Useful things I've found on the Net.

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Old Mar 8, 2008, 9:40pm   #41
Joined Feb 2007
So many helpful ppl in this forum....

"24. As we trade we still have a tendency to violate our rules and our results are still erratic.
25. We know we are close."

Thanks Nine. If I ever get past step 24 I know this thread will have helped.

Since so much of trading is psychological, in the spirit of giving, attached are some philosophical summaries (AKA ramblings!) that I have found helpful.
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Old Mar 8, 2008, 10:45pm   #42
 
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nine started this thread brutus, thanks for the additional material.

grantx,

The warning about timeframe is not because of price structure - its because as timeframe gets shorter decision time gets shorter and emotions play a larger part in most learning traders experience. This makes impulse errors, 2nd guessing, etc more likely to be a problem than on longer timeframes.

I agree with you that its important to find timeframes that provide good signals. So 5 minutes or 4 hours may provide good signals in X but when you look at Y they don't. Finding the right timeframe is followed closely by finding working mas. My own decision structure is "trend is" based on price action against mas; "signal is" based on current and recent past price action; and "entry is" based on the shorter timeframe waves that generated this signal which might cause me to jump on the signal or assume that it will retrace before it continues. Then of course, to take a profit, comes the all important stops, targets and trade management appropriate to the signal. My losers are closed when they hit my stop.

I think the FTM is a good framework for thinking about movement in the market. Then you have to study your tradable in that framework and decide how it is used. As you seem to be doing.
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Old Mar 8, 2008, 10:47pm   #43
 
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Quote:
Originally Posted by Pete007 View Post
The clue is in the Title Trade to Win
86,264 Members If I had a pound for ever bit of Bull **** Advice I read I would be a Very Rich Man, or the Hot Air could run the 25 million cars in the country keeping the Tree Huggers Happy.

This maybe a new Concept why dont people put their money where their mouth is.

This is my Advise STOP with the Misguided Opinions and get back to Proving that money can be made from the clue in the Title T2W. Lets start dealing in FACTS and Im sure we will LEARN from each other systems BACK TO BASICS This is my Trade lets see more people put their trades on with their advise Thank you
Very interesting chart Pete ~ could you give us some insight as to why you put the trade on ? And then perhaps move it over to the FTSE recent volatility thread, as I fail to see what i's got to do with 'interesting things on the net'

Nick
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Success is the ability to go from one failure to another with no loss of enthusiasm. Sir Winnie Churchill
Success in trading is the ability to go from one losing trade to the next without changing your strategy..... Winnie the Pooh
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Old Mar 8, 2008, 10:49pm   #44
 
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Quote:
Originally Posted by Pete007 View Post
The clue is in the Title Trade to Win
86,264 Members If I had a pound for ever bit of Bull **** Advice I read I would be a Very Rich Man, or the Hot Air could run the 25 million cars in the country keeping the Tree Huggers Happy.

This maybe a new Concept why dont people put their money where their mouth is.

This is my Advise STOP with the Misguided Opinions and get back to Proving that money can be made from the clue in the Title T2W. Lets start dealing in FACTS and Im sure we will LEARN from each other systems BACK TO BASICS This is my Trade lets see more people put their trades on with their advise Thank you
Very interesting chart Pete ~ could you give us some insight as to why you put the trade on ? And then perhaps move it over to the FTSE recent volatility thread, as I fail to see what it's got to do with 'interesting things on the net'

Nick
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Success is the ability to go from one failure to another with no loss of enthusiasm. Sir Winnie Churchill
Success in trading is the ability to go from one losing trade to the next without changing your strategy..... Winnie the Pooh
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Old Mar 8, 2008, 11:13pm   #45
Joined Jun 2006
Nine,

I wasn’t criticising your – or anyone’s - methods. I agree with the first paragraph of your current post.

Re the second paragraph, “This makes impulse errors, 2nd guessing, etc more likely to be a problem than on longer timeframes.”. I think these weaknesses – which I have but improving - are more to do with personal psychological shortcomings. But objectively, it is probably due more to an insufficient level of understanding of the method chosen – scalping, daily, long-term, etc.

