Comments on: The Cheetah and the Cockroach: a robust story

By: Nizar

Nizar — Sun, 13 Dec 2009 01:33:42 +0000

Hi Jez,

Just a few thoughts.

First of all I agree on your points re:Robustness.

Your mention of cheetahs reminded me of a quote by Mark Weinstein (A high percentage trader profiled in Market Wizards) which has no direct relevance to this post but here it is:

Although the cheetah is the fastest animal in the world and can catch any animal on the plains, it will wait until it is absolutely sure it can catch its prey. It may hide in the bush for a week waiting for just the right moment. It will wait for a baby antelope, and not just any baby antelope, but preferably one that is also sick or lame. Only then, when there is no chance it can lose its prey, does it attack. That, to me, is the epitome of professional trading – Mark Weinstein.

My opinion on a system having to work well on all markets is as follows. If a system does perform well in other markets besides that which it was designed and tested on, then yes, that does add an element of robustness.

However, if it does not, this does not take anything away from the system. Why?
Because some markets have inherently different characteristics in terms of the way they behave.

For example, from my experience with equity systems, I have found the US markets (the S&P500) are mean reverting in nature, while the ASX is more trend following.

Nizar.

By: Milktrader

Milktrader — Thu, 10 Dec 2009 13:49:46 +0000

Perl mentions that he has not backtested TD Sequential, so I guess it’s up to us. I found some Amibroker code but not TradersStudio yet.

I think there is something there with DeMark, though I am also suspicious that maybe there isn’t. You can convince yourself you see something when their is nothing there, and that’s what I ask myself when I follow along with the indicators. (I downloaded the code for MetaTrader and have taken a look on how it acts on the Euro).

Your friend’s lack of trading success may have less to do with DeMark and more to do with other things that contribute to the lack of success. What I love about trading systems is that you can throw the code out into the public with almost no fear that anyone will trade it properly.

By: Jez

Jez — Thu, 10 Dec 2009 11:18:05 +0000

DeMark is intriguing indeed… I feel quite ambivalent about it – the method (TD Sequential for example) sounds one of the most curve-fitted (in the way the rules are so specific with excat numbers for SetUp, CountDown, etc.) so I am quite uncomfortable with this. However I wanted to back-test it as an addition to a LTTF system (ie to anticpate trend reversals and take partial profits) but the indicators are a a bit of a project in itself to code up. As I am not convinced of the robustness of the approach, it has dropped down the “list of my priorities…”

I met a prop trader a few months ago and he mentioned how he loved using DeMark and wished that he’d found out about it so I thought I might investigate that further… Just heard from him a few weeks ago.. And he’s looking for a job! ;-)

By: Milktrader

Milktrader — Thu, 10 Dec 2009 02:00:26 +0000

I did start DeMark and I’m intrigued. It’s a generic market type of system that includes potential for counter-trending, which could be useful in conjunction with LTTF systems.

DeMark is interesting to me because it uses price action and is dynamic (support/resistance are based on recent levels)

By: Jez

Jez — Wed, 09 Dec 2009 23:50:26 +0000

Milk,
There are quite a few strategies (especially technical analysis ones) that are supposed to work with the same parameters on all markets, actually most of the basic ones I think (they might not be that succesful though…)- look at Tom Demark ones for example (if you have started the book ;-) I am pretty sure a Donchian Channel breakout system wuld perform relatively well on a wide collection of sectors.
I guess some could argue that overall trading market personality/psychology should apply in the same way for any instrument whereas I could also understand the point of view that different markets each have their character…
Jez

By: Milktrader

Milktrader — Tue, 08 Dec 2009 02:22:23 +0000

The opinion that a system ought to work across all markets is a view that Murray Ruggiero holds, unlike Bob Pardo who believes that some markets are better suited to a trading system than others. But the view that a single parameter set should work across all markets seems a bit much, quite frankly.

There is also another class of systems known as intermarket systems that are not generic market systems, but specifically tailored to a particular relationship between correlated markets. Once I get my Bug Collection (generic market systems) backtested, optimized and walk-forward, I’ll be focusing on this field as I find it particularly intriguing.

By: Jez

Jez — Mon, 07 Dec 2009 11:48:36 +0000

@cog
no specific examples, this was just rather a reflexion on how to evaluate/backtest trading systems (ie it is easy to lure yourself with a back-tested strategy that looks good in the past but which will not be robust enough to survive in the long term). Trend following seems to be such robust strategy (and hence not attractive at all times, big drawdowns, etc. But that’s the “price to pay” for robustness.

By: Riskcog

Riskcog — Mon, 07 Dec 2009 06:50:37 +0000

A possible corollary is that the best performing systems over a given time frame are likely to be cheetahs in some respect. Do you have any examples of Cockroach strategies in mind from books or elswhere?

In 2008 among diversified mutual funds PRPFX came out on top. This may be because it is based on research into how to survive civil unrest, depressionnary economic collapse, hyperinflation etc… Maybe an example of a cockroach within the genre that fund occupies.