Trend following not working on my 7,000 backtests !

This is a discussion on Trend following not working on my 7,000 backtests ! within the Trading Systems forums, part of the Methods category; Originally Posted by EnlightenedJoe Well, the real reason he succeeded was because he was a superb merchant. Ebay preceded amazon ...

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Old Oct 30, 2017, 5:33pm   #25
 
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Quote:
Originally Posted by EnlightenedJoe View Post
Well, the real reason he succeeded was because he was a superb merchant. Ebay preceded amazon but failed to achieve a success anywhere on the same scale. People who started ebay were idiot merchants and remained little people.

Unfortunately to extract money from markets, you have to be a good merchant. It helps to be born as one. Your pizza shop friend is one for instance. I am unconvinced they can teach you to be more than a mediocre merchant in a course if the needed genes are not present.

I kind of agree with this..everyone has heard this question:

Are great traders born, or made? The great ones are born, then made better. imo

if you don't have the "risk genes" you at at a disadvantage right from the start.
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if you have a little volatility, half an idea where sh^t will turn, and a reasonable stop, I might be able to start making $ off this venture
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Old Oct 30, 2017, 6:05pm   #26
 
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Originally Posted by qwertyuiop1 View Post
I have lost all confidence on trend following.

I back-tested the below system over 9 major FX pairs using 4 hour charts over 13 years which consisted of exactly 7,004 trades.

Plot 3 EMAS on chart: 5,21,55
Use a Stop loss od 2ATR(14)

Enter long/short when 5 EMA crosses above/below the 55 EMA
Exit when 5EMA crosses back over ANY of the 21 or 55 EMA (whichever comes first)

And that's it !

As you can see it adheres to all the fundamental rules of a good trading system:
- IT knows what instruments it trades
- Knows entry signal
- Knows exit signal before entering which facilitates both cutting losses and maximising profits
- cuts losses
- lets profits run
- knows risk in advance

It barely broke even before costs (It had an expectancy of 0.01R per trade). Since costs were about 0.02 R it had an expectancy of -0.01R per trade.

I then tweaked it slightly whereby I closed any trades that were not in profit after 24 hours. And for those that were in profit I moved the SL to breakeven.
Again- the overall results were very similar.

I'm not saying trend-following cant assist in trading. But based on my back tests - (which was a significant sample size in anyone's language) it definitely isn't a simple case of cut your losses and let your profits run and you are guaranteed profits in the long run like many sites lead you to believe.

It really needs to be fine tuned a bit better than that. I really don't know where to go from here to be honest.

Ya - you can tweak the parameters - but that should now make any difference in the long run.

Id be curious to get other peoples thoughts on it.
Take a look at your exits. My guess that you will find clusters of losing trades entered during weak trends that went profitable but gave the gains back as the ema crosses the 55 ema. Even if I am wrong about that the answer will probably be found failure patterns within the results.
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Old Oct 30, 2017, 10:04pm   #27
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Originally Posted by qwertyuiop1 View Post
I have lost all confidence on trend following.

I back-tested the below system over 9 major FX pairs using 4 hour charts over 13 years which consisted of exactly 7,004 trades.
You are testing a ma cross over system. Whether it is reflective of a trend following system is clearly debatable. You are equivocating the two and concluding that trend following is not profitable. You are using 2ATR as a form of stop loss/take profit but then again has the trend changed if that parameter is hit? In other words, you are taking a bunch of stuff and assume they are representative of trend behaviour and then make conclusions. IMO your starting point is flawed. You have an uptrend trend when you have higher highs and higher lows and that trend ends when two swing points are taken out. A trend doesn't begin when you have a ma cross over or ends when your 2ATR is hit.
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Old Oct 30, 2017, 10:23pm   #28
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http://www.trade2win.com/boards/gene...ends-only.html
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Old Oct 30, 2017, 11:47pm   #29
Joined Oct 2009
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Originally Posted by Brumby View Post
IMO your starting point is flawed.
Simple as that! In one sentence.

Take it further - one word -


CONTEXT


How can a cross over at resistance be compared to a cross over at ATHs etc. Thats why these strats BE at BEST. Has to be some logic applied, as to what we are testing.

We can all drive a car at 70mph, better being on a motorway than a cul-de-sac mind you
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Old Nov 1, 2017, 12:24am   #30
Joined Feb 2002
I trend-follow in forex, also indices and occasionally stocks and commodities.

