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Getting demolished this week
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Getting demolished this week

  #1 (permalink)
Trading Apprentice
Nashville, TN/USA
 
Futures Experience: Beginner
Platform: Amibroker
Favorite Futures: Stocks
 
Posts: 11 since Aug 2015
Thanks: 6 given, 5 received

Getting demolished this week

Hi all,

Just wanted to share my thoughts for week.

I'm going through probably the worst couple weeks I've had while trading a system, and worst action since oil stock plunge last October. Luckily I'm trading the system at small size right now, but just wanted to say there's nothing like seeing your trades blow up like this to make you respect risk and really understand what those drawdowns in backtesting act like in real life.

It's a mean reversion swing-trade system, and I've gotten hit with bad results in trades of MYL Mylan, SUNE SunEdison, DWA Dreamworks, OPK Opko Health, and IACI. You can look at their charts, but all are down a ton. With mean reversion system bad trades like this every once in a while, but to have them all hit at once is highly frustrating.

Most are crashing hard w/ earnings announcements(w/ exception of Mylan which was in play as a buyout).

I was wondering if anybody that trades mean reversion avoids stocks that are going into earnings? I don't control for that during backtesting (I really don't think I can), but wow - I'm trying to think about if there's a way to avoid these type situations while still getting the other benefits of the model.

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  #2 (permalink)
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  #3 (permalink)
Site Administrator
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ScaredyCat View Post
I was wondering if anybody that trades mean reversion avoids stocks that are going into earnings? I don't control for that during backtesting (I really don't think I can), but wow - I'm trying to think about if there's a way to avoid these type situations while still getting the other benefits of the model.

Of course you can control it in backtesting. The earnings calendar is public. Just retrieve the earnings calendar, go flat before earnings, and then open again post-earnings. You can evaluate it to see if holding through earnings is helping or hurting you.

You should also look more specifically at what the earnings are. A miss vs surprise, for instance, and group them into your backtest. You cannot predict the future, but you can use historical earnings info to see how a particular symbol has historically performed (miss vs surprise) and use that when deciding if you are holding through earnings.

Mike

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  #4 (permalink)
Trading Apprentice
Nashville, TN/USA
 
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Favorite Futures: Stocks
 
Posts: 11 since Aug 2015
Thanks: 6 given, 5 received

Thanks Big Mike,

Part of my limitation is likely technical. I use Amibroker, and likely don't have the programming chops to integrate an historical earnings dates for tickers w/ the software. As I'm searching the web, it sounds like Quantshare might support something like that - I may need to investigate.

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  #5 (permalink)
Site Administrator
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ScaredyCat View Post
Thanks Big Mike,

Part of my limitation is likely technical. I use Amibroker, and likely don't have the programming chops to integrate an historical earnings dates for tickers w/ the software. As I'm searching the web, it sounds like Quantshare might support something like that - I may need to investigate.

The owner of AmiBroker (Tomasz) is on the forum @prouser I am sure he can tell you how to do it in Ami.

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
Help using the forum? Watch this video to learn general tips on using the site.

If you want
to support our community, become an Elite Member.

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  #6 (permalink)
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Big Mike View Post
The owner of AmiBroker (Tomasz) is on the forum @prouser I am sure he can tell you how to do it in Ami.

Mike


You are wrong here completely. I'm not.

Tomasz J. has an ID here named amibroker.

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  #7 (permalink)
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ScaredyCat View Post
Thanks Big Mike,

Part of my limitation is likely technical. I use Amibroker, and likely don't have the programming chops to integrate an historical earnings dates for tickers w/ the software. As I'm searching the web, it sounds like Quantshare might support something like that - I may need to investigate.

You may use the ODBC plugin made by AmiBroker to achieve that. That one works for sure to connect to historical fundamental DBs.

Since I'm not Tomasz or Marcin or anyone else of AmiBroker you may go to AmiBroker and their support channel for more.

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  #8 (permalink)
Trading Apprentice
Nashville, TN/USA
 
Futures Experience: Beginner
Platform: Amibroker
Favorite Futures: Stocks
 
Posts: 11 since Aug 2015
Thanks: 6 given, 5 received


prouser View Post
You may use the ODBC plugin made by AmiBroker to achieve that. That one works for sure to connect to historical fundamental DBs.

