Is the concept of momentum and trend trading flawed?

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Old Jul 16, 2017, 10:29am   #9
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I don't recognise what was under the back-test as trend trading.
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Old Jul 16, 2017, 10:30am   #10
 
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The problem with OP's analysis is that it doesn't take account of the true nature of trends. This has been alluded to by Barjon at #5 and IceMan's #6 bouncing ball analogy. Price trends are a summation of individual price cycles each having phase, amplitude and wavelength and when present take a sinusoidal form. If the ongoing sums of cycle amplitudes are increasing then it is highly likely that an uptrend is present (converse for a downtrend). However, the distance between peaks (wavelength) of the daily cycle which is what I think your analysis was attempting to measure, is unlikely to show the trend.

An eod price chart plot represents all the cycles present (and quite often they may be indistinct, non-existent or exhausted) which is why overall, trendlines are a pretty good guide to trend – easily eyeballed and very low-tech. The difficulty with price trends is that they occur in a sawtooth fashion. You also have to decide what you consider to be a trend e.g. we all know that a one-week uptrend may well be part of a six-month downtrend and this sort of thing can make life very difficult.

Apart from drawing physical trendlines, the only way I have found of determining trends is to measure and sum individual cycles. When a number of cycles are in phase their additive effect is greatest and the future trend can be predicted with reasonable confidence. The caveat is that cycles are not always present and when they are, amplitude wavelength and phase must all be considered carefully.

The best explanation I have found of the nature of trends and cycles within them is in Millard's book "Channels & Cycles" which expands on the work previously done by JM Hurst.
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Old Jul 16, 2017, 11:11am   #11
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Originally Posted by tomorton View Post
I don't recognise what was under the back-test as trend trading.
Then suggest ways in which the OP could test that.

You have to define something before you can test it. For the opening poster - currently - trend is being defined by consecutive up bars. How should he/she define trend?

Well done to the opening poster for actually doing some testing.
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Old Jul 16, 2017, 11:24am   #12
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Originally Posted by seekingTruth16 View Post
Then suggest ways in which the OP could test that.

You have to define something before you can test it. For the opening poster - currently - trend is being defined by consecutive up bars. How should he/she define trend?

Well done to the opening poster for actually doing some testing.

I've regularly posted aspects my trend-trading but so have lots of people - no doubt everyone doing it has their own personal approach with many slight differences, so my criteria are no better than any other trend trader's.

I have read a bunch of reports over the years saying that this or that TA method won't work, or even that all TA won't work. But they are usually based on entry, stop and exit criteria that real traders don't use, with no regard to underlying market strength as derived form indices etc., no pyramiding, no scaling in/out, etc. etc. and most crucially no facility to run winners. The classic academics' approach is where the study looks at buying on MA Golden Crosses and demands that the sell only occurs when a Death Cross occurs, and you will be able to find loads of MA studies pdf's that use this ludicrous set-up.

Back-testing is interesting, but only where it is also realistic.
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Thanks! The following members like this post: dbphoenix
Old Jul 16, 2017, 11:47am   #13
 
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Originally Posted by tomorton View Post
I've regularly posted aspects my trend-trading but so have lots of people - no doubt everyone doing it has their own personal approach with many slight differences, so my criteria are no better than any other trend trader's.

I have read a bunch of reports over the years saying that this or that TA method won't work, or even that all TA won't work. But they are usually based on entry, stop and exit criteria that real traders don't use, with no regard to underlying market strength as derived form indices etc., no pyramiding, no scaling in/out, etc. etc. and most crucially no facility to run winners. The classic academics' approach is where the study looks at buying on MA Golden Crosses and demands that the sell only occurs when a Death Cross occurs, and you will be able to find loads of MA studies pdf's that use this ludicrous set-up.

Back-testing is interesting, but only where it is also realistic.
Most approaches using MAs as a primary indicator are flawed because the longer the period of the MA, the longer the period of missing calculation. E.g. a 20 period MA cannot reliably calculate the last 10 points of the data period. This is why Mas should always be plotted in the "centred" fashion i.e. half a period span back, which means that the latest half period span must be estimated – and that's where the accuracy problem lies.
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Old Jul 16, 2017, 11:52am   #14
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Originally Posted by sminicooper View Post
Most approaches using MAs as a primary indicator are flawed because the longer the period of the MA, the longer the period of missing calculation. E.g. a 20 period MA cannot reliably calculate the last 10 points of the data period. This is why Mas should always be plotted in the "centred" fashion i.e. half a period span back, which means that the latest half period span must be estimated – and that's where the accuracy problem lies.

Well, you and I and most real traders know that an MA cross-over system is going to give random results, but so many academic papers condemn TA generally using just such a specific set-up.

Of course, these US business schools and university finance faculties which are the source of such a lot of this guff derive no income from private retail traders but such a lot from the investment industry. I guess in some circles, pleasing the client is a good justification for a bad piece of work.
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Old Jul 16, 2017, 12:29pm   #15
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welcome to trading ...........nothing works all of the time ......you just have to learn how to read the market and anticipate the moves in advance

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Old Jul 16, 2017, 2:22pm   #16
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would the op not be better off testing shorter terms within a trend breakout? I mean trend pullbacks /re tracements or buying supports in uptrend .

I am going to unsubscribe.

Last edited by foroom lluzers; Jul 17, 2017 at 7:36am. Reason: correction
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