What do you think of MrM's system

[Karel]

... And so do you personally cut your losses short at say a 15% loss? I don’t think you finished b)

I left that open to the reader

You could apply several sell strategies, f.i. dropping revenue/earnings. Fixed percentage stops seem to hurt the returns (search for "wimps" on this forum to find the thread "Stops are for wimps").

In my two marketocracy portfolios I use two different sell strategies. The first just sells after 6 weeks (this is more to check the stock universe than a real strategy), the second (the one I report here) looks at the weekly close of a stock. I start with the buy price as reference. If the weekly close is 5% higher than the reference, it becomes the new reference. If the reference doesn't change in 3 months, the stock is sold.

Regards,

Karel

[skiracer]

Well, well, I was just posting with ski at the "dealing with a recession" thread and I came across this VERY INTERESTING paper about a project (an academic exercise, basically) to find an automated way to find and act on ETF arbitrage opportunities in the DIA (diamond) ETF security. The paper says that the project developed a neural network application to address the situation.

http://www.kellogg.northwestern.edu/faculty/jagannathan/teaching/practicum/2004/files/Final-Reports/ETF%20Arbitrage%20.pdf

For the period Jan 1, 2002 to May 5, 2004, the team found that there were in fact 19 instances of at least a $0.35 spread, either positive or negative, between the NAV of the DIA and the underlying basket of shares. They had determined that this spread level provided the minimum attractive opportunity for arbitrage, based on the current prevailing cost structure for conducting ETF arbitrage activity. The team tried using a few conventional predictive techniques (linear regressions against each of several conventional trade activity parameters as independent variables) but they failed to usefully predict the occurrences. They next tried developing and training a four-layer neural network system. The system was able to accurately predict and identify a qualifying spread situation over the data set for the chosen time period.

The paper lost me when it described the mathematical functions programmed into certain of the NN nodes ("neurons"). The NN technology uses a feedback mechanism and "convergence to goal" rules to find the combination of (in this particular application, nonlinear) functions that achieve the system's goals (a desired degree of predictive accuracy of the occurrences in the dataset of the minimal acceptable ETF arbitrage criteria). Training this model required 100 to 200 iterations. The team had split the time series data (covering the identified time period mentioned earlier) and used the first half of that data to train the system, then used the second half of the data to test the system.

It is very complicated to anyone without a strong advanced math background. The site, www.traders.com, has a number of good articles in their archives that would better explain alot of the theory and working mathematics. Anything that has to do with trading interests me. Whether I can understand it enough to develope it into my strategys an use it in a positive way is another story. Decent article Park an enlightening to anyone who doesn't trade or know much about ETF's or trading them. I think the neural system is probably more suited to trading futures in money and commodities where calling the changes in trend are more significant and the trades more dependent on knowing when those changes are about to happen. Not to say that you couldn't apply the system to equities.

[peanuts]

This is becoming a bit complicated for me anyway...I've gotta a better system...Buy stocks that are gonna go up...Sell or short stocks that are gonna go down...Works pretty good IMO...Doug(IIC)

Doug, this is genius, pure genius, I tell you. Why hasn't anyone thought of this before? And to think that I was once looking for stocks to go down... thanks!

[mrmarket]

Doug, this is genius, pure genius, I tell you. Why hasn't anyone thought of this before? And to think that I was once looking for stocks to go down... thanks!

I agree with Peanuts

[billyjoe]

I agree with Peanuts

Geez, Mr.Market, it took 4 1/2 years of reflection to come up with that comment. I forgot this thread ever existed or that I posted on it. I do remember Stockgirl fondly although Riverbabe is much more impressive!

-------------billy