COPYRIGHTED MATERIAL. Index

Size: px

Start display at page:

Download "COPYRIGHTED MATERIAL. Index"

Jerome Ward
5 years ago
Views:

Index A Accuracy of data, 117 Adaptive moving averages, 19 ADX, see Average directional movement index Aesop, 1 Alcott, Louisa May, 163 Anti-Martingale strategy, 168, 169 Appel, Gerald, 27 Aristotle,

1 Index A Accuracy of data, 117 Adaptive moving averages, 19 ADX, see Average directional movement index Aesop, 1 Alcott, Louisa May, 163 Anti-Martingale strategy, 168, 169 Appel, Gerald, 27 Aristotle, 189 Asset classes: data analysis by, trending, Average directional movement index (ADX), Bollinger bands with, DMI with, 57, 58 Averaging down, B Backtesting, 48, for data integrity, and same-day profit target/stop loss, Bad data, 117 Behavioral finance, 1 Benchmarking, 123 Body-mind interaction, Bollinger, John, 36 Bollinger bands: with ADX filter, and Ichimoku three moving average crossover, 61 mean reversion systems, and moving average convergence/divergence indicator, 62 trend-following systems, with 200-day moving average filter, Breakeven syndrome, 68 Breakouts: Bollinger band, 60 channel, 30 31, 59 60, false, 19 The Budda, 87 C CCI, see Commodity channel index Channel breakout: nth period (Donchian s), for trend-following swing trading, in trend-following systems, Collins, Art, 59 Comfortable trading, 3 Commodity channel index (CCI), slow stochastics extremes with, slow stochastics extremes with time exit and, 83 85, COPYRIGHTED MATERIAL 207

2 208 INDEX Conflict, internal, 193 Confucius, 177 Consciousness, evolution of, Consecutive losses, 161 Consistency, 195, 196 Contract size, Contrarian investing, 16, 17 Corrections, 8 9 Correlation history, 172 Countertrend reversals, 8 9 CQG programming code: for Bollinger band breakout system, 60 for Bollinger bands with ADX filter, for Bollinger bands with 200-day moving average, for channel breakout, 59 for directional movement indicator, for DMI with ADX, 58 for Ichimoku three moving average crossover, 54 for Ichimoku two moving average crossover, 2 for MACD stop and reverse, 55 for RSI crossover, for RSI with 20-day moving average filter, 75, 76 for seven-period reversal, for slow stochastics extremes with CCI, for slow stochastics extremes with CCI and time exit, for three moving average crossover, 53 for two moving average crossover system, Cumulative losses, 171 Curve fitting, Cutting losses, Cutting profits, D Data analysis process, by asset classes, out-of-sample, year-by-year in-sample, Data curve fitting, 124, 125 Data integrity, 44 48, , 149 Day trading, 101. See also Short-term systems mean reversion with trendfollowing filter, nondirectionally biased mean reversion, 113 Design, Testing and Optimization of Trading Systems (Robert Pardo), 125 Differential oscillators, 34 Directional movement indicator (DMI), 27 28, Discipline, 85 86, , 195 Discretion, mechanical, and paradigm shirts, and price shock events, 186 pros and cons of, 188 and volatility, Diversification, mechanics of, of parameter sets, psychology of, types of, 177 DMI, see Directional movement indicator Donchain s channel breakout, 30 31, 59 Donchian, Richard, 30 Dow Jones Industrial Average, Drawdowns, 175 duration of, 160 maximum drawdown duration, 49 profit to maximum drawdown, 50, 62, 67, 161

3 Index 209 worst peak-to-valley, 48, Dualism, 197 Duration: of drawdowns, 160 of trades, 119, 159 E Emerson, Ralph Waldo, 41 Emotionalism, 5, 17 18, 192, 193, 196 Enlightenment, 197 Entering trades: basic questions about, control over point for, 163 data integrity and price level for, psychology of, 2 random entry signals, 164 Equalized continuation price series charts, Euphoria, 195 Evolution of consciousness, Exiting trades, 2 3 basic questions about, data integrity and price level for, with losses, 86 Expected return, 160 F Fading, 22, 23, 87 False breakouts, 19 Fear, minute bar systems, hour moving average filter, relative strength index with, period moving average, 26 Filters, 63 Bollinger bands with ADX filter, Bollinger bands with 200-day moving average filter, intermediate-term mean reversion with trend-following filter, mean reversion day trading with trend-following filter, mean reversion swing trading with trend-following filter, 111 RSI with 20-day moving average filter, 75, 76 RSI with 50-hour moving average filter, 99 RSI with 400-hour moving average filter, 92 RSI with 100-hour moving average filters, RSI with hour moving average filter, RSI with 200-day moving average filter, RSI with 200-hour moving average filter, slow stochastics extremes with CCI filter and time exit, 83 85, minute bar systems, 99, 100 Fixed fractional money management, 169 Flat time, 159 Flexibility, hour moving average filter, relative strength index with, 92 Futures contracts, G Galileo, 115 Greed, 195 Guaranteed return of principal investments, 164 H Heteroskedasticity, 158 Hilltops, performance, 148

