Automatic Pattern Search

This is a discussion on Automatic Pattern Search within the Trading Software forums, part of the Commercial category; I have been reading through Michael Harris's latest book Profitability and Systematic Trading. I can recommend it as an interesting ...

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Old Aug 19, 2008, 1:39pm   #151
Joined Apr 2004
I have been reading through Michael Harris's latest book Profitability and Systematic Trading. I can recommend it as an interesting read. The book is a useful primer for anyone looking to create a trading system. He covers the key questions any system developer must face, which market, what time frames and the importance of risk management. He resolves the question of entry and exit through use of his software program, APS Automatic Pattern search.

At the back of the book there is a demo copy of the software on a CD with a selection of generic price patterns for four markets, QQQQ, DAX, SPY and FTSE. These are in the Appendix of the book and on the CD as well.

I would like to ask a question about these entries. Random Example:
{File:FTSE.txt Index:3 Index Date:20041007 PL:83.67% PS:16.33% Trades:49 CL:2}
{LONG, %, TARGET: 2, STOP: 4, ENTRY PRICE: OPEN, DELAY: 4}
( Followed by APS code line for Metastock or Tradestation or Wealth Lab)

I use Metastock 7.22 and I would like confirmation that I am getting the right inputs.

Please can you correct me if I am missing something.

I create a new system test and copy the APS code line into the Enter Long tab of the System Editor, I do not add anything else to Close Long, Enter Short or Close Short.
I click on the stops button which has five options, Breakeven, Inactivity, Max Loss, Profit Target and Trailing.
I presume that the Target figure goes in Profit Target tab and the Stop goes in the Max Loss Tab.
The entry price on open and delay are set in the System Testing options button.

Anything else obviously missing? I hope to compare and contrast the results in APS with the output of the Metastock system tester.
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Old Aug 20, 2008, 7:48pm   #152
 
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Originally Posted by jorune View Post
Anything else obviously missing? I hope to compare and contrast the results in APS with the output of the Metastock system tester.
Sounds fine to me. Also look at this:

Using APS FAQ

Yep, I agree about the book. Down to earth writing, no hype like other authors, sensible advice. Michael Harris is a real trader.

Ron
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Old Aug 21, 2008, 7:58am   #153
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Originally Posted by jorune View Post
I have been reading through Michael Harris's latest book Profitability and Systematic Trading. I can recommend it as an interesting read. The book is a useful primer for anyone looking to create a trading system. He covers the key questions any system developer must face, which market, what time frames and the importance of risk management. He resolves the question of entry and exit through use of his software program, APS Automatic Pattern search.

At the back of the book there is a demo copy of the software on a CD with a selection of generic price patterns for four markets, QQQQ, DAX, SPY and FTSE. These are in the Appendix of the book and on the CD as well.

I would like to ask a question about these entries. Random Example:
{File:FTSE.txt Index:3 Index Date:20041007 PL:83.67% PS:16.33% Trades:49 CL:2}
{LONG, %, TARGET: 2, STOP: 4, ENTRY PRICE: OPEN, DELAY: 4}
( Followed by APS code line for Metastock or Tradestation or Wealth Lab)

I use Metastock 7.22 and I would like confirmation that I am getting the right inputs.

Please can you correct me if I am missing something.

I create a new system test and copy the APS code line into the Enter Long tab of the System Editor, I do not add anything else to Close Long, Enter Short or Close Short.
I click on the stops button which has five options, Breakeven, Inactivity, Max Loss, Profit Target and Trailing.
I presume that the Target figure goes in Profit Target tab and the Stop goes in the Max Loss Tab.
The entry price on open and delay are set in the System Testing options button.

Anything else obviously missing? I hope to compare and contrast the results in APS with the output of the Metastock system tester.
Hi Jorune,

I haven't read M. Harris's last book, but have got the other three he wrote; the whole point of designing a backtesting engine as part of APS was because he was not happy with what the commercial softwares provided him with - in fact when he contacted them, he realised that, though very good programmers, they simply didn't know what he was talking about! They didn't understand the mechanics of running historical simulations.
You will find differences between MS and APS - I did; however, this si not all.
In my experince, once you factor in the trading costs in the simulation, some "profitable" patterns become losers; also, Michael Harris is very clear about backtests simulations: take them with a large bucket of salt. I do: they only show the best outcome, there is no guarantee that such performance will happen in future.
The area where M. Harris is constantly banging up is money management - a topic from which I have heard nothing in these forums in reference to APS, yet the most important one in M. Harris books and methodology.
APS is a very good software, but M. Harris is clear: it is a data mining engine; over time, the profitability of those patterns return to mean,ie., stop working and become losers; some other profitable patterns just stop showing up in the data.
It would be nice if there was a way of ascertaining the trend (sorry guys, moving averages won't do for me) and trade in the direction of the trend only, this would increase the effectiveness and longevity of the patterns.
Oddly enough, in his first two books M. Harris went to some lenght in the presentation of his "P indicator" but not in his third volume; does he cover this topic in his fourth book? Anyone knows?

Eduardo.
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Old Aug 21, 2008, 6:02pm   #154
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Originally Posted by ZEPPO View Post
Oddly enough, in his first two books M. Harris went to some lenght in the presentation of his "P indicator" but not in his third volume; does he cover this topic in his fourth book? Anyone knows?