I do take 20/50EMA cross-overs if price is on the right side of the 200EMA but these are speculative. My real trend-following trades come when the 20 is steadily and consistently on the leading side of the 50, and to be honest any entry signal that doesn't involve chasing price at an all-time high will do. Entry signals are unimportant TA, its finding the best the trend using TA that is important. I use less of an entry signal and more of an entry justification.

I also look at the length and consistency of trends to judge which ones would be best to enter. Once I've entered, if the trend continues, I look to pyramid repeatedly to build a bank of parallel trades of equal size. When I find an earlier post again I will re-post up more details here.

Keep at it though.
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Old Nov 1, 2017, 3:17am   #31
Joined Oct 2008
I Trend Follow all markets. At the moment I am mainly long stocks, due to the current bull market. But I am just as happy in futures and FX.
I would say you have to live trend following as a way of life, eat it sleep it, live it and breath it.
I don't think its just a matter of back testing a system or two or twenty or more.
It's a dedication of years of experience. Something that needs to be honed.

Learning and adapting. For example, as I said I am mainly in stocks at the moment, so just one of my many adaptions is to open new trades on earnings reports to give a good boost to the beginning of the trade. But maybe next year the market will turn bear, then a new adaption will be necessary. No quick fix here I am afraid.
My best recommendation would be to read the following books. Really study them. Then work out a mash up of the systems in these books to work out your your own system.
And your system will only be the beginning point of learning, not the end point. You will then need to be able to keep your account alive long enough to learn (many people blow up and never get to really start learning.)

How to Trade in Stocks - Jesse Livermore
Reminiscences of a Stock Operator - Edwin Lefevre
How I Made $2,000,000 in the Stock Market -Nicolas Darvas
The Original Turtle Trading Rules - Curtis Faith
Forex Patterns and Probabilities - ED Ponsi

If you are not prepared to dedicate years to this then do yourself a favour, pack up, go home and spend your valuable time doing something more up your street.
Good luck to you.

Edit: I can't stress this enough, (as one example) there will be plenty of times when exiting (on your) ma cross will not be the right thing to do. Sometimes market conditions will require other exits. Trying to trade a completely mechanical system is like saying I have memorized my drive to work, so now I will drive to work blind folded. You need to take into account all road conditions, the weather, other road uses, diversions etc etc. These are the little subtle variations in your trading system that take years to pick up and make the differences between a profitable trader and the other 95% of traders.

Last edited by Jason101; Nov 1, 2017 at 4:03am.
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Old Nov 1, 2017, 9:59am   #32
Joined Feb 2002
As mentioned earlier, please see below details of my trend-following trading.

I follow a very simple strategy with no off-chart indicators, no news input, no FA input. As far as possible, I want to use objective criteria only.

Primary requirements -
(example is for longs, reverse as appropriate for shorts)
All must be fulfilled.
1. 20EMA is above 50EMA
2. 50EMA is sloping upwards
3. 50EMA is above 200EMA

Secondary requirements =
As many as possible of these must be fulfilled: a higher score prioritises a trade in that pair.
4. Price is above 200EMA
5. At least 80% of last 16 weekly highs, lows and closes above 50EMA?
6. At least last 4 weekly bars not pierced by 50EMA?
7. At least last 8 weekly bars not pierced by 50EMA?
8. At least last 4 weekly closes above 50EMA?
9. At least last 8 weekly closes above 50EMA?
10. Does last complete weekly bar overlap fewer than 4 immediately preceding weekly bar ranges?
11. Does a clear majority of other pairs with same base currency also show 20EMA above 50EMA?

This gives a possible maximum score of 11 per chart. I will prioritise long entries into pairs with highest scores. Entry signals are not a key factor but will be typically -
a) just above a daily close that is above the 20EMA following a daily close below it on the previous day
b) just above a daily close on a bullish candle that has traded below the 20EMA but closes above it
But entry pattern is not really important as long as you're not chasing price.

I often take a long off a 20/50EMA cross-over as long as price is above the 200EMA.

Stop-loss on the initial position is TA-based, e.g. just below the low of the last swing low on the dailies. If that's too far away, use 1-2ATR below entry.

No TP's.

Pyramiding -
When initial trade opened, set a new entry order where initial trade will reach profit equivalent to initial risk in £. When this triggers, set trade 2's risk to the same in £, move Trade 1's SL to b/e. Keep setting new entry orders at each increment of the same gain in £, and moving each existing trade's SL up by the same £.
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