4 210 INDEX Historical data: as basis for system development, 115, 119 percentage changes in, performance, 125 for value at risk, 170 I Ichimoku Kinkou Hyou, 26 Ichimoku three moving average crossover, 54 55, 61 Ichimoku two moving average crossover, 52 Illiquidity, Inconsistency, 195 Indicators, see Technical indicators Indicator-driven triggers, definition of, 9 moving averages, psychological significance of, 9, 10 simple moving averages, 18 volume-adjusted moving averages, 18 Inefficient market, myth of, 1 2 Integrity: data, 44 48, , 149 system, 119, Intermediate-term trader psychology, 6, 182 for mean reversion with trendfollowing filter, for trend following, Intermittent losses, 161 Internal conflict, 193 Interpretive technical indicators, 4 Intraday slippage, 88 Intuition, psychic trader syndrome vs., J Journaling, 192 L Lambert, Donald, 37 Lane, George, 32 Leptokurtic markets, 10 Liquidity: risk, liquidity, 159, 164, 172 in short-term systems, Locked limit, 118, 172 Long-term traders, 6 Long-term trader psychology, Long view of trading, 192 Losses: cumulative, 171 cutting, exiting trades with, 86 intermittent vs. consecutive, 161 probability of, 170 Loss limits, 65 M MACD, see Moving average convergence/divergence indicator Markets: for backtesting, 43 higher truth of, irrationality of, 1 2 leptokurtic, 10 paradigm shifts in dynamics of, , paradoxical nature of, and transformational growth, 190 Market corrections, 8 9 Martingale strategy, Mathematical technical analysis, Donchian s channel breakout, mean reversion indicators, 17 18, 31 39

5 Index 211 price-triggered trend following indicators, trend-following indicators, and types of technical indicators, Mathematical technical indicators, 4, 6 Maximum consecutive losses (MCL), 49 50, 160 Maximum drawdown duration (MDD), 49 MCL, see Maximum consecutive losses MDD (maximum drawdown duration), 49 Mean reversion, 10 Mean reversion indicators, 17 18, Bollinger bands, commodity channel index, differential oscillators, 34 momentum oscillators, oscillators, 31 percentage oscillators, rate of change, relative strength index, statistical oscillators, 35, 36 stochastics, success of, 17 Mean reversion systems, day trading with trend-following filter, with 30-minute bars, with 60-minute bars, nondirectionally biased, psychological profile of traders in, results of trend-following systems vs., 73 same-day profit target and stop loss, stop losses, 74 swing trading with trend-following filter, 111 swing trading with 2-hour bars, 92 trader psychology for, trend-following, Mechanical discretion, Mechanical trading systems, 5 6 benefits of, 116 definition of, 5 pitfalls of, in price risk management, Momentum oscillators, Moving averages, convergence/divergence, percentage penetrations of, simple, 4, 5, 18 theory behind, 4 5 time-driven confirmation patterns, trade-offs with, 19 two and three moving average crossovers, volume-adjusted, 18 Moving average convergence/divergence indicator (MACD), 26 27, and Bollinger bands, 62 with profit exit, Moving average crossover: Ichimoku three moving average crossover, Ichimoku two moving average crossover, 52 three, two, Moving average envelope, Myths, 1 3 N Natural trading, 3 Nearest futures charts, 44, 45

