Developing a Trading Strategy Part 2

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Old Jan 11, 2005, 7:15pm   #1
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Developing a Trading Strategy Part 2

We've just published a new T2W article called "Developing a Trading Strategy Part 2" by Tim Wreford.

Quick Summary: The second part of Tim's popular guide to creating a trading strategy.

PS. Don't forget to rate the article after you've read it and share your comments on this thread.
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Old Jan 11, 2005, 7:15pm   #2
 
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Excellent.

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Old Jan 11, 2005, 11:53pm   #3
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Impressed with the author's rigour and application. Not only that, the content is first class.
Many thanks, very useful.
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Old Jan 12, 2005, 9:45am   #4
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Very good article. I appreciate the effort that has gone into writing it.

The only thing I was uncomfortable with in the example was finding significance in Thursdays not being profitable. One could argue this is over-fitting as in the test period the decision to cut out Thursdays was based on 22 trades (not really enough in my book) and based on the fact it wasn't profitable in the test period. However, this could be confirmed or not by looking at the out of sample data OR/AND asking if there is any logic behind cutting Thursdays (I don't know of any, if it were a Monday one may be able to put an logical argument together).
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Old Jan 12, 2005, 12:09pm   #5
 
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Thanks for your comments!

Tuffy, the Thursday thing really surprised me as well. My sample period for the purpose of the example in the article was only 6 months which as you say only gives 22 Thursdays to base the rule on. The point was, though, that we base our system on data in the test period and in the test period Thursday's were extremely poor. If we then look at the out of sample data and change the rule then our out of sample data then becomes part of our test data - invalidating the out of sample test! Your right, though, a larger test period in the first place would be better, this was only an example for the article.

Friday is the second worse performing day so we could conclude that the beginning of the week is better for breakouts than the end. Logically, many investors will make trading decisions over the weekend and implement them at the beginning of the week, as the week grinds on they wait until the weekend to decide what to do next. Thus, the market makes it's move in the beginning of the week and consolidates towards the end of the week.
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Thanks! The following members like this post: johnlvs2run
Old Jan 12, 2005, 12:25pm   #6
 
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Have to agree with other posters. This is one of the best articles I have read for a while.

With respect to the Thursday factor. I had been intending to create a thread regarding this as I also find Thursday a pretty poor day for day-trading my FX (primarily Cable) strategies. Again the sample size is a little small for a definitive conclusion, (max 16 months data), but I still think that this is a factor to big to ignore.

Has anyone else noticed this or a similar phenomenon with their instruments, and if this is a recurring theme, does anyone trade counter to their strategy on the poor performing day.

Comments appreciated.
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Old Jan 12, 2005, 1:28pm   #7
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http://www.seykota.com/tribe/risk/index.htm

Quite a useful piece that complements the article under discussion.
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Old Jan 12, 2005, 1:33pm   #8
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Missed part one!

Quote:
Originally Posted by Sharky
This is a forum thread for discussing the Knowledge Lab Article, "Developing a Trading Strategy Part 2".
Interesting stuff, where is part one. I looked in the Lab??
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