A Trend-Antitrend Trading System - раздел Литература, Beyond Technical Analysis In This Section We Explore The Trend-Antitrend (T-At) System, Designed To Swi...
In this section we explore the trend-antitrend (T-AT) system, designed to switch automatically between an antitrend mode and a trend-following mode. You will like this system if you aggressively like to fade the market, but do not mind reversing into a with-the-trend position if needed. This system shows you that trend following is not the only way to trade the markets. Many institutions and money managers, with their deep pockets, big positions, excellent execution, and low costs, usually assume the market is ranging. These sophisticated souls will be selling new highs and buying new lows. Of course, the difference is in the trading time frames: They are in and out a dozen times, before most of us are warming up to the trade.
The challenge in this type of system is to find a consistent basis to define when to trade with the trend and when to fade it. Markets will often make new 25-day highs or lows, but without strong momentum. This can be interpreted to mean that the market is likely to reverse, so we should try to sell the highs and buy the lows. However, if the market then goes on to make news highs or lows with increasing momentum, we must immediately reverse into a trend-following position.
For this system, we will use the 18-day ADX to measure market trendiness, and an 18-day SMA of the ADX as the reference. If the ADX is above its own 18-day SMA, then the market is trending, and we will buy new highs, and sell new lows. Conversely, if the ADX is below its 18-day SMA, we will sell new highs, and buy new lows. Since we will be going against the short-term trend, we must use an initial risk control stop, or the losses will be unbearable.
We must also decide how to enter the trade. For simplicity, we will enter on the open of the next trading day. We can use the usual 20-day exit to check on the trend-following aspects. Again, for simplicity, we will test this system without specific exits, so that the entries also serve as the exit for the opposite position.
You can see how this trading system works in Figure 4.27 from the September 1993 U.S. bond contract. The market formed a base during a congestion phase, and then rallied strongly, experiencing one brief
Figure 4.27 The trend-antitrend system in action on the September 1993 U.S. bond contract. Notice how it picked off turning points nicely during the consolidation. It detected two turning points during the uptrend, but quickly reversed to follow the up move.
sideways period. Observe how the model readily fades new highs, and then quickly reverses in the direction of die trend. This system picked off the top and bottom cleanly during the consolidation in April and May. It was long coming into the rally off the May bottom. It hiccuped twice, in June and August, but quickly returned to the underlying long trend.
As Figure 4.27 shows, the T-AT system caught some turning points very well. This system will also see turning points that turn out to be insignificant, and, of course, there will be some turning points that it will not notice at all. The drawback of the T-AT system is the potential for significant loss as it switches fruitlessly between its anti-trend and trend-following modes.
The usual T-AT system worked beautifully on the December 1985 deutsche mark contract (see Figure 4.28). The DM was defining a broad consolidation region after a down trend. Note how the T-AT system quickly reversed to long in September after a premature short signal. The subsequent market turns were timed flawlessly. This is quite remarkable for a mechanical system using a single trend-checking rule.
You must use good risk control with this system, since the market could move against the position in a vicious countermove. The June
118 Developing New Trading Systems
-35.00
-3450
-33.30
-33,00
-3250
-32.00
Figure 4.28 The T-AT system picked off turning points flawlessly in this December 1985 deutsche mark contract. Notice how it quickly returned to a trend-following mode in September, as the market drifted lower.
1995 deutsche mark contract provides a good illustration of this (see Figure 4.29). The T-AT system signaled a perfect short trade within a day of the actual contract high. Then, it correctly picked off the bottom of the quick sell off. However, it rolled over to short during the brief congestion and then was short through the volatile countermove in late May. Trend-antitrend trading requires great faith in the system and rigid risk control, with the added benefit that the risk/reward ratio can be excellent.
The June 1995 deutsche mark contract also illustrates the difficulty of using a heavily smoothed ADX indicator in volatile markets. The same smoothing that desensitizes ADX works against it if the market is choppy and thin.
Another quirk of the T-AT system is that it will often be slow in signaling a countermove if the market is drifting slowly, as the December 1993 cotton contract was doing near the summer top. T-AT logic correctly picked the first low (see Figure 4.30), but had to sit through the ensuing double bottom in November before the trend turned up. Once again, we have the hiccup at the start of the trend, with the system quickly reversing into the intermediate trend.
Let us briefly explore how this system was actually written, using the Power Editor from Omega Research's TradeStation™ software.
A Trend-Antitrend Trading System119
-74,00
73.00
-71.00
-70.00
-69,00
-68.00
Figure 4.29 The June 1995 deutsche mark contract illustrates how the T-AT system can get trapped by a volatile countermove.
