Should a system work across all stocks?

O

oscar74

Newbie
Messages
3
Likes
0
I've been playing with metastock for a few months now - and - having a slight knack for programming - haven't found it too difficult to come up with a handful of systems that appear to have some success.

I'm well aware of the pitfalls of backtesting, but: should a system that works well on a few stocks, be thrown out just because they don't work on all stocks and therefore would lose money if applied to the market as a whole?

If a system works on stocks A, B and C, but not very well on X, Y and Z be used to trade just A, B and C? or am I kidding myself?

any thoughts appreciated
Oscar74
 
a good trading system will work on all financial instruments, not just stocks. The more a trader has to narrow down the number of markets he or she thinks the system applies to, the weaker the system
 
Pippppin said:
a good trading system will work on all financial instruments, not just stocks. The more a trader has to narrow down the number of markets he or she thinks the system applies to, the weaker the system
Click to expand...

Why should this be so ? I very much doubt it. For example why should currency futures trade the same as stock index futures ? In fact they do not.

A successfull system for trading stock index futures may use a number of inputs that are not even available in the forex market - eg DOM, things like VIX, TRIN, TICK, BID/ASK ratios, perhaps the behaviour of related options etc etc.
 
Last edited:
oscar74 said:
If a system works on stocks A, B and C, but not very well on X, Y and Z be used to trade just A, B and C? or am I kidding myself?
Click to expand...
It depends what underlying behaviour and/or inter-stock or inter-market correlations the system has identified. Maybe A/B/C are seasonal, or influenced by a commodity price, or are tracked by long-only funds, or are disproportionately program traded, and X/Y/Z aren't. Or maybe they reacted to 'important' S/R in your testing period that X/Y/Z lacked. Or maybe you've just over-fitted your system to A/B/C. Whatever, if it works in backtesting and out-of-sample testing and, optionally, forward testing, then it works, regardless of what else it works on.
 
If a system works on A but not on X can you identify, in generic terms, and without the benefit of hindsight which markets it works in and which it doesn't? If not, what is to stop A trading in the future like X did in the past?

I think it is best to assume that the system's future performance will be, at best, its average performance accross a broad selection of stocks rather than match the best ones.

Suppose you took 100 coins and tested them by tossing each 10 times. If one coin came up heads 8 times out of 10 in that test would you expect it to reproduce that performance in the future?

Good luck in your quest

Gareth
 
dcraig1

currencies, stocks and commodities exhibit the same patterns of supply and demand. It has nothing to do with "inputs"
 
Pippppin said:
dcraig1

currencies, stocks and commodities exhibit the same patterns of supply and demand. It has nothing to do with "inputs"
Click to expand...

Yes, but supply and demand are abstractions, you cannot directly measure them. A trading system needs measurable inputs, from which you can reach conclusions about supply and demand if that is the framework from which you view the market.
 
oscar74 said:
I've been playing with metastock for a few months now - and - having a slight knack for programming - haven't found it too difficult to come up with a handful of systems that appear to have some success.

I'm well aware of the pitfalls of backtesting, but: should a system that works well on a few stocks, be thrown out just because they don't work on all stocks and therefore would lose money if applied to the market as a whole?

If a system works on stocks A, B and C, but not very well on X, Y and Z be used to trade just A, B and C? or am I kidding myself?

any thoughts appreciated
Oscar74
Click to expand...

Hello Oscar,

I believe the more markets (or stocks) the system works in, the less chance that you've "curve fitted" your system.

I don't believe it's a pre-requisite that it works in all markets, for the reasons suggested above.

I operate a system, relatively successfully, that works in limited markets.

Cheers,
UTB
 
oscar74 said:
I've been playing with metastock for a few months now - and - having a slight knack for programming - haven't found it too difficult to come up with a handful of systems that appear to have some success.

I'm well aware of the pitfalls of backtesting, but: should a system that works well on a few stocks, be thrown out just because they don't work on all stocks and therefore would lose money if applied to the market as a whole?

If a system works on stocks A, B and C, but not very well on X, Y and Z be used to trade just A, B and C? or am I kidding myself?

any thoughts appreciated
Oscar74
Click to expand...

Hi Oscar,

Being a trader of stocks, I would say that no system will work across all stocks at a given time. The trick is to try to determine when your method is best traded on a particular stock at a paticular time.


Thanks

Damian
 
I have a system I have developed over ten years.......it works across all stocks, commodities. In short, all financial instruments
 
Pippppin said:
I have a system I have developed over ten years.......it works across all stocks, commodities. In short, all financial instruments
Click to expand...

Good for you - care to share it? :LOL:

Seriously, I don't think this scenario was ever in debate - of course the most robust systems will work in more markets. But the question was - does it necessarily have to? - and I believe the answer is no.

Cheers,
UTB
 
You must log in or register to reply here.

Similar threads

M
Backtesting Stocks - Thoughts & Questions
Replies
9
Views
3K
amnonco
A
C
Please Help! How to Make a Delayed Entry After Setting a 'Switch'
Replies
0
Views
2K
canguro
C
N
Stock selection and tolerance
Replies
0
Views
2K
Navarino
N
Chorlton
Including Slippage within a System
Replies
1
Views
1K
Adamus
Adamus
rfk_from_za
Stock Screening & applying your system
Replies
1
Views
2K
rols
rols
Top