Experiments in Technical Analysis

Hello Karthik

You have already pointed out that their are major challenges in implementation of the rules including the entry and exit signals, use of stoploss, position sizing and risk management related considerations, and most importantly managing emotions.

To understand the issues, why don’t we do a mock implementation?

I would request Anant, Amit, rpc, saji and other members following this thread to participate in the process and Karthik to guide us for the same.

I guess as a first step we will have to make a trading plan. We can use the modified MABIUTS system as it contains most of the components of the plan.

Buy and Sell Signals: Generated by MABIUTS K1 afl
Position Sizing: 20% of the available funds (criteria included in the afl).
Stop Loss: 5% on initial position, and 10% trailing SL

Other considerations could be

Stock filtering criteria
We should make a shortlist of 50-100 scripts to trade with. We can consider only the scripts that are included in NSE F&O and are above Rs 100. (more suggestions welcome)

Use of Leverage (If we trade FnO, we will have to decide on this one)
If yes we should use a leverage of 1/3 or maximum 33%.

Starting Capital: 10,00,000/- (If we are trading futures, we need a bigger starting capital as our position sizing rule does not allow us to stake more than 20% margin on one trade and in F&O we have to trade by lots also we are using 5% as SL)

There are many more questions like how do we start using the system? Go at it full throttle or try to build position slowly (maybe add 1 script every week). Which signal we choose and which we ignore (as we cannot buy them all), wouldn’t the discretionary choice involve a element of emotion in the decision making process, or do we take the signals on first-cum-first basis?

Regards
Sanjay

Dear Sanjay

Excellant suggestion. This will give a real feel of implementing a system and members can learn a lot from it. I am fully on this with you..

Stock filtering

Volume could be added to the criteria. Ofcourse the FNO stocks would meet this criteria. If we want to included other stocks we could consider volume. May times we get stuck with illiquid stocks. I have had this experience with Avaya Global..

After hearing more views we can set the stock filtering criteris.

Use of leverage

FNO, why not... we should definitely consider

To start using the system we should have a owner for the portfolio who will run the show. Obviously the choice is none other than yourself.

I suggest it is better not to go full throttle. As with any new system better to start in the first gear and change gears as we understand the road ahead..

Again.. which signal to choose? Here again we better set some rules... no place for emotions. Let me put my thought on it while others also share their views.

Thanks for the great idea .. we will all learn a lot from this..

warm regards

Karthik

dear sanjay, karthik and others,

buy/sell signals are one part, but the more important aspect is the set of interested stocks one may like to trade at all. this is entirely one's own perception of risk taking readiness and returns expectation.

all the stocks traded in the market are to be subjected to this criterion and the buy/sell signals may be searched within that set only.

i would like to apply filters on the price, volume and the turnover to arrive at the resultant set of tradeable stocks. this could be a dynamic list unless the horizon is long term. a typical set consists of close>20 AND volume>10000 AND close*volume>10000000 (Rs 100 Lakhs).

an abstract from my trading set filter is presented below. this will allow the user to set his own criteria and arrive at the tradeable set of stocks.

the industryID filter in the above quoted text will allow only allow the 'stocks' to be included and NOT the composites. the industyID's are mostly based on the thread on StockIndustry assignments in AMIBROKER:

http://www.traderji.com/amibroker/86...se-stocks.html

karthik's MABIUTS or any other buy/sell criteria logic may be searched within the above filtered set and resultant list may be seen in the exploration mode. whatever the buy/sell logic you may adopt, it may be preferable to have a look on 'other' parameters like RSI, volume surge, support/resistance and stochastics.

how much to buy may be governed by the money management principles when the buy signal is generated and when to SELL by the MM criteria & the SELL logic. it may be prudent to keep a low profit target and low stop-loss limits even that may mean 'under-utilization' of the strength of the move.

all the best.
murthymsr

Hello

Thanks Murthygaru for your inputs.

My suggestion of using only selected FnO stocks for the exercise was precisely for those very reasons. Besides liquidity and lower slippage, we would need a smaller set of stocks to choose from as our money management rules constrain us to go for maximum 5 simultaneous trades (with max 20% per Script).
We can have many rules, but we should make them objective and we should try to keep out discretional choice while selecting buy/sell signals. If you can suggest the criteria for the 'other' parameters you mentioned RSI, volume surge, support/resistance and stochastic, we will incorporate them while selecting the trades from amongst the signals generated by the original system.