Figure 4.30 The T-AT system was slow to respond to the market drift in the summer for the December 1993 cotton contract. It correctly picked the first dip of the eventual double bottom.
120 Developing New Trading Systems
There is only one input variable, the length of the breakout period, currently set to 25 bars (days). The antitrend entry at a new 25-day high is written as follows: if today's high was the highest high of the previous 25 days, but the 18-day ADX was below its 18-day SMA, then sell tomorrow at the market on the open. The countertrend buy signal is also similar.
If high > highest (H.25)[1] and ADX(18) < average
(adx(18).18) then sell tomorrow on the open.
If low < lowest (L,25)[1] and ADX(18) < average
(adx(18).18) then buy tomorrow on the open.
This approach gives a symmetric long and short sell order on an antitrend basis. Let us assume you have a long position near a potential bottom. However, the market bounces up for a few days, and then reverses to begin a strong downtrend. In this situation, you want the system to switch to a short trend-following position only if it is long to begin with. Similarly, a new 25-day high with rising momentum is your signal to switch to a long position if you were short to begin with. Thus, the trend-following entries are similar to the antitrend entries, but you should first test if the system is short or long.
If MARKETPOSITION(O) - 1 and low < 1owest(L,25)[1] and
ADX(18) > average(ADX(18),18) then sell tomorrow on the open.
If MARKETPOSITION(O) - -1 and high > h1ghest(H.25)[l]
and ADX(18) > average(ADX(18),18) then buy tomorrow on the open.
Here MARKETPOSITION is a special built-in function that returns 1 if the system is long, and -1 if the system is short. Once again, we have the symmetric conditions for long reentry. If we sell a new 25-day high, but the market makes new 25-day highs with increasing momentum, then the T-AT system switches to long. A similar condition holds for the short reentry.
By design, the T-AT system first tries the antitrend entry, and with-the-trend positions occur on reentry. Therefore, you should remember that this system will lose money as it hunts for a reentry market condi-
A Trend-Antitrend Trading System121
tion. Of course, if the resulting trend is a long one, then the loss at reentry will seem minor.
If you like this approach, you can try a number of variations. You could enter not on the open, but on the close or beyond the previous day's high or low. You could also use a more sensitive reentry, as just a new 25-day high or low, not requiring the additional ADX conditions.
Table 4.14 shows the results of long-term testing on all available data from January 1, 1975 through July 10, 1995 with a $5,000 stop and allowing $100 for slippage and commissions. Only markets with positive results are included, since this strategy requires active markets.
Table 4.14 points out the strengths and weaknesses of the T-AT system. First, it does not work on all markets, and second, it generates a lot of trades. Hence, this is an expensive system to run, as shown by the drawdown numbers. The initial stop had to be rather wide, at $5,000, to allow a cushion for the antitrend component to work. However, the profit factor is healthy, as is the average trade. Hence, on mature and active markets, the T-AT system seems to work quite well. The strategy requires excellent risk control and good discipline to implement. You can now develop other variations of this system, adapting it to your trading preferences.
Figure 4.31 presents a frequency distribution of 1,311 trades generated by the T-AT system. This distribution is broader than the distri-
Table 4.14 Long-term performance of T-AT system over all available data from January 1, 1975 through July 10, 1995 with $5,000 stop and $100 for slippage and commissions.
На сайте allrefs.net читайте: "Beyond Technical Analysis"
Если Вам нужно дополнительный материал на эту тему, или Вы не нашли то, что искали, рекомендуем воспользоваться поиском по нашей базе работ:
A Trend-Antitrend Trading System
Что будем делать с полученным материалом:
Если этот материал оказался полезным ля Вас, Вы можете сохранить его на свою страничку в социальных сетях:
Developing New Trading Systems 73
Introduction 73 The Assumptions behind Trend-Following Systems 74
The 65sma-3cc Trend-Following System 75 Effect of Initial Money Management Stop 88 Adding Filter to the 65sma-3cc Syste
Selected Bibliography 253 Index 255 About the Disk 261
Preface
This is a book about designing, testing, and implementing trading systems for the futures and equities markets. The book begins by developing trading systems and ends by def
Introduction
Хорошая система торговли удовлетворяет вашу индивидуальность. К счастью, самый быстрый способ находить каждый - через процесс испытания(суда) и ужаса(террора). Любое проверяющее система программное
РАЗВИТИЕ И ВНЕДРЕНИЕ ТОРГОВЫХ СИСТЕМ
На предмете. Привлекательная особенность - то большинство материала, первоначальное или новое. Эта книга разделена на две половины по четыре главы каждая. Первая часть посвящена проектированию торг
The Usual Disclaimer
Throughout the book, a number of trading systems are explored as examples of the art of designing and testing trading systems. This is not a recommendation that you trade these systems. I do not c
What Is a Trading System?
