Magic of ADX

[oxusmorouz]

My systems are based on pure theory
a) underlying structure of the markets
b) risk management
c) capm
d) efficient markets.

How is CAPM used as an individual tool for system development?
From what I have come to know, the best use of CAPM here is to assist comparision of Greeks (alpha and beta) of different trading systems with variation in historical returns for a given period, and hence seems to be useful as a selection tool, atmost.

 

[oxusmorouz]

Every trading system involves picking stocks.
You answered your own question.
alpha+beta . Fit those into your trading system somehow.

Choosing stocks via comparision of alpha and beta?
It doesn't seem to add up. Beta is a purely statistical concept got by dividing covariance of the security and the market with variance of market returns. It, by no means, makes me understand how historical volatility is correlated to future volatility and why a stock should carry the same beta throughout the testing period. Changing price affects beta, which again calls for churning of portfolio, and I don't believe computer simulators (amibroker, especially) has the built in capability of handling such a dynamic calculation. If it cannot be tested, what purpose does the system serve then?

 

[uasish]

This is turning to be a Gr8 thread to learn the pros & con on System Based Trading,being just a neonate in this world,truly it is helping me.

 

[uasish]

I personally dont understand all this Fundas ,for me
My Comfort Zone:
1) Least or No Drawdown is 1st Priority;

Will backtest on specific periods where Nifty tossed.
Then whatever % Drawdown (Long only) in any of my System is reporting ,i would simply multiply by 2;
The Max drawdown it is reporting *2 ( apportion that amount extra in trading capital)
Say avg 1 contract = 2.5 Lacks & Max Drawdown is 10 % i will put 2.5 L + 0.5k

2) When coding ,i will never use more than 3 periods past data.
(Brain wrecking in Ajay's Thread has immensely helped)

3) No Optimization.
So Cycle change,etc least effects.
(Brain wrecking after observing CV's png. picture of that Dream Indicator ,embedded
on the Intraday chart,has ignited a tremendous selfish greed.Later Jurik.To achieve
both these presently working very hard to minimize the lenghty code of my version of Jurik.
Mr. Jurik has such a simple code which runs '0000 's of data in a blink of eye.
When acvd,this optimization menances can be tackled effectively and CV will not
be left lonely there.)

4)Wining % below 85 % ,not acceptable.With Avg profit to be very High & Avg loss
Max 3 times of transaction & slippage.

My Limitation:
Novice in computer ,dont know any other language than msfl,aversion to learn new s/w.

I am new to this Arena of System Trading , actually no funda,but i am good in Metastock
coding & trading being my livlihood since more than 5 yrs.I strongly believe to reach the 1st
milestone by 1st week of Aug'07.

 

[uasish]

"Markets, we learn, are far riskier than we have wanted to believe."

"So risky in fact, that I strongly believe trading is definitely not for everyone (to put it mildly).
And anyone who proposes a way to make profits without taking risk into account, is doing a major disservice to himself and others."

 

[oxusmorouz]

I have coded dynamic calculation of capm into amibroker already.

Please extrapolate to capm as you see fit. Its just another indicator/statistic.

Please provide an example

 

[uasish]

The 2nd one must be follow rule No 1 religiously.Just joking,plz dont misunderstand again.

 

[oxusmorouz]

There are two rules for success: 1) Never tell everything you know… Roger H. Lincoln

I was waiting for you to make such a statement.
Here is a backtest report of a system based on ADX. You wouldn't expect me to reveal everything I know, would you?

 

[uasish]

With 0.6 % brokerage on 2078 trades the Max % Drwadown is 11.34 % .
Really awesome,you guys are leaving this old fellow downhill & racing ahead.

 

[oxusmorouz]

I already made such a statement when I started posting the high flying stuff.
Besides I don't know you well enough to know how co-operative you are or exactly what your motivation is.

http://en.wikipedia.org/wiki/The_Evolution_of_Cooperation
http://www2.owen.vanderbilt.edu/Mike.Shor/courses/game-theory/docs/lecture06/Axelrod.html
Simple stuff gave me info within 12 hours of being requested.
I like the guy already.

Of course no one reads everything I say, because I talk too much

You deviate from the point. The question was, can ADX be used in a trading system to earn a risk adjusted rate of return greater than than that of the benchmark. The answer given was, yes and the report is provided.

Please save you high flying words of CAPM and EMH to a non-finance student . CAPM used as the basis of a trading system? Please