I think our personal trading approaches are a reflection of how each of us perceive (right or wrong) risk, eg the thought of holding a position overnight would terrify me.

Grant.
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Old Mar 9, 2008, 12:15am   #46
 
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nine started this thread Another useful thing. We all know that futures contracts should be rolled over when the next contract has more volume than the contract you've been trading right.

This site gives daily volumes across a wide range of contracts:
MRCI's End of Day Prices

And this explains the joy of rolling your contracts:


Back-Adjusting Futures Contracts

Bob Fulks
May 11, 2000
Introduction

To backtest a trading system for trading futures contracts, we would like to have a long duration of price data on which to test our trading system. The problem is that futures contracts expire periodically and the data for each contract lasts only a few weeks or months. So we need some way to create a long series of price data from a sequence of contract prices. This paper discusses the various ways it can be done and explores the advantages and disadvantages of each method. My experience is with only the S&P futures contract so I will use it as an example although the same principles apply to any future contract.

The Problem

The issue arises because the pricing of a futures contract is slightly different than the price of the underlying commodity since it includes other factors. This difference is called the "premium". For the S&P Futures this difference includes the cost of interest and the dividends of the S&P stocks. The theoretical value is called the "fair value". It is the price at which investing in the underlying commodity has the same return as investing in the futures contract. For agricultural futures, the difference can include such things as storage costs, etc. For the S&P futures it is calculated as follows: Futures_Price = Cash_Price * (1 + d * (i - v) / 365) where: i = interest rate for fair value calculation = about 5% now v = dividend rate of the S&P cash index = about 1% now d = days_to_expiration At rollover, the days_to_expiration number jumps, causing the jump in the premium. With today's values, the jump in price is about 1%, or about 12 points on the S&P futures contract. In the examples that follow, for simplicity, we will use the 12 points as the size of the jump at expiration, keeping in mind that the actual number does depend upon the level of the index, and interest and dividend rates.

The interest rate term arises because with the futures contract, we are using leverage for which we are not paying interest. Thus, the cost of the interest gets built into the price of the futures contract. The dividend term arises because with futures, we do not get the dividends that we would have gotten if we had bought all the stocks in the S&P. (This is approximated as an average but since dividends occur at different times, an accurate simulation would include the exact expected dividends and when they were paid.) The actual price difference between the futures contract and the underlying can and does deviate from this theoretical value on a minute-by-minute basis. But the difference is usually very short lived because arbitrage players step in to buy one and sell the other and this activity keeps the relative prices closely tracking fair value. There are often fairly big differences in the reported daily "closing prices" since the futures markets close at a different time than the cash market and a lot can happen between the close of the two markets. Thus, we have a discontinuity in the price of the futures contract at the expiration that must be accounted for in some way for backtesting.

Possible Methods

The primary alternatives are:

1. Splice contracts together without price adjustment. This causes large price jumps at splice points. The price jumps cause two problems. They distort the operation of most trading indicators and automatic trading systems. For example a 14-day simple moving average would mix some of the prices from the old contract and the higher prices from the new contract giving a distorted picture of what is happening. They can cause large trading profits and losses to be included in backtest results that a trader would not have experienced in actual trading. For example, if our system was long one contract before the expiration and we sold after expiration, then the system would include the 12-point artificial jump in price for an apparent profit of 12 * 250 = $3000. If we didn't notice this, we might think our trading system was very profitable. Even worse, if we were optimizing the parameters of our trading system, some of the parameter values might cause us to hold the position through the transition and some might not, causing big discontinuities in the results and causing us to get false optimum parameter values. As a result of these problems, this method is unsuitable for most backtesting.

2. Close out trades at "roll over" to the new contract at expiration. This is what we have to do in real life at the end of a contract. To do this, we exit the old position and re-enter a new position in the new contract. But this is trickier than it appears in backtesting since we would have to make sure that any indicators or averages we are using do not simultaneously look at some old and some new price values. Some people prevent this by using "bridge data". For example, if your trading system uses 14 days of past data as part of its calculations, you would need to artificially create 14 days of bridge data from the old contract, increased in price by the 12 points, to get the trading system initialized at the new contract values. This can be difficult to do if we are trying to test over a long price series including several contracts.

