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We will now repeat our experiment with the 900 trend trading strategies, but this time with trades filtered by the Market Meanness Index. 900 systems experiment revisited I have been informed by readers that I committed two mistakes, or at least inaccuracies, in the previous experiment. First, I didn’t detrend the price data. Second, I used the equity curves instead of balance curves for determining the profit factor. I supposed that this would eliminate any trend bias.
The original test, repeated with the modifications, produced a wider profit factor distribution due to eliminating intermediate returns. But the outcome of the experiment was the same. The MMI experiment This is our script TrendMMI. We’re running the MMI return value through a lowpass filter that uses the same period as the MMI range. This gives us a smooth MMI value that does not jump around. This value is now used for trade filtering: trades are opened and closed only when the smoothed MMI is falling, meaning that the market has entered trending mode within the last 200 to 500 bars.
Depending on the speed of your PC, Zorro will need about 1 hour to test all systems. At the end of every system test, Zorro produces the parameter histograms. The histogram of the first one, the price smoothing filter period, looks as before because MMI was switched off during optimization. The second histogram displays the MMI range in combination with the best value from the first histogram. Using the MMI with a range of 200 and 300 makes the system in fact worse, and reduces the profit factor t0 0. However the last two MMI ranges, 400 and 500, shift the system into the profit zone.
This was just a random example, but how does the MMI affect all the other systems? The Rate column shows the percentage of successful systems, and in parentheses the difference to the percentage without MMI. We can see that the MMI increased the number of successful systems in all markets, time frames, and indicators. However the numbers are not really representative: the MMI only affected a quarter of the tested systems, but the upper quarter, so some increase in the number of profitable systems was to be expected anyway. The best systems of the experiment had some things in common: They traded with silver and used either the ALMA or the lowpass filter.
This is a surprising result, because neither silver nor ALMA and lowpass had the highest number of profitable systems. USD and the HMA or Laguerre filter are the most promising. Trend following systems using the MMI can pass White’s Reality Check. From the 10 tested smoothing indicators, ALMA produced the best results, although within a relatively small parameter range.
To do: Test more trend filters, f. To do: Create a real trading system by combining the best trend systems and adding the usual system components such as stop loss, trailing algorithm, profit lock, money management, and so on. I’ve added the scripts to the 2015 scripts collection. Please note that you’ll again need Zorro 1.