Comments on: Formula 301 – #4 Basic Consensus System

By: Lawrence Chan

Lawrence Chan — Sun, 27 Nov 2005 14:33:47 +0000

No optimization applied. Most of the parameters are just common combinations. The scoring rules are also common interpretations of those indicators.

By: Ed

Ed — Sat, 26 Nov 2005 19:53:34 +0000

Just out of curiousity do you optimize to arrive at the parameters you choose or is through chart overservation or perhaps someother perspective. Thanks for any comments you might have.

By: Lawrence Chan

Lawrence Chan — Fri, 18 Nov 2005 19:59:56 +0000

The performance of the system in mid to end of 1999 is weak for a simple reason – the rules that define the stock market was broken. Serious investigations done after the melt down in year 2000 revealed many market participants, who traded during the end of the dot com era, are not following strict margin requirement, while their brokerages did not report or stop them from doing so. Thus prices was pushed around like unlimited amount of money is available. When strict margin requirement is enforced again, the system operates as expected.

By: Ed

Ed — Fri, 18 Nov 2005 14:59:34 +0000

Regarding your “end notes”. It’s hard to tell why performance was so weak in 1999. Would you explain further please.

By: Lawrence Chan

Lawrence Chan — Sun, 06 Nov 2005 15:36:05 +0000

Jay, I assume you are talking about Nov 2004 to Jan 2005. One of the components used is Stochastics SlowK. The biggest enemy of oscillators is prolonged period of sideway market. The tight range behaviour across multiple days during this period caused those whipsaw trades. The interesting thing is, the drawdown during this period is still within the system’s normal volatility in its equity.

By: Jay

Jay — Sun, 06 Nov 2005 03:25:38 +0000

If I built and tested this system correctly, it looks like it’s had flat performance since 12/1/2004 to 11/1/2004, on 57 trades. I guess this period is similar to the flat period in 1999?