Since I'm not Tomasz or Marcin or anyone else of AmiBroker you may go to AmiBroker and their support channel for more.

prouser, thanks for the heads up. I'm kindof afraid to post on the ami forum, so this is appreciated. I was unaware of this functionality. Will investigate.

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  #9 (permalink)
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ScaredyCat View Post
Hi all,

Just wanted to share my thoughts for week.

I'm going through probably the worst couple weeks I've had while trading a system, and worst action since oil stock plunge last October. Luckily I'm trading the system at small size right now, but just wanted to say there's nothing like seeing your trades blow up like this to make you respect risk and really understand what those drawdowns in backtesting act like in real life.

It's a mean reversion swing-trade system, and I've gotten hit with bad results in trades of MYL Mylan, SUNE SunEdison, DWA Dreamworks, OPK Opko Health, and IACI. You can look at their charts, but all are down a ton. With mean reversion system bad trades like this every once in a while, but to have them all hit at once is highly frustrating.

Most are crashing hard w/ earnings announcements(w/ exception of Mylan which was in play as a buyout).

I was wondering if anybody that trades mean reversion avoids stocks that are going into earnings? I don't control for that during backtesting (I really don't think I can), but wow - I'm trying to think about if there's a way to avoid these type situations while still getting the other benefits of the model.

Hey ScaredyCat,

I may be able to offer some insights into potential ways to mitigate risk surrounding earnings announcements. I have been looking at ways of minimizing my risk around these events as well and these are some of the "ideas" out there:
  1. Sell stocks before earnings - Completely eliminates your risk but also eliminates any upside potential.
  2. If stocks have a decent profit cushion (you can define this), sell half of the position and keep the rest going into earnings. Mitigates some of the risk while still leaving potential for some upside.
  3. If the stock has decent options activity, implement a delta-hedge with put options close to expiry (to keep costs down). Cost of these can be an impediment - up to you to decide if it is worth it.
  4. If you implement a delta-hedge, you can always the equivalent number (or a lesser amount) of DOTM put options to try and offset the cost. I don't like the downside cap this brings into the position and don't think the slightly reduced cost of the hedge is worth it, but 1 trader I know uses this method exclusively. When 10 basis points in performance matters, it may be worth the risk.
  5. Also, if you implement a delta-hedge, you could buy some DOTM call options close to expiry. The idea is that if the stock gaps up, the DOTM call options will offset the cost of the puts, while not adding much cost to the overall hedge in case the stock does not gap up.

I am not sure if a backtest will provide viable results on these strategies going forward. At best, you are sitting with a 50/50 coin toss with regards to earnings announcements. Therefore, it might be best to decide which approach works for you and stick with it.

Regarding the clustering of your bad trades - that happens. Not much you can do to offset that, unless you have filters that keep you out of the market. However, I never found one that I liked to use, thus I just trade smaller once trades stop working out.

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  #10 (permalink)
Trading Apprentice
Nashville, TN/USA
 
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Posts: 11 since Aug 2015
Thanks: 6 given, 5 received



grausch View Post
Hey ScaredyCat,
I am not sure if a backtest will provide viable results on these strategies going forward. At best, you are sitting with a 50/50 coin toss with regards to earnings announcements. Therefore, it might be best to decide which approach works for you and stick with it.

Regarding the clustering of your bad trades - that happens. Not much you can do to offset that, unless you have filters that keep you out of the market. However, I never found one that I liked to use, thus I just trade smaller once trades stop working out.

graush,

Thanks for the comments and thoughts on the volatility. My thinking also centers around your final comments. Like you mention, I also often find in backtesting that my efforts to filter out the bad trades tends to filter out a successful trades and can result in worse performing model. It's almost like you have to take the bad trades in order to get the better performing model.


Trading with smaller size is one approach that I've taken up (and luckily most of the big negative trades were done with smaller size), but even at smaller size big losses still hurt. In particular I was trading the more volatile stocks (I was using 60 day MA of the average of stock price daily trading range as % of stock price) with quite a bit lower size, and that did help protect some on the downside (while also capping upside).

re mkt filters: I have a slightly different mean reversion model to trade in down markets, and US market (SP500) just fell below 200MA a couple days ago - so I do have market filter in that regard - but historically the mean reversion strategies seem to do well in down markets, so I'm interested to see how things work going forward - however, I'm also interested in potentially buying some longer term positions given how much many high quality companies have fallen at this point. I've been waiting for a correction for such a long time, and all of a sudden it shows up in 3 trading days. Amazing how quickly things can move.

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