A trading system is a set of rules that defines conditions required to initiate and exit a trade. Usually, most trading systems have many parts, such as entry, exit, risk control, and money manage
Comparison: Discretionary versus Mechanical System Trader
Table 1.1 compares two extremes in trading: a discretionary trader and a 100% mechanical system trader. Discretionary traders use all inputs that seem relevant to the trade: fundamental data, techn
Why Should You Use a Trading System?
The most important reason to use a trading system is to gain a "statistical edge." This often-used term simply means that you have tested the system, and the profit of the average trade—
Robust Trading Systems: TOPS COLA
A robust trading system is one that can withstand a variety of market conditions across many markets and time frames. A robust system is not overly sensitive to the actual values of the parameters
How Do You Implement a Trading System?
Begin with a trading system you trust. After sufficient testing, you can determine the risk control strategy necessary for that system. The risk control strategy specifies the number of contracts p
Who Wins? Who Loses?
Tewles, Harlow, and Stone (1974) report a study by Blair Stewart of the complete trading accounts of 8,922 customers in the 1930s. That may seem like a long time ago, but the human psychology of fe
Beyond Technical Analysis
The usual advice for technical traders is a collection of rules with many exceptions and exceptions to the exceptions. The trading rules are difficult to test and the observations are hard to quan
Introduction
This chapter presents some basic principles of system design. "You should try to understand these issues and adapt them to your preferences.
First, assess your trading beliefs—these b
What Are Your Trading Beliefs?
You can trade only what you believe; therefore, your beliefs about price action must be at the core of your trading system. This will allow the trading system to reflect your personality, and you a
Six Cardinal Rules
Once you identify your strongly held trading beliefs, you can switch to the task of building a trading system around those beliefs. The six rules listed below are important considerations in tradin
Rule 1: Positive Expectation
A trading system that has a positive expectation is likely to be profitable in the future. The expectation here refers to the dollar profit of the average trade, including all available winning an
Rule 2: A Small Number of Rules
This book deals with deterministic trading systems using a small number of rules or variables. These trading systems are similar to systems people have developed for tasks such as controlling a che
Days since 08/01/95
Figure 2.2 SScP-500 closing data with regression using terms raised to the fifth power.
(2.1)
(2.2)
Est Close = C0
Rule 3: Robust Trading Rules
Robust trading rules can handle a variety of market conditions. The performance of such systems is not sensitive to small changes in parameter values. Usually, these rules are profitable over mult
Number of rules
Figure 2.5 Adding more rules delayed entries and exits, increasing maximum intraday drawdown. Note that the horizontal scale is not linear.
today's high + 1 point on a buy
Number of rules
Figure 2.6 Increasing the number of rules decreased profits in the U.S. bond market from January 1, 1975 through June 30, 1995. Note that the horizontal scale is not linear.
Delay (» of days) after crossover
Figure 2.7 The effect on profits of changing the number of days of delay in accepting a crossover signal of a 3-day SMA by 12-day SMA system is highly dependent on the delay.
Here must be a Figure.
Figure 2.8 The August 1995 crude oil contract with curve-fitted system
profitable trades. As many as 87 percent of all trades (20 out of 23) were profitable. A second clue
Rule 4: Trading Multiple Contracts
Multiple contracts allow you to make larger profits when you are right. However, the drawdowns are larger if you are wrong. You are betting that with good risk control, the overall profits w
Rule 5: Risk Control, Money Management, and Portfolio Design
All traders have accounts of finite size as well as written or unwritten guidelines for expected performance over the immediate future. These performance guidelines have a great influence over the
Time (months)
Figure 2.11 This contrived jagged equity curve has a standard error of 2.25. The perfectly smooth equity curve has an SE of zero. The standard deviation of monthly returns is 33 pe
Rule 6: Fully Mechanical System
The simplest answer to why a system must be mechanical is that you cannot test a discretionary system over historical data. It is impossible to
Summary37
for
Summary
This chapter developed a checklist for narrowing your trading beliefs. You should narrow your beliefs down to five or less to build effective trading systems around them.
This chapter also
Introduction
This chapter examines many key system design issues. Now that you understand some basic principles of system design, you can consider more complex issues. And as you understand these issues, you c
Diagnosing Market Trends
You can design a profitable trading strategy if you can correctly and consistently diagnose whether a market is trending. In simple terms, the market exists in two states: trending and ranging. A
To Follow the Trend or Not?
