Brainstorming Notes

Technical indicator constructed with the last X hours of data.

A lookback period of Y days.

Buy signals at level A in the indicator; sell signals at level B.

X and Y chosen to maximize profitability of the signals across a set of ETFs and A/B levels.

Trade the indicator for day Y+1 for the ETFs with the clearest signals, thus making the assumption that the next period will not differ significantly from the past Y periods.

Each day, reconstruct the indicator parameters over the moving lookback period and select a new set of ETFs to trade based on performance over the lookback period.

Repeat this process using daily periods for the indicator and weekly lookback periods. Using 5 minute periods for the indicator and hourly lookback periods. Etc.

If you do that, you find that Y is a small number, a smaller number than would allow for traditional statistical significance testing.

Which is what makes developing trading systems so difficult: before the market behaves in a pattern that can be detected conventionally, the pattern tends to change.

Which means that patterns have to be detected non-conventionally:

Predictability is a market variable that fades in and out over time.

The key is finding the time frame(s) where markets are displaying predictability/regularity.

Which would make a trader operate sometimes like a scalper, sometimes like a position trader, and sometimes like an investor.

Trading failure is a result of trying to make markets fit into a style of trading, rather than fitting the trading style to current market conditions.

More:

Testimony

Creativity in Trading

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