6 212 INDEX The New Market Wizards (Jack Schwager), 164 Nonattachment, 195, 197 Nondirectionally biased mean reversion systems, 81 85, day trading, 113 swing trading, 112 Non exchange-traded instruments, 117 Number of days, 49 Number of trades, 49 Nymex, 6, 7 O Oil futures market, hour moving average filters, relative strength index with, Optimization, avoiding pitfalls in, benefits of, definition of, 122 limited utility of studies on, 123 mechanics of, , 148 two moving average crossover system study, Oscillators, Bollinger bands, commodity channel index, momentum, percentage, rate of change, relative strength index, statistical, 35, 36 stochastics, Outliers, Out-of-sample data analysis, Out-of-sample studies, P Parabolic, Paradigm shifts: in consciousness, 197 definition of, and discretion, in market dynamics, Paradox, 189 Parameter curve fitting, Parameter sets: choice of, 127, 148 diversification of, profit spike, 148 testing of, Pardo, Robert, , 125, 148 Pascal, Blaise, 187 Patience, 87 Peak-to-valley drawdowns, 48, 160, 165 Percentage changes in data history, point value vs., Percentage oscillators, Percentage penetrations (moving averages), Percent winners, 50 Perfect trader syndrome, 85, 195 Performance forecasting, 116 Performance history, 159 Periods, 12 Per-position exposure: limiting, and psychology of risk, 174 Personality types, 41. See also Trader psychology and changes in trading systems, 182 traits sabotaging success, Philosophy statements, trading system, P:MD, see Profit to maximum drawdown Point-based back-adjusted data series charts, 45, Portfolios: backtested, 48, 118 composition of, Portfolio results tables, 48 50

7 Index 213 Prices, Price risk management, mechanical trading systems in implementation of, in philosophy statements, 160 psychology of, schools of, stop-loss, stress testing, 173 value at risk, volumetric, Price shock events, 186 Price triggers: psychological significance of, 6 9 as trend following indicators, Probability of loss, 170 Profits, cutting, Profit spikes, 148 Profit to maximum drawdown (P:MD), 50, 62, 67, 161 Programming code, 121. See also CQG programming code Psychic trader syndrome, intuition vs., Psychological significance: of indicator-driven triggers, 9, 10 of price triggers, 6 9 Psychology. See also Trader psychology of diversification, of price risk management, Pullbacks, 8 Q Quantification of risk/reward, 116 Quick-mindedness, 101 R Random entry signals, 164 Random walk theory, 190 Rate of change (ROC), Reality, nonlinear nature of, 189 Refco, 164 Relative strength index (RSI), 12 13, crossover, crossover with stops and profit exits set to 1 percent, 98 with 50-hour moving average filter, 99 with 400-hour moving average filter, 92 with 100-hour moving average filters, with hour moving average filter, with 200-day moving average filter, with 200-hour moving average filter, Reprogramming process, 116 Resonance, 196 Retracements, 8 Reversals: countertrend, 8 9 seven-period, Reward, quantification of, 116 Risk: liquidity, 159, 164, 172 price risk management, quantification of, 116 Risk Management (Crouhy, Galai, and Mark), 164 ROC, see Rate of change Rothschild, Baron, 73 RSI, see Relative strength index Rule-following, S Sabotage of success, Same-day profit target and stop loss, SAR, see Stop and Reverse Scenario analysis, 173 Schwager, Jack, 123, 164

8 214 INDEX Schwager on Futures: Technical Analysis (Jack Schwager), 123 Self-fulfilling prophecy, technical analysis as, 9 Self-knowledge, Self-mastery, 196 Self-worth, Serial independence assumption, 171 Seven-period reversal, Shakespeare, William, 105 Shantideva, 197 Sharpe ratio, 160, 161 Short-term systems, backtested results, and fading of losing systems, minute bar systems, 99 5-minute bar systems, 99, 100 labor-intensive nature of, and liquidity/volatility, mean reversion systems with 30- minute bars, mean reversion systems with 60- minute bars, nondirectionally biased mean reversion systems, psychological profile of traders in, swing trading with 2-hour bars, Short-term traders, 6 Short- to intermediate-term nondirectionally biased mean reversion, 110 Sideline regret/remorse syndrome, 68 Simple moving averages, 4, 5, 18 Single-mindedness, hour moving average filter, relative strength index with, minute bars, mean reversion systems with, Slippage, 88, 117, 172 Slow stochastics extremes: with CCI filter and time exit, 83 85, with commodity channel index, Software, xiv Somatic practices, 191 Spot-checking process, 121 Standard deviation, 35, Statistical oscillators, 35, 36 Stochastics, Stock market crash of 1987, 9 Stop and reverse (SAR), 24, Stop losses, 74, Stop-loss price risk management, Stress testing, 166, 173 Stridsman, Thomas, Success, personality traits sabotaging, Sun Tzu, vii, 15 Swing trading: with 2-hour bars, mean reversion with trendfollowing filter, 111 nondirectionally biased mean reversion, 112 System development and analysis, benefits of mechanical trading systems, 116 data analysis process, data integrity, limitations of process, and measurement of system performance, optimization process, out-of-sample studies, pitfalls of mechanical trading systems, system integrity, 119, and trading system philosophy statements, System integrity, 119,

