Fisher Transform - a sample size problem? - NinjaTrader Programming | futures io social day trading
futures io futures trading


Fisher Transform - a sample size problem?
Updated: Views / Replies:7,400 / 16
Created: by drolles Attachments:5

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 90,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors Ė all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you donít need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

Reply
 5  
 
Thread Tools Search this Thread
 

Fisher Transform - a sample size problem?

  #1 (permalink)
Elite Member
London, UK
 
Futures Experience: Beginner
Platform: TradeLink, OpenQuant, considering anything that works...
Favorite Futures: if it trades...
 
Posts: 94 since Oct 2010
Thanks: 24 given, 38 received

Fisher Transform - a sample size problem?

Hi,

Iím wondering if anyone has had any experience trading John Ehlersís interpretation of the Fisher Transform?

Iíve built and backtested a simple trading strategy around this and Iím a bit confused. Iíve done an optimisation on this and it appears that shorter look back periods of the channel length perform better. The strategy appears to perform better with shorter lookback periods. Does this pose a sample size problem? Basic statistics tells us we need a sample size of above 30 to be valid. Iíve included an optimisation result from which optimises on Expectancy (Optimizer Type: Max. Expectancy - NinjaTrader Support Forum) while adjusting the target values of channel look back and Fisher Transform threshold value to target mean revision on a set of FX crosses. Here we show the Profit Factor as the performance measure (y axis) with the channel look back on the x-axis and threshold value on the z-axis.

My (very much conjecture here) explanation is that once the channel size gets too long, the threshold value no longer reflects the current market action. Iíve realised that there is no weighing to the most recent bars.

Kind regards,

drolles

Attached Thumbnails
Fisher Transform - a sample size problem?-f-transform-optimised-values.jpg  
Reply With Quote
 
  #2 (permalink)
Quick Summary
Quick Summary Post

Quick Summary is created and edited by users like you... Add FAQ's, Links and other Relevant Information by clicking the edit button in the lower right hand corner of this message.

 
  #3 (permalink)
Elite Member
Berlin, Europe
 
Futures Experience: Advanced
Platform: NinjaTrader, MultiCharts
Broker/Data: Interactive Brokers
Favorite Futures: Keyboard
 
Fat Tails's Avatar
 
Posts: 9,651 since Mar 2010
Thanks: 4,226 given, 25,599 received
Forum Reputation: Legendary


Could you give more details on your strategy, or eventually post it, as it is simple.

Sample size and curve fitting are frequent problems.

Reply With Quote
 
  #4 (permalink)
Elite Member
Near the BEuTiFULL Horse Shoe
 
Futures Experience: Beginner
Platform: NinjaTrader
Broker/Data: MBTrading Dukascopy ZenFire
Favorite Futures: $EURUSD when it is trending
 
Trader.Jon's Avatar
 
Posts: 500 since Jul 2009
Thanks: 401 given, 176 received


drolles View Post
Hi,

Iím wondering if anyone has had any experience trading John Ehlersís interpretation of the Fisher Transform?

.. and it appears that shorter look back periods of the channel length perform better. ..
My (very much conjecture here) explanation is that once the channel size gets too long, the threshold value no longer reflects the current market action. Iíve realised that there is no weighing to the most recent bars.

Kind regards,

drolles

I have not done more than backtest, and the FisherTransform (NT native version) is only part of the conditions for entry: based on that, I have found with 4 range bars and with FT periods of 7 to 11 a fairly common optimization result, though I have had a maximum of 22 when I used it as a longer values filter. Only trying EURUSD .

My analysis is no where as extensive as your use of other than NT tools. With regards to optimization, I have also been using (a derivative of) expectancy with the PH Genetic. 30 results is 30 results. My strategy tends to average 7 entries @3 targets per, perday. So I dont have 30 per day either if that is what you are speculating about.

TJ

Writing to you from the wonderful province of Ontario, Canada. Home to the world's biggest natural negative ion generator, the Niagara Falls, and to those that dare to know how to go over it in a barrel. SALUTE!
Reply With Quote
The following user says Thank You to Trader.Jon for this post:
 
  #5 (permalink)
Elite Member
Singapore
 
Futures Experience: Intermediate
Platform: NinjaTrader, Sierra Charts
Broker/Data: Thinkorswim, IQFeed
Favorite Futures: Options of SPY, IWM, QQQ
 
wccktrader's Avatar
 
Posts: 47 since Nov 2010
Thanks: 54 given, 141 received

Fisher Transform


drolles View Post
Hi,

Iím wondering if anyone has had any experience trading John Ehlersís interpretation of the Fisher Transform?

Iíve built and backtested a simple trading strategy around this and Iím a bit confused. Iíve done an optimisation on this and it appears that shorter look back periods of the channel length perform better. The strategy appears to perform better with shorter lookback periods. Does this pose a sample size problem? Basic statistics tells us we need a sample size of above 30 to be valid. Iíve included an optimisation result from which optimises on Expectancy (Optimizer Type: Max. Expectancy - NinjaTrader Support Forum) while adjusting the target values of channel look back and Fisher Transform threshold value to target mean revision on a set of FX crosses. Here we show the Profit Factor as the performance measure (y axis) with the channel look back on the x-axis and threshold value on the z-axis.