If you are not a large hedger or an institutional trader, you can follow either of two basic strategies when you design a trading system. You can be a trend follower, or you can take antitre
To Optimize or Not to Optimize?
If you have a computer, you can easily set up a search to find the "optimum" values for a system over historical data. The results can be truly astonishing. Imagine your profits if you c
Initial Stop: Solution or Problem?
Many traders have raised stop placement to an art form because it is not clear if the initial stop is a solution or a problem. The answer depends on your experiences. Often, the stop acts as a magn
Does Your Design Control Risks?
As you design your trading system, remind yourself that one of your key goals is to control the downside risk. You will quickly discover that risk is a many-splendored thing. This section br
Data! Handle with Care!
You have many choices when you select data for your system testing. You should therefore exercise great care in choosing your test data because they have a big influence on test results.
C
Choosing Orders for Entries and Exits
You have three basic choices for orders that you use to initiate or exit your trades: market, stop, or limit orders. There are three philosophies at work here. One says to get your price, implying
Understanding Summary of Test Results
This discussion of the detailed summary of test results found in technical analysis programs uses in part the report from Omega Research's TradeStation™ software. The purpose of the summary is to s
What the Performance Summary Does Not Show
The test summary leaves out some important information, highlighted below. You may wish to examine these factors in greater detail.
One simple ratio is the recovery factor (RF). RF is abso
A Reality Check
This section sounds a note of warning before you proceed: Test results are not what they seem. You should recognize that trading systems are designed with the benefit of hindsight. This is true bec
Introduction
A trading system is only as good as your market intuition. You can formulate and test virtually any trading system you can imagine with today's software. The previous chapters studied the b
The Assumptions behind Trend-Following Systems
The basic assumptions behind a simple trend-following system are as follows:
1. Markets trend smoothly up and down, and trends last a long time.
2. A close beyond a moving average
The 65sma-3cc Trend-Following System
This section discusses how to formulate and test a simple, nonoptimized, trend-following system that makes as few assumptions as possible about price action. It arbitrarily uses a 65-day simple mov
Effect of Initial Money Management Stop
Since the initial test of the 65sma-3cc model was encouraging, we can now do more testing. The first item of business is to insert an initial money management stop into this model. Our detailed ana
Volatility-based initial money management stop
Figure 4.13 The profits (upper line) increase as the initial money management stop is loosened. Eventually, the stop is too wide and profits begin to level off. The lower line is t
Volatility-based initial MMS
Figure 4.14 The profits (upper line) increase as the initial money management stop is loosened. The lower line is the maximum intraday drawdown. Data are for the live hogs market.
Adding Filter to the 65sma-3cc System
So far, we have let the trading system generate pure signals without trying to filter the signals in any way. As we have seen, this system will generate many short-lived or "false" sign
Volatility based initial MMS for Sugar
Figure 4.15 Largest losing trade for sugar using the 65sma-3cc trading system increases as the volatility-based initial money management stop increases.
also the short exi
Adding Exit Rules to the 65sma-3cc System
Selecting general and powerful exit rules is a difficult challenge in system design because the markets exhibit many different price patterns. One form of exit that is particularly easy to impleme
Channel Breakout-Pull Back Pattern
This section discusses a trading system based on a pattern observed in mature markets, that is, markets with a large volume of institutional activity. In these markets, the big players have a tend
An ADX Burst Trend-Seeking System
We have assumed that the market was about to trend in both the 65sma-3cc and the CB-PB systems, although we did not actually verify that the market was trending because it is difficult to measure t
Gold-Bond Intermarket System
This section develops intermarket trading systems for trading negatively or positively correlated markets. We begin with a quick review of the difficulties of formulating intermarket models. The go
A Pattern for Bottom-Fishing
Market-specific systems work best on a particular market because they capture some unusual feature of that market. It is difficult to speculate why certain markets show signature patterns. We shoul
Time: 4/82-7/95
Figure 4.39 Equity curve for bottom-fishing pattern (9/82-7/95) with X = 1 and /= 0 (aggressive trades) for SScP-500 data with rollovers. Initial money management stop was $2,000.
Identifying Extraordinary Opportunities
Once or twice a year, the futures markets provide extraordinary opportunities for exceptional profits, and if you can take advantage of these opportunities, your account performance will improve s
Хотите получать на электронную почту самые свежие новости?
Подпишитесь на Нашу рассылку
Наша политика приватности обеспечивает 100% безопасность и анонимность Ваших E-Mail
Новости и инфо для студентов