9 Index 215 System performance, measurement of, T Technical analysis: basic precept in, 4 definition of, 3 5 goal of, 3 4 and irrationality of markets, 1 2 mathematical, see Mathematical technical analysis reasons for success of, 6 10 as self-fulfilling prophecy, 9 Technical indicators: interpretive, 4 mathematical, 4, 6 mean reversion, 17 18, trend-following, types of, Tharp, Van, Theory checking, minute bars, mean reversion systems with, Three moving average crossovers, 23 26, Time-driven confirmation patterns, Time frames, 6, 119. See also specific time frames Time percentage, 50 Total net profit, 49 Traders, short-, long-, and intermediate-term, 6 Trader psychology, See also Transformational psychology for entering trades, 2 for exiting trades, 2 3 for intermediate-term mean reversion with trend-following filter, for intermediate-term trend following, for intermediate to long-term trend-following systems, for long-term trend-following systems, for market corrections, 9 for mean reversion day trading with trend-following filter, for mean reversion swing trading with trend-following filter, 111 for mean reversion traders, for nondirectionally biased mean reversion day trading, 113 for nondirectionally biased mean reversion swing trading, 112 for short-term traders, for short- to intermediate-term nondirectionally biased mean reversion, 110 and success in trading, 2 transformational, see Transformational psychology for trend-following swing trading, for trend-following traders, 16, and use of trend following indicators, 17 Trader school of price risk management, 166 Trade Your Way to Financial Freedom (Van Tharp), Trading philosophy, 159 Trading systems, See also System development and analysis; specific types backtested portfolio results, 48 composition of portfolios, data integrity, entry and exit level questions, equalized continuation price series charts, 45 47

10 216 INDEX Trading systems (continued) expected performance results for, 123 integrity of, 119, nearest futures charts, 44, 45 personality and changes in, 182 point value vs. percentage changes in data history, portfolio results tables, Trading system philosophy statements, Transformational psychology, discipline, flexibility, intuition vs. psychic trader syndrome, personality traits sabotaging success, and process of transformation, self-knowledge, single-mindedness, Transparency, 117 Trends, Trend-following indicators, average directional movement index, directional movement indicator, Donchain s channel breakout, moving average convergence/divergence, moving averages, price-triggered, day simple moving average as, Wilder s parabolic (stop and reverse), Trend-following mean reversion systems, Trend-following swing trading, Trend-following systems, 41 42, Bollinger bands, channel breakout, comparisons of indicators, cutting losses, cutting profits, DMI, DMI with ADX, 57, 58 filters, 63 Ichimoku three moving average crossover, Ichimoku two moving average crossover, 52 MACD, psychological profile of traders in, results of mean reversion systems vs., 73 swing trading with 2-hour bars, three moving average crossover, trader psychology for, trending asset classes, two moving average crossover, Trending asset classes, Triggers: indicator-driven, 9, 10, price, 6 9, hour bars, swing trading with, day simple moving average, day moving average filter: Bollinger bands with, 79 80

11 Index 217 relative strength index with, hour moving average filter, relative strength index with, Two moving average crossovers, 23 26, Ichimoku, 52 optimization study of, V Value at risk (VaR), 166, Volatility: analyzing increases in, 158 and discretion, in short-term systems, Volume-adjusted moving averages, 18 Volumetric price risk management, W Walk-forward studies, see Out-ofsample studies Weighted moving averages, 18, 19 Whipsaws, 19 Wilder, Welles, 12, 27, 57 Wilder s parabolic, Worst peak-to-valley drawdowns, 48, 160, 165 Y Year-by-year in-sample data analysis, Z Zen Buddhism, 189

Level I Learning Objectives by chapter

Level I Learning Objectives by chapter 1. Introduction to the Evolution of Technical Analysis Describe the development of modern technical analysis Describe the origins of technical analysis 2. A New Age