We will have basic rules for money and risk management in place but, they can evolve as we go along.

I will try to write down a detailed plan, which we will update using the inputs from other members.

Warm Regards
Sanjay

dear sanjay,

what i intended to say was that the other parameters also may be looked into for a confirmation of the signal and did not say to include the other parameters into the buy/sell signals.

we may have a look into the 'other' parameters through the exploration mode, with addcolumn command, like:

AddColumn(RSI(14),"RSI",3.0,textcolor=IIf(RSI(14)> 70.5, colorRed, IIf(RSI(14)<30.5, colorBlack, colorGreen)));

one may add many such columns in the exploration mode to have a confirmation of the signal. inclusion of these in the logic may not be worthwhile.

hope i am clear at least now.

murthymsr

Hi Karthik,

Thanks for the info. With all NSE stocks (more than 1000) over a period starting from Jan 05 to Nov 06, the number of trades is not at all high. But it would be only an academic excercise to trade the whole NSE list. If we can limit the number to a reasonable level it would be more useful. Also, by eliminating insignificant stocks we may be able to increase the success ratio considerably. This does not mean I am down grading your excercise. Sometimes, such tests - though they do not reflect the real situation - are required because they may spring some surprises. In this view your test was worth the time spent. A little more tinkering may give us some ideas.

The idea proposed by Sanjay and supported by you and Murthy is a very good suggestion. I would be eager to participate in it. I also support the view that we should progress step by step.

However, I have one drawback. I do not have any experience in FnO. I will therefore be able contribute in cash segment trades. I am trying to learn the derivatives trading but not very confident. I may be able to learn easily and rapidly by following this combined excercise.

Looking forward to more developments in this proposal and waiting eagerly to partcipate in it.

Regards

-Anant

dear friends,

further to my earlier post on filters to arrive at the set of tradeable stocks, i am attaching the AFL and the selected list for the EOD data upto 2006/11/23.

the AFL is presented only to make the concept clear and may work on your system ONLY after some changes.

regards.
murthymsr

Attached Files

	My Template.TXT (3.5 KB, 91 views)
	selections.txt (1.0 KB, 81 views)

Dear Murthygaru

I will go thru the files you have uploaded. Hopefully we can complete the planning during the weekend.

Thanks God for Sundays (and yes Jummas also)

Warm Regards
Sanjay

Dear friends

Plz chk out the original post, one of the many gems on traderji.

Mistake Number Two - Not Having a Trading Plan

The other parts of the series

Mistake Number One - Switching Strategies or "The Hunt For The Holy Grail"
Mistake Number Three - Not Understanding Money Management
Mistake Number Four - Not Testing
Mistake Number Five - Not Putting In The Required Effort
Mistake Number Six - Overcomplicating It
Mistake Number Seven - Not Taking Action

Warm Regards
Sanjay

Hi Amit

I just look at price and volume……….

Just Kidding … This seems to be the fashion to say this nowadays.. Many have said this in this forum to newbie queries. Of course none cared to explain to the newbie what they would look at in detail and the role-played by volume.

I do use some indicators. Normally I run a few scan to short list the stocks. Final decision is taken only on visual inspection of the chart. The scans include some of my custom indicators in addition to some based on Trix, Linear Regression and even Mabiuts.. These scan and stock selection are tuned to my trading style. Trading for me is part time and it would not be incorrect if I call it a hobby. A hobby, which could pay for your wife’s designer kitchen, is not bad at all. As I cannot be in the market all the time I look for stress free trading with picks which have more chances of winning and hence the selection is more conservative. The strategies are basically trend following. Right now it is the preparatory period for my eventual return to my beloved home country when I plan to start full time Trading.

These custom Indicators are still under study even though they are giving good results for me. Some are these were passed on to some members for beta testing. Since I have not heard anything from them I presume that they have found these useless and feel bad to tell me so.

I know I have not given the Answers you are looking for. I do wish I could put down everything in one post. I do plan to share these as and when I am fully satisfied with their performance. Soon I will definitely start sharing some of the strategies based on common indicators and then follow up with the custom ones. Please bear with me till then.

Unlike the views mentioned by one of our friends if I find a good trading system I will not hesitate to share it with the forum. After all I am not competing with the few members in the forum. We are all small retail traders who try to take the bits from the sharks. In fact a system shared would be more effective as it will become self-fulfilling, as many would start trading with it. Sorry for all the rambling….

Warm regards

Karthik