3. Splice contracts together with forward price adjustment at contract boundaries. Subtracting the 12-point difference from each new futures price before we use it does this. On the following contract, the offset would be 24 points, etc. This method eliminates the need to manipulate old price data but causes the futures contract prices to keep diverging further and further from actual prices as time goes on.

4. Splice contracts together with backward price adjustment at contract boundaries. This is the method most often employed. Adjusting the price of the old contracts by adding the offset (12 points in our example) accomplishes this. With this method the most recent continuous futures contract prices are same as the current contract prices, but previous contract prices are offset. Backward adjustment is much more difficult to do, because all past prices have to be recalculated at each new contract boundary. Some people add the difference to past contracts and some multiply all old data by a factor, 1.01 in our example. Adding the offset is most common since it keeps the old price values lined up with the tick values. For example, if a contract moved in 1/32-point increments, we would like the increments to remain on 1/32 boundaries far back in time. Using the multiplying factor would slowly cause them to deviate. Either of the method 3 or 4 above gives us a series of prices with no discontinuities. They maintain the bar-to-bar increments as they were in the original contracts. Since most trading systems use the bar-to-bar differences these methods will not distort the trades. You can test if your trading system is sensitive to the absolute level of prices by adding some constant, such as 100 points, to all prices. If the trades and profits remain the same, your system is independent of the absolute level of prices and will not be affected by the back adjustment process. On some commodities, the back adjustment is negative and this can make the price go negative over time. This is easy to handle by simply adding a constant value to all prices when backtesting to assure that all prices remain positive.

5. Continuously adjust the price series over time ("Perpetual") This approach adds some of the prices from the current contract with some from the next contract. The continuous futures contract value initially would be composed of a large percentage of the current contract and a small percentage of the next contract. As a contract expiration date becomes closer, a progressively smaller percentage of the current contract and larger percentage of the new contract is used. This results in a smooth blend from one contract price level to the next. The calculations are shown below: Assume we are merging the prices of the 9/98 and the 12/98 contracts. Assume the following can represent the price in each contract: P1 = C + F * d1 + s1 P2 = C + F * d2 + s2 where: P1 is the price of the 9/98 contract on any bar P2 is the price of the 12/98 contract on any bar d1 = days to expiration on the 9/98 contract d2 = days to expiration on the 12/98 contract s1 = a residual value indicating how the actual price differs from "fair value" on the 9/98 contract s2 = a residual value indicating how the actual price differs from "fair value" on the 12/98 contract F is the "Fair Value Factor" defined as follows: F = C * (i - v) / 365 (about 13% then) C = the value of the S&P cash index = about 1186 then i = interest rate for fair value calculation = about 5% then v = dividend rate of the S&P cash index = about 1% then By manipulating the algebra, you can show that the merged contract price, Px, equals: Px = (91 * F) + (s1 * d1 / 91) + (s2 * (1 - d1 /91)) This consists of three terms:

(91 * F) = (91 * 0.13) = about 12 then. This is the premium at the start of each contract due to the fair value calculation.

(s1 * d1 / 91) = the residual value of the 9/98 contract weighted by the days remaining on the 9/98 contract.

(s2 * (1 - d1 /91)) = the residual value of the 12/98 contract inversely weighted by the days remaining on the 9/98 contract.

So there is a fairly constant offset due to the fair value rates, plus the weighted average of the residual price values of the two contracts. It will be about 1% higher that the S&P cash index at all times with no discontinuities and noisier because the volatility of the futures contract is greater than that of the cash index. The residual value of the combined price series will have volatility less than either of its two components since uncorrelated random variations will partially cancel. The characteristics of the resulting adjusted price will be quite different than the price of either contract. The prices will not fall on multiples of the minimum price movement such as 1/32 in the case of bonds. We could round to those increments but this would introduce a new source of noise. The volatility of the resulting price will be less than the real contracts, particularly near expirations. Finally the price will always be about 1% higher than the S&P cash index. This is unlike the futures price, which decreases at about a 4% per year rate over time. All of these factors can affect the performance of a trading system and could make the results of backtesting differ from trading a single contract. For a long-term system, one that stayed in the market for many months, using such data would be very convenient since it would eliminate the need to ever worry about expirations in backtesting. For a medium-term system, say one that stayed in the market for many days to weeks, such distortions would be insignificant. For short-term trading, say under a few days, they become important. For a day-trading system they could be serious sources of error. Systems that trade on the volatility of the price data will not work as well on such data since the volatility of the merged data is less than that of either contract.

