategies are thus forced to trade with relative high frequency so as to have available sufficient relevant information to respond to changes in the data in a way that is valid. I think that before the widespread use of computers optimisation tended to be done from paper charts and calculations made by hand (must have taken forever) - for someone like Donchian there would have been no option. But then I have read accounts of people like Ed Sekoyta and Bill Dunn using computerised approaches for system design decades before anyone else . . . I think that by far the best way to periodically re-optimise is 'by eye', as you remark, and this is effectively what a good discretionary trader will do. It requires experience and confidence though, and I for one have never been much good at it. A few months ago I remarked on the trend in the ES at that time, saying that I considered it to be down (because the 'optimal' MA was at that time pointing downward). DB commented that the trend was clearly upward. He was right and I was wrong. I could see at the time that he was right - just looking at a chart it was clear that the trend was up. Having the confidence to act upon such convictions takes a certain type, however. BlueHorseshoe

That's what I meant - I didn't know whether this indicated a seperate entry. Thanks for clarifying! BlueHorseshoe

I like this analogy a lot, not least because it suggests that sooner or later everybody's boat will sink. So what is the 'optimal' time interval at which to re-optimise? BlueHorseshoe

Can you give an example of how you would suggest that this can be done? It's doesn't need to be anything useful or profitable - just an example of a 'non-optimisable system'. BlueHorseshoe

Thanks Steve. There's another entry marked earlier on this same chart. I'm much more interested in this - please could you tell us a bit about it? Cheers, BlueHorseshoe

Mean reversion sytems and stop-losses certainly don't make easy bedmates. You could . . . erm . . . no, I won't say it . . . BlueHorseshoe