Notes for December 30, 2011

[grems8544]

paul,

maybe i'm being a maroon, but in the TPS test results and comparing the chart of QQQ to those first couple of best-performing trades from the trade blog, they don't seem to match up. the 3/13-3/20/00 trade looks like it should have been a loser, but it made 144% in only 7 days. even considering the internet bubble, 147% seems a little outrageous in such a short time. the next couple of trades looked similarly unrealistic. what am i missing?

i'm sure you've already pondered this, but i started looking at them and wondering if you flipped your entry rules since the bigger gains seemed to be made early--so buy 400 first, then 300, 200, 100--and add a rule of not holding more than X number of days.

thanks,
lisa

Hi Lisa,

No, I did not flip the entry rules. You can see this for yourself -- in the column "Tr.", which lists the number of actual trades for that position (knowing that a full position is 1000 shares, column "Sh.") -- we see that when Tr=1 that Sh=100, and when Tr = 2 we have Sh=300 (100 + 200), etc.

I agree with you that something seems a bit fishy here. The data source that I'm using is HGSI with a MetaStock export. It seems there is a major discontinuity of the data which makes anything before 2/3/03, and indeed, 200 trading days past this date, suspect. Here's HGSI's view of the data:



EdgeRater, the software I use to backtest strategies, allows the selection of different data sources. A review of Yahoo! historical data for QQQ (attached here: QQQ-Historical-Yahoo.xlsx) shows very different pricing for the Q's, and more importantly, no discontinuity, so obviously, the MetaStock export is in error. I'll send a note to HGSI and we'll see if they can figure out the issue.

As far as I can tell, trades from 11/17/2003 (200d + 2/1/2003) onward are completely valid when comparing HGSI/MetaStock data and Yahoo! data in terms of prices. Considering data from 11/17/03 removes 377 trades of the previous data set, leaving 1120 trades to consider. The previous results are still valid -- trades longer than 9 days in length have a greater degree of failure associated with them than do the trades with shorter time frames. Further, MAE, which is the number which will cause us to panic intratrade, has nearly the same average and standard deviation from 11/17/03 onward as it does for the entire history of the Q's, which is reassuring.

My take away here is still the same -- the goal is obviously to not experience the horrific drawdowns possible with the strategy, and the real question becomes how to prevent entering the trade when conditions are such that we may be in trouble in the bigger picture. I'm presently looking at the status of GGT from 9/08 onward to better understand the setups of when Connor's fails in context of overall market conditions.

Keep the questions flowing ... enjoy the digging.

Regards,

pgd

[Billy]

I think that Dave summarizes perfectly and concisely what can be said about last year.
I post it here because it resonates well with the discussion that's been going on.
Billy

"2011 was a tough year for most. The trend followers had no trend to
follow and the reversion to the mean guys looked pretty smart until
they blew up.

It was a market that rewarded bad behavior. Just the opposite of
what you should do often worked: not using stops, fading the
market, taking small profits, micromanaging, switching systems,
jumping in and out (for longer-term traders) etc...

I'm glad this one's over."

[nickola.pazderic]

The year may be over but is 2011's legacy, influence, and, worst of all, existence?