My (very much conjecture here) explanation is that once the channel size gets too long, the threshold value no longer reflects the current market action. Iíve realised that there is no weighing to the most recent bars.

Kind regards,

drolles

It appears from my backtesting/optimization with Fisher Transform that it works better with daily bars (lookback periods of 5 to 10) than with intraday bars. Perhaps John Ehlers had designed the indicator based on the daily bars.

Reply With Quote
 
  #6 (permalink)
Elite Member
London, UK
 
Futures Experience: Beginner
Platform: TradeLink, OpenQuant, considering anything that works...
Favorite Futures: if it trades...
 
Posts: 94 since Oct 2010
Thanks: 24 given, 38 received

All,

Thanks very much for your replies.

Iíll try to consolidate answers and replies into this reply so I can cover everyoneís feedback, thanks again for those whom have replied.

Sample size
To clarify here, I wasnít referring to a sample size problem with regards to trades or strategy validation. Iíve got intra-day data on some of the FX crosses going back to 2003, Iím able to generate enough trades to be confident in the strategy itself. It appears to be consistent. Given it is a mean revision strategy unsurprisingly it does not do as well during the financial crisis years late 2006 Ė 2008 on FX and probably on Equities as well. However, if you model it across a portfolio of reasonable crosses Ė focusing generally on majors Ė it appears to hold up relatively well.

Therefore, with regards to sample size Iím not concerned on that front. My backtests to date generate somewhere over 1000 trades. Iím not concern about sample size in that respect.

My concern around sample size was specifically on the Fisher Transform indicator. The default setting in 10 if you load it in NinjaTrader. Given the indicator relies on the building of a PDF (Probability Distribution Function Ė see the link to the actual paper below) , I would have thought that the PDF would require a look back length of at least 30 to be statistically valid. Just surmising here, one could argue that there is more information than just than the close (i.e. Open, Low and High) prices in the channel defined by the look back period therefore the PDF could well be valid. However, the immediate counter argument is that this data, while it exists, is not being modelled by the indicator.

Curve fitting
Iím not too concern on this front. The strategy is very simple and the selection of the time frame was fairly random. As you can see the optimisation values are positive across a relatively wide range of results. And the strong results do not appear random Ė they are clustered around the same values. In fact Iím relatively impressed with the Profit Factor of the strategy that is relatively ďout of the boxĒ with very little tweaking hence my interest in it. I think if you look to improve the trade management above a standard mean revision model (possibly turning to short-term trend following after the revision) you might well be able to improve the strategy considerably.

The trading strategy
The trading strategy is, for all intense and purposes, detailed by John Ehlers here: http://www.mesasoftware.com/Papers/USING%20THE%20FISHER%20TRANSFORM.pdf. This is an excellent paper well written and structured.

It is a mean revision strategy using entry trigger where the Fisher Value is over a certain threshold Ė positive or negative. My implementation is a little different to Ehlers. Iím not filtering through a RSI. I am using price. I did test the RSI version, however, it came back with a lower Profit Factor and Expectancy. It did appear to have a smoother equity curve though Ė i.e. handled adverse periods a little better.

The outright (as opposed to relative) mean revision strategies are all similar. For further reference you might want to see my earlier post on Stridsmanís Meader strategy - https://futures.io/vendors-commercial-product-reviews/7872-meander-system-any-luck.html. Also a cross post on the Trade2Win forum and the replies there: Meander System - any success stories? | Trade2Win Forums.

Look back for the FT
Thanks for those that shared their optimisation and backtest results. Thatís good news that we have found similar results. As you can see that the optimisation values cluster around the same values that have resulted from your backtests. I also take the news that you have been varying the timeframes and seeing the same results as good news. That means we have found the same artefact across multiple timeframes. Weissman in his book Mechanical Trading Systems (Mechanical Trading Systems: Pairing Trader Psychology with Technical Analysis Wiley Trading: Amazon.co.uk: Richard L. Weissman: Books) gives an interesting take on the time frames that are mean reverting for various instruments Ė see P 91. This appears to fit with the testing done with this strategy.

FX vs Equities
Iím assuming that you both have worked on FX Ė Trader.Jon mentions EURUSD. Have you done any testing on Equities? In his example Ehlers uses the Emini to model the S&P 500 (see link to paper above). Iíve done some very rough and ready testing on Equities (Dow 30) and at first pass the strategy appears to be relatively strong when operated across a portfolio. My modelling of equities was on intra-day data. More testing required here in this respect Ė e.g. correlation of trading dates / times for risk analysis would be one area of immediate concern Ė very high correlation of returns and volatility within the DOW30 could increase your risk exposure greatly if more than a couple of trades are opened across instruments at one time.

