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Good Science - Adding Confirmation to Testing Systems
Rank: Member
Groups: Registered, Registered Users Joined: 6/14/2010(UTC) Posts: 13
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As "scientific traders" we endeavor to find observations that can be confirmed and replicated. Most trading experts advocate using more than one indicator, yet seldom specify which ones. As a test case I would like to test a system with high returns that is reported to only work in trending situations, and if combined with anther indicator that works in trending conditions might complement the results and perhaps even eliminate some whipsaws. To Test I would like help in constructing the Metastock Test System directions to run a test that requires both conditions / tests be satisfied - specifically a TRIX (2 Period) and Mesa Sine Wave (2 period).
I believe the BUY signals would be:
TRIX
tx:=TRIX(2);
sig:=Mov(tx,3,E);
Cross(tx,sig)
and MSA would be
MESALeadSine(2)<MESASineWave(2)
I believe the SELL signals would be:
TRIX
tx:=TRIX(2);
Cross(0,ROC(tx,1,$))
and MSW would be
MESALeadSine(2)>MESASineWave(2)
Can anyone advise precisely how to formulate the combined requirements for the system test?
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Rank: Advanced Member
Groups: Registered, Registered Users, Subscribers Joined: 10/26/2009(UTC) Posts: 76 Location: Toronto, Canada
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If I'm right in understanding your conditions can't you just use the "AND" operator and combine both requirements ?
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Rank: Advanced Member
Groups: Registered, Registered Users, Subscribers Joined: 5/25/2010(UTC) Posts: 55
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As referenced in another thread, I backtested the PS MESA Sine Wave system on the NDX 100 stocks from 198x through June of 2010. The system made minced meat out of every single stock (98, actually--two came up "not available.").
My default trade size was 20% of available equity. I started out with a $1M account, used 0.5% for slippage in and out, and $8 commission.
At least 96 stocks lost at least $600K out of the $1M starting capital with this system. None whatsoever were profitable.
I know that you're using two indicators here, but if one is this bad then I would question addition of the other.
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Rank: Advanced Member
Groups: Registered, Registered Users, Unverified Users Joined: 8/12/2005(UTC) Posts: 73
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Your premise is sound but the indicators are not. if you are a scientific trader then you know what a minimum sample set requires 9 periods to be of any statistical significance. By only using two period you have made it a binary system and you need to have a binary filter to make it work but binary inherently makes it a volatility system and removes most trends so it no longer is a trend system. This should work best in intra day trading but has very bad results in daily or longer.
TRIX is a triple exponential moving average of an initial moving average so it is used get some analysis using minimum amount of data but that has whipsaw problems. Stick with previous noble prize winning analysis minimum data set is required for any significance.
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Rank: Advanced Member
Groups: Registered, Registered Users, Subscribers Joined: 10/26/2009(UTC) Posts: 76 Location: Toronto, Canada
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That's a good advice FormulaPrimer.....
Moreover, I don't think you are using MESA correctly.... it isn't about the MA crossing the signal like Stochastics...... The significance in trading with the MESA indicator is about how the actual curve looks which signals good trading opportunities..... RESEARCH more before using an indicator!!!!
VT
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