Stock Analysis Talk

I have found this articles that I feel is worthy of posting here at Stock Analysis Talk.  It is an article from Caprock Analytics.  They have interesting content of their site, and I advise you to take a look.

Every trading system has its components of determination.  Simply put, it is the components of information that a trading system makes it decisions.  There are two basic classes of components, technical and fundamental data.  Both can provide strong information toward trading decisions.  There are a couple of hundred different technical indicators and a fair size group of fundamental indicators, and I have found no single indicator that provides an adequate trading system.  Adequate, of course, is all in the eyes of the person assessing its effectiveness.

It is possible to form combinations of the various indicators to derive trading signals, but in many cases it just makes the water muddy not giving clear signals.  The components of determination are not important if a given trading system is low risk and high in successful trades.  Many system boast high gains, but their percent of winning trades hovers around 50%.  As the components used become better, the pieces start to come together to allow a trading system with low risk, high gain, and high percent of winning trades.  It may not be evident as to what components of determination are used in a trading system, but the system’s performance should be obvious in the information that describes it such as gain potential, loss potential, and risk.  Beware, if this sort of information is not available to describe the system’s performance.

I have found this article that I feel is worthy of posting here at Stock Analysis Talk.  It is an article from Caprock Analytics.  They have interesting content on their site, and I advise you to take a look.

It doesn’t take a trading system to measure the market strength, but it might be beneficial if the trading system used this measurement in its decision-making.  Market strength can be many things, but you like to have something that doesn’t represent a big time lag.  Many people use various moving averages to represent market strength.  There are also various technical indicators that can give some relevance to market strength.  The most desired strength indication would be an accurate predictive technical indicator.  That, of course, is quite hard to produce.  As was stated in a previous section, most trading systems work well in only one type of the three types of market.  Therefore, if a trading system has a short time-lag market strength indication, it could be more adaptive and work better across the three types of markets.

Market strength could be view as the upward or downward strength of the market.  Maybe it is the upward or downward trend of the market.  Maybe it is the economic strength and investor confidence.  Maybe it is all of the above.  The real answer is any strength indication that reduces the trader’s risk.  Therefore, once again, a predictive strength indication that is reasonably accurate would indeed reduce the trader’s risk.

I have found this article that I feel is worthy of posting here at Stock Analysis Talk.  It is an article from Caprock Analytics.  They have interesting content on their site, and I advise you to take a look.

Measuring risk is a complicated business at best.  Everybody has a variety or different methods of measuring risk.  You can read all the books and articles, and be left with confusion as to what is a good method of doing this.  It is not know what the right answer is, but some of the ways of assessing risk need to be addressed.  Drawdown is used in some of the methods to develop a risk to reward type of measurement.  This is a fairly good measurement of the trading system’s performance, but this ratio probably shouldn’t be a linear relationship.  Another method used is to determine the volatility.  Volatility is really a measure of a security’s past performance, but how well a trading system deals with this volatility can be a good measurement of risk.  A measurement of the trading system performance in gains compared to various market indexes can give yield some risk assessment if a gain loss ratio is derived, but just because a system beats the market does not make it a good system.  A large amount of portfolio management systems and fund performances are compared to the S&P 500 Index performance.  Just because you loose less then the index does not make everything all right.  The goal is to make money, not loose less then something else.

Some combination of the first two methods, drawdown verses gain and the volatility / performance, could be combined to yield a risk that is meaningful to the user of a trading system.