Experiments in Technical Analysis

kkseal · #**481** 4th December 2006, 04:30 PM

Hi,
As far as i see what we are trying to test here is the Tushar Chande-Stanley Kroll method of using the LRS-RSq combo.
This method in all likelihood has already been tested & verified (by the inventors & others). So there's no point trying to reinvent the wheel (& the fine tuning will depend on the trader's time frame & risk appetite).

In my view a better (& perhaps newer) method to try out would be using the LRS of a Moving Average i.e. using an EMA price points over n-periods as the input dataset rather than the raw prices.
The use of RSq remains the same.
This should yield surer results though the lag will be more. Testing would confirm whether the gain in reliability at the cost of greater lag is worthwhile, acceptable or not.

Thanks,
Kalyan.

P.S. To begin with we can keep the time period(n) for the EMA & Regression line same and later try out different values.

karthikmarar · #**482** 4th December 2006, 05:04 PM

Hi Kalyan

Here we are not trying to invent new things. We are just trying put to effective use of Tushar Chande-Stanley Kroll's work by making a system using linear regression line and R2. They have developed the Indicators and provided suggestions to uses them. We are actually putting them to use.

Ofcouse te scope for experimentation is vast. Why moving average, try to apply them on the MACD line.. we have interesting results. Another option is use them on momentum instead of price...resulting in a leading indicator. The possibilities are endless.

Do post the results in case you experiment on this

regards

Karthik

kkseal · #**483** 4th December 2006, 06:59 PM

Hi Karthik,

There's a reason why i suggested EMA instead of raw prices that stems directly from the Statistical theory of Regression Analysis (that underlies this method). But i'll post more about that later. Right now there's quite a bit of other work to handle.

In any case i was only trying to broaden the agenda, widen the ambit of explorations to trying out different models of the wheel (including the classic original one) to see what fits best (with the Ferari or Mercedes trading system we all aspire!).

But even such a comparative study would require the results of the tests you are now conducting. So my best wishes for the exercise.

As far as own testing goes I am greatly hampered in not having a TA s/w. (In Excel i can only go as far as obtaining the Beta & RSq value for a given dataset).

Your great work has raised my expectations. You, alongwith the other members involved, have set up a virtual TA testing lab in cyberspace! Kudos friend Keep it up. Inexperienced folks like myself will benefit greatly from it.

Thanks,
Kalyan.

AJAY · #**484** 4th December 2006, 08:14 PM

Hi Karthik,

I apologise in case you felt I made a spoil sport in the chat room. But I still and will continue to say that the stop mechanism what you people discussed over the chat room is not correct and I appeal to you to fix stops also first in your systems and then make them available to we learners here to avoid confusion to our small minds and small time trades. Thanks and assure you here after there will not be any spoil sport from my side.

Good Luck
AJAYKUMAR

karthikmarar · #**485** 4th December 2006, 09:45 PM

Quote:

Originally Posted by AJAY

I apologize in case you felt I made a spoil sport in the chat room.

My Dear Friend,

First, I tender my apologies…. How could I make a comment like that to a Great trader like you? It is no excuse that the comment was made in frustration of a good discussion ending abruptly and a horde of professionals walking out with you. I did feel that it was not unusual for professionals look upon amateurs like us with disdain.

I assure you that there was no malice in that comment and only made on the spur of the moment.

(mmm no one heeded to my repeated plea to edit the transcript

)

Quote:

Originally Posted by AJAY

But I still and will continue to say that the stop mechanism what you people discussed over the chat room is not correct and I appeal to you to fix stops also first in your systems …..

Yes, Ajay you do have a valid point. Unfortunately the discussion ended abruptly for us to understand and sort out fully. We always look up to great minds like you for guidance. This point will be sort out soon. We look forward to guidance from you in future too.

Quote:

Originally Posted by AJAY

,
I appeal to you to fix stops also first in your systems and then make them available to we learners here to avoid confusion to our small minds and small time trades.

Ajay, I do admire your great sense of humor… colored with sarcasm …

Warm regards

Karthik

AJAY · #**486** 4th December 2006, 10:09 PM

Karthik,

I didn't ask any of our comembers to come with me to the other room. Infact I was thinking to guide a newbie there and to avoid disturbance-which i was already creating by interrupting the discussion- to you guys only I left your discussion room. And this act is not like a walk out what politicians do. Politics is something which I hate and should be a ban word according to me. And one more reason for me coming out of the room was I entered the discussion in between. So only repeatedly I said I'd keep quiet which I couldn't do.

