Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: TobagoJack who wrote (48576)	4/15/2004 4:20:21 AM
From: energyplay	Read Replies (1) of 74559

There have been a number of academic and business studies of trading strategies taht have fed either past market data into the strategy or 'random' data that looks like real markets. Trading strategies which cut losses and let profits run will make money in 'random' markets. The stock market is not random noise, but tends to trend. The next move in the price of a stock tends to be in the same direction as the last move 51% of the time. Coin flipping would be 50%... Larry Williams' books have information on this. Foreign currency markets trend even more than stock markets. Stocks also tend to trade in a range or band about 70-80% of the time, then trend the other 20%. Trend following strategies which find trends which have broken out and try to stay with the trend until it has has a significant reversal, while using stops to preserve profits, genrate net postitive results but in tests and the real world. I'll post a link to the "Turtle trade site" later which did this in the real world. The next questions are how much more do these strategies generate over the risk free return, and can they be scalled up ? Larger sizes tend to reduce the drag from commisions but eventually will increase 'slippage' or unfavorable price movement casued by the trade itself. Many strategies have average expectancies of 8-20 % per year. Standard deviation on these returns runs from 3 to about 15 %. The other question is what are the worse expect drawdowns, what happenws if the mechanical trading system fails 6 or 8 or 14 times in a row ?

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