6. Use continuous adjustment for both backtesting and trading Actually, trading a mix of the two contracts can eliminate the distortions mentioned above. This is only practical if you are trading perhaps over 20 contracts so that you can adjust the number of each in the proper proportions over time. It also adds a level of complexity to the trading system.

Special Cases

The processes described above are suitable for most cases. But there are special cases that cannot be covered by any general technique. For example:

* "Beginning with the March 2000 contract, the notional coupons of the CBOT Treasury bond, 10-year, 5-year, and 2-year Treasury note futures contracts will change from 8% to 6%." Thus, all past data on the 8% contracts will not be suitable for backtesting the 8% contract.

* "The Chicago Mercantile Exchange (CME) announced that it has increased the size of the random length lumber futures contract beginning with the January 2000 contract expiration. The contract is currently sized at 80,000 board feet and will increase to 110,000 board feet due to the size and capacity of railcars used to ship lumber." Thus, the prices for the old contract will not be applicable to the new contract. There is no general way to handle such special cases. Frequently, guidance for how to make adjustments is available directly from the web sites of the exchanges where these commodities are traded.

Summary

There is no "best" method in an absolute sense. All the methods have advantages and disadvantages. The best method in particular cases depends on the type of market analysis being done or the type of trading strategy being used. For instance, trading systems that compare current prices to distant past prices probably will back-test more realistically with Method 5, because there is less long-term price distortion. However, Method 5 tends to produce very unrealistic results with trading strategies that depend upon price waveshape measurement, because there will be significant medium and short-term waveshape distortion. Neural networks, exotic waveshape filters, wavelet methods, Fourier methods, and many other advanced methods do not back test realistically with that method. Method 3 or 4 will be much better to use in those cases. Method 4, using backward price adjustment is the most popular.

My Conclusions

I use Method 4 - back adjusted - because my objective is to simulate the behavior of my trading system on actual contract data as accurately as possible. My trading systems use the bar-to-bar price differences so are unaffected by adding a constant to all prices. Since method 4 (and method 3) maintains the exact bar-to-bar price changes of each original contract, this is what I prefer. Needless to say, other people might consider other factors more important. I have no interest in having my systems perform more poorly on backtesting that they would have on actual contracts. (Maybe you could call it some sort of "stress testing".) If I were using a long-term period, I would definitely use method 5 - the continuously adjusted contract but that is not what I am trading.

-Bob Fulks

Back-Adjusting Futures Contracts
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Old Mar 9, 2008, 12:31am   #47
Joined Jun 2006
Nine,

For index futures, the underlying cash market will be adequate as a proxy.

Grant.
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Old Mar 9, 2008, 8:59am   #48
 
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nine started this thread For Pete, an example of these strategies as they apply to a contract I trade ($25 per point or $50 per horizontal line per contract). I haven't marked the trades, that would simply be showing off and might not reflect the readers eventual strategy.

For Grant, an example of how volume can provide useful supporting information in a sub 5 minute bar timeframe. I didn't used to use volume but following db's stuff I gradually realised that it could help ... its not a holy grail but it can improve your perception of what's taking place. Note that the lack of holy grail status may simply reflect my limitations


Edit: I think I might have run out of useful things from the net for the momet. If anyone else has any though, please feel free to add them.
Cheers and the best of luck in this tricky game.
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Old Mar 9, 2008, 1:00pm   #49
Joined Jun 2006
Nine,

I've always believed in the importance of volume, especially as conveyed by DBPhoenix(I've printed most of his stuff).