Regds Karthik

AJAYKUMAR

kkseal · #**487** 5th December 2006, 04:23 AM

Quote:

Originally Posted by karthikmarar

Hi Ananth

Now.. My comments on the Mabiuts-H strategy. It was a very nice idea to use the Histogram of the EMA and signal line difference. I have been using similar strategy for the MACD and TRIX Histogram very successfully. Especially when the the weekly Histogram turning positive and if we catch the daily Histograms turning positive we have nice trades. More about it later.

The main problem with the Mabiuts-H strategy is whipsaws. Too many trades and too many whipsaws. Can we really take all these trades?

In trend following strategies whipsaws are the price one has to pay for early entry. Similarly in trying to exit early we have to live with chances of getting out of the trade too soon. It is always a compromise we have to make. Did you included commissions and taxes in your back testing.

In our efforts to minimize whipsaws we have to sacrifices early entries.. I had tried many other methods. Soon I realize that it is impossible to eliminate whipsaws totally. But we can try to minimize them at some cost. Even if we catch 80% of a good up trend we will have handsome sum in our pockets. So I never try to catch the bottom. Even if we have lesser number of trades we should try to ensure that most of should be profitable. So in the Mabiuts-K strategy I had included price crossing the last peak ( cross(c,peak(c,2,1) function ) in order to minimize whipsaws. So the Mabiuts K strategy gives less number but more profitable trades.

Please do note that the point here is neither to deride any systems nor to prove a system better than the other. It is only a critical analysis so that we can all learn. Of course as a scientist you would fully understand this.

More on this later..

Warm regards

Karthik

Right. The H version will work better on paper than reality (it's too 'noisy'). Your strategy is fine. There can be nothing more reliable than MAs as they are the right Regression type for fluctuating data sets. Your system also shows what wonders a smoothning of the base dataset (removing noise) can do. The key to the efficacy of your system lies in the smoothning of the signal line. (That is why i have become such a fan of TRIX of late As you'll know its a triple smoothning of a base EMA with the signal line being an EMA of the TRIX itself! It may be a bit sluggish at times but it rarely if ever gives false signals & latches on to the trend very well).

I always feel that risk management should be built into the system itself as far as possible (even if it means sacrificing some 'on-paper' gains). Relying on stop losses alone is a crude way to go about it. (I try to mix in Fundamentals to reduce risks further).

Moreover one can always use leading indicators to catch the move early (No wonder ADX did not work with you as it's a lagging indicator). I have tried stochastic (%K, %D xover, especially in the ob-os zone) but it works reliably only in the direction of the main trend (same for StochRSI) A shorter period EMA crossover (say a 5 day close & 6 day open) works better. And the good old RSI should never be neglected either (as it often produces the earliest signals & going by it's construction, it should. If you trade every peak every trough of the RSI then i guess you'll rarely go wrong but that's not my style & I feel not yours either).

I am excited to think that we may just get an efficient leading indicator with your RLS-RSq study.

Cheers,
Kalyan.

karthikmarar · #**488** 5th December 2006, 11:08 AM

Hi Kalyan

Yes, Trix is an interesting Indicator. You may find the following thread useful.

http://www.traderji.com/technical-an...ix-tricks.html

regards

Karthik

kkseal · #**489** 5th December 2006, 03:32 PM

Quote:

Originally Posted by karthikmarar

Hi Kalyan

Yes, Trix is an interesting Indicator. You may find the following thread useful.

http://www.traderji.com/technical-an...ix-tricks.html

regards

Karthik

Thanks for the link Karthik (This forum is so vast that it takes some time to figure out where to find what!).
I had even contemplated upon an MACD of the TRIX (say 18, 8 with a 9 period signal line) and see how it compares with the vintage MACD; but then thought it might be too lagging to be of any practical use (or greater minds might have thought about it already They may have even tried and abandoned it).
In any case as of now i don't have the tools and the wherewithals to give it a try.

Regards,
Kalyan.

kkseal · #**490** 5th December 2006, 04:26 PM

Excellent ideas Karthik Superb observations You ARE great man Lucky to have you in the forum.

Will read more of the thread as soon as i have the time.

Thanks once again for the link and your ideas, observations therein.

Warm regards,
Kalyan.

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