Backtest results
Iíve attached backtest results for a portfolio of currencies modelled with a starting value of 50,000 on 01/01/2003 and using a Fixed Fractional position sizing methodology with 1% risk per trade. It can be improved very quickly by taking a look at the constituents of the portfolio and analysing the crosses that are consistently unprofitable. I feel that one can build a fundamental story around the crosses that are unprofitable Ė they are very disconnected economies with very different interest rates. The crosses that are profitable are those where the USD is very dominate or that the economies are tightly integrated and alike e.g. USDCAD.

Thanks and regards,

drolles

Attached Thumbnails
Fisher Transform - a sample size problem?-old-port-equity-curve.jpg  
Reply With Quote
The following 3 users say Thank You to drolles for this post:
 
  #7 (permalink)
Elite Member
Near the BEuTiFULL Horse Shoe
 
Futures Experience: Beginner
Platform: NinjaTrader
Broker/Data: MBTrading Dukascopy ZenFire
Favorite Futures: $EURUSD when it is trending
 
Trader.Jon's Avatar
 
Posts: 500 since Jul 2009
Thanks: 401 given, 176 received

Thanks for the further detail ... I have only tested out on EURUSD and have not considered any other instrument for the moment.

The graph in your first post .. is that Mathlab or Xcel or ??

Jon

Writing to you from the wonderful province of Ontario, Canada. Home to the world's biggest natural negative ion generator, the Niagara Falls, and to those that dare to know how to go over it in a barrel. SALUTE!
Reply With Quote
 
  #8 (permalink)
Elite Member
London, UK
 
Futures Experience: Beginner
Platform: TradeLink, OpenQuant, considering anything that works...
Favorite Futures: if it trades...
 
Posts: 94 since Oct 2010
Thanks: 24 given, 38 received


Trader.Jon View Post
Thanks for the further detail ... I have only tested out on EURUSD and have not considered any other instrument for the moment.

The graph in your first post .. is that Mathlab or Xcel or ??

Jon

Jon,

It is Excel 2007. I graphed the output of a Pivot Table.

Kind regards,

drolles

Reply With Quote
 
  #9 (permalink)
Elite Member
Singapore
 
Futures Experience: Intermediate
Platform: NinjaTrader, Sierra Charts
Broker/Data: Thinkorswim, IQFeed
Favorite Futures: Options of SPY, IWM, QQQ
 
wccktrader's Avatar
 
Posts: 47 since Nov 2010
Thanks: 54 given, 141 received

Fisher Transform

I have backtested it for US equities. As the indicator is based on price distribution (pdf), it does a good job in finding cyclical turning points. It is also less sensitive to the lookback period as compared to other momentum indicators such as RSI, CCI and Stochastic. Such indicator would work well if their lookback periods are in-sync with actual cycle period of the market. However, they often give poor results when the actual cycle period of the market changes. I suppose this is one of the reasons for their poor walk forward testing results.

Reply With Quote
 
  #10 (permalink)
Elite Member
Near the BEuTiFULL Horse Shoe
 
Futures Experience: Beginner
Platform: NinjaTrader
Broker/Data: MBTrading Dukascopy ZenFire
Favorite Futures: $EURUSD when it is trending
 
Trader.Jon's Avatar
 
Posts: 500 since Jul 2009
Thanks: 401 given, 176 received



drolles View Post
Jon,

It is Excel 2007. I graphed the output of a Pivot Table.

Kind regards,

drolles

Do you have a specialized workbook for doing that directly out of NT? I have a feeling that is only a small part of what you have done in terms of analysis.

Jon

Writing to you from the wonderful province of Ontario, Canada. Home to the world's biggest natural negative ion generator, the Niagara Falls, and to those that dare to know how to go over it in a barrel. SALUTE!
Reply With Quote

Reply



futures io > > > > > Fisher Transform - a sample size problem?

Thread Tools Search this Thread
Search this Thread:

Advanced Search



Upcoming Webinars and Events (4:30PM ET unless noted)

Linda Bradford Raschke: Reading The Tape

Elite only

Adam Grimes: TBA

Elite only

NinjaTrader: TBA

January

Ran Aroussi: TBA

Elite only
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
ACD trading By Mark Fisher incometrade Traders Hideout 519 December 1st, 2016 02:55 PM
Fisher for NT7 zt379 NinjaTrader Programming 39 September 15th, 2015 07:40 AM
Profitability Sample Size Units westgawolf Psychology and Money Management 5 June 6th, 2011 09:00 PM
Ask Size, Bid Size, Delta zury Investor/RT 2 May 9th, 2011 09:09 AM
putting bid size and ask size on the Market Analyzer trivto57 NinjaTrader Programming 4 June 4th, 2010 08:00 AM


All times are GMT -4. The time now is 11:35 AM.

Copyright © 2017 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432, info@futures.io
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts
Page generated 2017-12-11 in 0.16 seconds with 20 queries on phoenix via your IP 54.82.81.154