November 14, 2011

Technical Analysis II

My intent was to use a script that uses a lot of technical indicators, modify its trading philosophy to more reflect my mental view of price movements. I've extensively modified the Hershey Equity Version 5.0 script (over 1,000 lines of code) as mentioned in a previous post. My primary objective was to have the portfolio exceed 100M; a 20-fold appreciation over the testing period. I program mostly blind, seeing only about 220 of the 1,500  trading days of a test. It often gives an advantage, you can not curve fit what you don't see. It also forces me to have a mental picture of the Schachermayer pay-off matrix Σ(Q.*ΔP) as it evolves.

All the trading procedures are based on technical indicators, and as such, this new script should be considered as purely technical. No fundamental or statistical information is used. There are no random processes as all trading decisions surrogates are based on the value of technical indicators only.

I must say that I greatly exceeded my objectives. I used AAPL as my prototype, (the need to debug), and then ran once the 43 stocks in data set 2 which had not seen the new script; making it an out of sample test. I knew from the very first stock tested that I would exceed my goals by a wide margin. I should have used a less optimistic stock than AAPL in the prototyping and debugging phase.

Well, here are the results:

New Hershey Script

New Hershey Script Table

 

The bottom line is 550 times the original portfolio value over the 1,500 trading days testing period. This is phenomenal. Almost 215,000 trades. The average holding period for longs is over a year, while stop losses have an average duration of about 9 months. The hit rate is an impressive 81%. The system ends up mostly in cash (over 75% of portfolio value). It means that over 1.5 B is sitting idle in the account doing nothing. This suggest that I should improve upon the excess equity utilization rate. This was just the first draft, and there is so much room for improvements considering that it is also scalable. I started wondering how far it could go.

So, I for one, must conclude that technical analysis is not dead. It is just another decision surrogate that can be used in designing automated trading systems. This test makes more than an exception, it makes a statement: technical analysis do not necessarily fail. But it goes even further than that. It implies that alpha generation can be exponential which in turn should force the rewriting of some academic papers.


AAU  11/14/2011 ::  New Hershey Script   DS2 AKAM  11/14/2011 ::  New Hershey Script   DS2 ARUN  11/14/2011 ::  New Hershey Script   DS2 ASYS  11/14/2011 ::  New Hershey Script   DS2


ATML  11/14/2011 ::  New Hershey Script   DS2 BIDU  11/14/2011 ::  New Hershey Script   DS2 CAM  11/14/2011 ::  New Hershey Script   DS2 CAT  11/14/2011 ::  New Hershey Script   DS2

COOL  11/14/2011 ::  New Hershey Script   DS2 ETN  11/14/2011 ::  New Hershey Script   DS2 FFIV  11/14/2011 ::  New Hershey Script   DS2 FIRE  11/14/2011 ::  New Hershey Script   DS2

GMCR  11/14/2011 ::  New Hershey Script   DS2 HK  11/14/2011 ::  New Hershey Script   DS2 HNL.TO  11/14/2011 ::  New Hershey Script   DS2 IDCC  11/14/2011 ::  New Hershey Script   DS2

IGTE  11/14/2011 ::  New Hershey Script   DS2 LTXC  11/14/2011 ::  New Hershey Script   DS2 LULU  11/14/2011 ::  New Hershey Script   DS2 MELI  11/14/2011 ::  New Hershey Script   DS2

MENT  11/14/2011 ::  New Hershey Script   DS2 MFL.TO  11/14/2011 ::  New Hershey Script   DS2 MGH  11/14/2011 ::  New Hershey Script   DS2 MSN  11/14/2011 ::  New Hershey Script   DS2

NDSN  11/14/2011 ::  New Hershey Script   DS2 PFCB  11/14/2011 ::  New Hershey Script   DS2 PNRA  11/14/2011 ::  New Hershey Script   DS2 PTI  11/14/2011 ::  New Hershey Script   DS2

QCOR  11/14/2011 ::  New Hershey Script   DS2 QLTY  11/14/2011 ::  New Hershey Script   DS2 REDF  11/14/2011 ::  New Hershey Script   DS2 RVBD  11/14/2011 ::  New Hershey Script   DS2

SCSS  11/14/2011 ::  New Hershey Script   DS2 SF  11/14/2011 ::  New Hershey Script   DS2 SFLY  11/14/2011 ::  New Hershey Script   DS2 SHS  11/14/2011 ::  New Hershey Script   DS2

SPRD  11/14/2011 ::  New Hershey Script   DS2 SVVS  11/14/2011 ::  New Hershey Script   DS2 TLEO  11/14/2011 ::  New Hershey Script   DS2 TPX  11/14/2011 ::  New Hershey Script   DS2

UA  11/14/2011 ::  New Hershey Script   DS2 UTEK  11/14/2011 ::  New Hershey Script   DS2 VSEA  11/14/2011 ::  New Hershey Script   DS2


Modified ... November 14, 2011 © Guy R. Fleury. All rights reserved.

Alpha Project