However, your charts illustrate the fact that prices move on low volume. This is why from a scalping perspective I question it's significance. By the time a move is a showing conviction, ie good volume, the profit has already been taken (unless of course it's still running in your favour). Therefore, at best, volume is only a reinforcement to your initial decision.

But before I'm written off, you have made me look again at volume re scalping, specifically where volume seems to reach a low point indicating a possible reversal or turning point in price.

Grant.
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Old Mar 9, 2008, 2:52pm   #50
Joined Jan 2007
Smile good thread and posts

Hi Nine

good thead and posts Nine

I have found many things on the net that I thought were of value, only to later find that .................. they were not of any value at all

all that sparkles is not Gold.

A few things I have come across on the net that I consider of value imho are......

1)

Trend lines, to me, are drawn arbitrarily. I just use them as a sort of "comfort line". If I am on the right side of it I feel fine and have no worries. The rule that they must be drawn across the tops or bottom is, more or less, telling the market what to do. How can you expect that of a price? When the price cuts the trend I look to see if a pattern is forming. If the pattern is continuous, I revert to a trend line, again, almost certainly, the momentum will have changed but if I keep to the right of it in a bear and to the left of it in a bull then I am OK- Whenever it crosses, it is a warning to pay attention to the trade, nothing more.

There is nothing to be learned from trend lines, IMO anyway, except to help keep the ship on course. Go inside it and you are entering into shallow water.

Watch the trend line but remember that deep sea men don't like shallow water. Neither do coastal men like deep water.

BY

Split


thanks for passing it on to me Split, thanks for the last sentence to at the appropriate time to provoke some required thought on my part :-)

2)

The Five Fundamental Truths
1. Anything can happen.
2. You dont need to know what is going to happen next in order to make money.
3. There is a random distribution between wins and losses for any given set of variables that define an edge.
4. An edge is nothing more than an indication of a higher probability of one thing happening over another.
5. Every moment in [a game] is unique.
The Seven Principles of Consistency
1. I objectively identify my edges.
2. I predefine the risk of every [betting decision].
3. I completely accept the risk or I am willing to let go of the [hand].
4. I act on my edges without reservation or hesitation.
5. I pay myself as the [game] makes money available to me.
6. I continually monitor my susceptibility for making errors.
7. I understand the absolute necessity of these principles of consistent success and, therefore, I never violate them.

thanks for passing them on to me FW :-)

3) Last but not least, or perhaps thats where it belongs

dbs work, thanks for passing it on to me db, I was going to highlight a bit but resisted the temptation :-)

http://www.trade2win.com/boards/mapping-territory/

A springboard can be said to exist when preparations have been made for, and the psychological moment has arrived for, a quick and important move . . .

Auction markets are in continuous flow from trending states to non-trending states. If a trader is interested in movement and momentum, he will likely be interested in a trending market and try to avoid a non-trending market (what is often called "chop"). Springboards serve to alert him to upcoming changes from one state to another. They alert him to prepare for a transition (whether it turns out to be substantial or trivial) from non-trending to trending or vice-versa, i.e., that point at which price is on a "springboard" to an advance. One can busy himself with questions of who's doing what and why (weak hands, strong hands, professionals, amateurs, intent, prediction, and so on), but none of this is essential or perhaps even important. What is important is being prepared for whatever hand the market deals you. In this way, one can maintain calm and objectivity, not dither with last-minute surprises.

What one does with what is in front of him depends largely on whether he is in a trade or he is looking to enter one. If he is in a trade, he's looking for signals that momentum is slowing. If he isn't, he may be looking for the same thing as an opportunity to enter, depending on what else is going on (e.g., is support being tested, is this the end of a parabolic move, has trading activity spiked or evaporated). However, before getting into all the possible tactics that can be employed to play these movements, I suggest that whoever is interested in this subject work toward finding these zones where traders are seeking balance (or equilibrium or fair value or whatever one chooses to call it). Again, these zones occur in all charts in all timeframes. And if one understands why they form, he is less likely to be freaked when his trade stops, much less retraces (he will, of course, have decided in advance what he is going to do when this unavoidable circumstance presents itself).

4) Wings and glass"s for Pinkpig :-)


Good Luck in your search
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