TheRumpledOne
6,529 posts
msg #37035
- Ignore TheRumpledOne |
7/23/2005 8:05:22 PM
From a buddy of mine...
Hello all.
Just some food for thought. One of the best books I've read - or
rather, perused is "The Encyclopedia of Technical Market Indicators"
by
Robert W. Colby. (Note this is a reference manual - pretty dry
reading,
but the knowledge is priceless). What he does is take about 80
indicators and backtest, then forward walk them through about 60
years
of data. He uses the Metastock program to do this, but the results
are
striking. He has a summary of the results in tabular format. He
compares the results to a "buy and hold strategy" over the same
timeframe (taxes and commissions, slippage, and stop losses were not
taken into account).
The number one profitable trading strategy was a 5 day exponential
moving average going long on the 5 day price crossing the EMA, and
selling short when the price retraces below the EMA. Altough this
strategy yielded about 60 trades per 62 trades/year (which might
qualify
you as a daytrader under the new NASD rules), it was a little less
than
767,000 times more profitable than a buy and hold strategy. Yep.
Which
if my math was correct equals about $822 million or so over the 60
year
period.
Surprisingly, an indicator like the bollinger bands actually lost
ground
to a buy and hold strategy by -35%. One reason is probably due to
how
Bollinger Bands are used. No shorting was used, first of all, and
buy
signals were only generated based on the lower bollinger band. And,
my
guess is that in most every major breakout the price is going to be
hitting the extremes of the bollinger bands, and run into the 3rd
standard deviaition throughout bold moves. The sell signals were set
at
the closing price +/- 2 standard deviations --- so in effect probably
much of the BIG increases over time were in fact missed.
There's about 60 or 70 indicators listed. I just picked two of them
to
share.....
Anyway - for what that is all worth, I figured I'd share my "book
review". It literally was an eyeopener. Plus the formulas are there
if
you want to copy them to a custom indicator. But, the results don't
lie. Take them in the context that they were used. Thanks,
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