Eduardo.
I am interested in this indicator too. I think the fourth book is just a revised edition of his third book published by Wiley.

Moving averages are bad indicators, I agree. If not for losers, they are for people who can sustain huge drops in equity. Not for me.

I know people who relied on systems based on moving averages and have gone out of business since last year.

Markets have gotten too smart lately to trade them with moving averages.
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Old Aug 21, 2008, 7:52pm   #155
Joined May 2005
Intermarket analysis

There is another topic which was presented in Michael Harris first book and for some reason has not been explored any further: intermarket patterns.
In it, the analysis between two markets, such as the S&P500/T-Bonds and Swiss Frank/Silver is presented.
I think this is an important topic today as seen by the correlation between the Dollar and Gold, and such markets as oil, metals, and others.
Unfortunately there is no way (that I know of) to use APS to find profitable patterns in one market to be applied in another, that is, a pattern which would have no effect in, say, the S&P500, but which would have an effect in, say, the T-Bonds, appears in the S&P500 data.
This is just one possibility; in the UK market, for example, such patterns found in the FTSE100 could be a Buy/Sell signal on some of its components, say, BP or Aztrazeneca.
Also, this could be applied to the currency markets vs. the major indices, etc...
It would even be possible to find pair trades using this strategy.
I wonder if this topic could be explored more in depth in future, as I believe there are profitable opportunities in such trading style. Perhaps in another APS update?

Eduardo.
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Old Aug 21, 2008, 8:15pm   #156
 
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Originally Posted by ZEPPO View Post
In my experince, once you factor in the trading costs in the simulation, some "profitable" patterns become losers; Eduardo.
Hi Eduardo,

In his recent book Mr. Harris makes explicit references to this fact and derives a formula about the impact of trading costs on pattern performance, are you aware of that?

Basically, when you set APS to search for patterns you must make sure that the success rate is above a certain value Pmin:

Pmin = pf/(pf+aT/S)

Pf is the profit factor you are shooting for, T and S are the profit target and stop-loss and "a" is a "safety factor" to account for the trading costs. He also proposes values of the factor "a" depending on the different styles of trading.

I agree pattern performance returns to mean value in the longer term but the question is how long that takes and whether there is first an increase in performance.

In other words, if you can find patterns that will maintain good performance for up to 3 years you can make huge profits. Then, at the end of the third year you search again for new patterns.

Also, a better way of using pattern signals is to trade combined probabilities rather than individual signals.

My regards to you and all the best,

Ron
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Old Aug 21, 2008, 8:24pm   #157
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Originally Posted by ronblack View Post
Hi Eduardo,

In his recent book Mr. Harris makes explicit references to this fact and derives a formula about the impact of trading costs on pattern performance, are you aware of that?

Basically, when you set APS to search for patterns you must make sure that the success rate is above a certain value Pmin:

Pmin = pf/(pf+aT/S)

Pf is the profit factor you are shooting for, T and S are the profit target and stop-loss and "a" is a "safety factor" to account for the trading costs. He also proposes values of the factor "a" depending on the different styles of trading.

I agree pattern performance returns to mean value in the longer term but the question is how long that takes and whether there is first an increase in performance.

In other words, if you can find patterns that will maintain good performance for up to 3 years you can make huge profits. Then, at the end of the third year you search again for new patterns.

Also, a better way of using pattern signals is to trade combined probabilities rather than individual signals.

My regards to you and all the best,

Ron
Hi Ron,

Thank you for your best wishes - and likewise.
Yes, I am aware of this as it is covered in his first three books.
This is the kind of posts I'd like to see, more on the side of risk and trade management than on the trading signals themselves, traders ideas on these topics, how they go about it.
I haven't got M.Harris last book; what's new in it that wasn't in the other three? "Profitability and Systematic Trading" was quite deep, wouldn't this last one be a re-print of some sort? Just asking before I commit.

Eduardo.
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Old Aug 21, 2008, 9:08pm   #158
 
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Eduardo, time to use a deep discount broker like IB.

Trading costs not an issue nowadays. Good signals is the issue.

I also have all books authored by Mike Harris. The last book is Profitability and Systematic Trading just the publishing house changed along with cover, etc.
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Old Aug 21, 2008, 9:23pm   #159
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Originally Posted by trader3cnd View Post
Eduardo, time to use a deep discount broker like IB.

Trading costs not an issue nowadays. Good signals is the issue.

I also have all books authored by Mike Harris. The last book is Profitability and Systematic Trading just the publishing house changed along with cover, etc.
Thanks for the tip about the book.

Eduardo.
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Old Aug 22, 2008, 4:25pm   #160
 
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Originally Posted by ZEPPO View Post
There is another topic which was presented in Michael Harris first book and for some reason has not been explored any further: intermarket patterns.
In it, the analysis between two markets, such as the S&P500/T-Bonds and Swiss Frank/Silver is presented.

Eduardo.
Hello Eduardo,

Let's ask tradingpatterns.com to add this feature. Good idea! Maybe if several users ask they will add it.

By the way, some patterns I got from APS back in 2005 when I first played with the program still make money. The problem with me is that I tend to be discretionary at times and I have ignored many good signals.

Alex
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