OPEX Friday - January 20, 2012

[TraderD]

Trader D,
The current GDX robot version is programmed to take profits into strength. The current trade simply never met the requirements for doing so.
Please review Pascal’s document :
http://www.effectivevolume.eu/conten...ember_2011.pdf

Billy

Indeed, it's the conditions of "selling into strength" that I'm questioning with respect to the anecdotal evidence presented by the current GDX trade. I am not sure what may constitute a better exit condition, merely speculating that somehow factoring the-then prevailing forward-LT/ST stats may prove useful in testing.

As a side note, Figure 3 in the GDX doc shows the vast portion of return (GDX equity curve on a log-Y scale) to be produced between Aug 2008 and April 2009, a rather narrow and unique period of time, which may make judgement of the rest of the ~4yr test period somewhat challenging.

[Billy]

Indeed, it's the conditions of "selling into strength" that I'm questioning with respect to the anecdotal evidence presented by the current GDX trade. I am not sure what may constitute a better exit condition, merely speculating that somehow factoring the-then prevailing forward-LT/ST stats may prove useful in testing.

As a side note, Figure 3 in the GDX doc shows the vast portion of return (GDX equity curve on a log-Y scale) to be produced between Aug 2008 and April 2009, a rather narrow and unique period of time, which may make judgement of the rest of the ~4yr test period somewhat challenging.

No system can give 100% satisfaction on 100% of the trades. Building a robust system through thick and thin with a minimal rate of failure is the best we can work for and I let you be judge if we are getting close or not. The current trade is neither a loser nor even exited yet, so any post-trade analysis is premature.
Billy

[TraderD]

No system can give 100% satisfaction on 100% of the trades. Building a robust system through thick and thin with a minimal rate of failure is the best we can work for and I let you be judge if we are getting close or not. The current trade is neither a loser nor even exited yet, so any post-trade analysis is premature.
Billy

I agree with you. Just to make sure I'm not misunderstood - it's fairly common to generate ideas for rigorous testing from anecdotal evidence (preferably, more than one or two examples). Ultimately, this is a marathon, not a sprint, granted, so I wouldn't be remotely tempted to render judgement on the system based on a single trade (especially if it's still in the green and not exited), alas you can always trust me to come up with more ideas for you to test :)

Trader D

[manucastle]

No system can give 100% satisfaction on 100% of the trades. Building a robust system through thick and thin with a minimal rate of failure is the best we can work for and I let you be judge if we are getting close or not. The current trade is neither a loser nor even exited yet, so any post-trade analysis is premature.
Billy

(The current trade is neither a loser nor even exited yet, so any post-trade analysis is premature.)

Not for those of us who acted, perhaps prematurely, on Pascals early comments on the MF yesterday and sold GDX, but I understand that this is work in progress.

Trev

[Billy]

(The current trade is neither a loser nor even exited yet, so any post-trade analysis is premature.)

Not for those of us who acted, perhaps prematurely, on Pascals early comments on the MF yesterday and sold GDX, but I understand that this is work in progress.

Trev

Trev, I feel really sorry, but you should have been able to exit with a small gain above 51.62 anyway. Under strong demand pressure, we made a mistake in trying to help members with the RT indicators before the end of the beta testing. We will refrain from doing so from now on.
Note that this incident doesn’t put the GDX robot official rules in question.
Billy

[manucastle]

Trev, I feel really sorry, but you should have been able to exit with a small gain above 51.62 anyway. Under strong demand pressure, we made a mistake in trying to help members with the RT indicators before the end of the beta testing. We will refrain from doing so from now on.
Note that this incident doesn’t put the GDX robot official rules in question.
Billy

Thanks Billy, keep up the good work :O)

Trev

[Pascal]

Indeed, it's the conditions of "selling into strength" that I'm questioning with respect to the anecdotal evidence presented by the current GDX trade. I am not sure what may constitute a better exit condition, merely speculating that somehow factoring the-then prevailing forward-LT/ST stats may prove useful in testing.

As a side note, Figure 3 in the GDX doc shows the vast portion of return (GDX equity curve on a log-Y scale) to be produced between Aug 2008 and April 2009, a rather narrow and unique period of time, which may make judgment of the rest of the ~4yr test period somewhat challenging.

You are right about the 2008-2009 period. I copied below the figure that is in the original GDX reference document.

In blue, you can see the returns of the previous version of the model. These returns were negative in 2011. It is more critical, because it means that the earlier version of the model was good for trend following, but not that good in a choppy market such as last year. Hence, the new version, in which we introduced a sell-in-strength rule, is showing good results in the two types of markets.

However, you are right: we will not have again the same sort of results as in 2008-2009.
However, I am pretty confident that the model is now robust enough to sustain any type of market.

There are two other aspects that are important (to my eyes) about this model:

1. At each stage, we can measure in real time the distance to the next signal and issue an e-mail alert (at least we are/will be testing these features.) This means "user's freedom". We (you) will be able to walk around with an iphone, get alerts on line in real-time and act if necessary. The heavy work is done by the model and the computers. We'd issue about two alerts per months/per model, which are easy to handle.
2. I was able to extract from the model the parameters that are sector dependent: Stop level, overbought and oversold levels, ATR level, porosity. These parameters are depending only on the volatility of a specific sector. This means that it should be possible to test the same model on different sectors without the need to redevelop the whole logic: only sector specific parameters would be adapted. This means that we will be able to easily run models on different ETFs.

In conclusion, what we will be offering here is
- number crunching capabilities that few hedge funds can get
- back tested/safe trading models
- the freedom NOT to have to stay close to the computer.

In a broad sense, this is our goal.


Pascal

[TraderD]

You are right about the 2008-2009 period. I copied below the figure that is in the original GDX reference document.

In blue, you can see the returns of the previous version of the model. These returns were negative in 2011. It is more critical, because it means that the earlier version of the model was good for trend following, but not that good in a choppy market such as last year. Hence, the new version, in which we introduced a sell-in-strength rule, is showing good results in the two types of markets.

However, you are right: we will not have again the same sort of results as in 2008-2009.
However, I am pretty confident that the model is now robust enough to sustain any type of market.

There are two other aspects that are important (to my eyes) about this model:

1. At each stage, we can measure in real time the distance to the next signal and issue an e-mail alert (at least we are/will be testing these features.) This means "user's freedom". We (you) will be able to walk around with an iphone, get alerts on line in real-time and act if necessary. The heavy work is done by the model and the computers. We'd issue about two alerts per months/per model, which are easy to handle.
2. I was able to extract from the model the parameters that are sector dependent: Stop level, overbought and oversold levels, ATR level, porosity. These parameters are depending only on the volatility of a specific sector. This means that it should be possible to test the same model on different sectors without the need to redevelop the whole logic: only sector specific parameters would be adapted. This means that we will be able to easily run models on different ETFs.

In conclusion, what we will be offering here is
- number crunching capabilities that few hedge funds can get
- back tested/safe trading models
- the freedom NOT to have to stay close to the computer.

In a broad sense, this is our goal.

Pascal

A big part of the challenge in developing quantitative trading models is reducing the number of parameters used (aka the dimensionality curse) in order to avoid model overfitting to available (and often limited) data while maximizing model accuracy. I find the notion of a single model that can apply to multiple sectors particularly promising since it provides for a more diverse test data set while minimizing parameter inflation through a consistent approach to parameter values selection for each sector.

Trader D