Topic: Meaningful Strategies
My tendency so far in my EA journey has been to let the software do all the work and to squeeze all the strategies into a portfolio without checking each individual one. After all they work in backtest, why would I need to check them? However, after a random check of some strategies, I found that some strategies don't make sense.
As an example,
Long Entry : Fast MA Crosses above Slow MA & ADX is above level line 25
Long Exit : MFI Crosses the Level Line upwards.
I realise that the software is simply looking for a correlation between the optimum settings/parametrisation over the backtest period and that, in this individual case, the entry and exit results work as intended. But you will likely never see an exit strategy like this in a live strategy - surely the MFI should be going lower to reflect the lower volume.
Sure, the MFI level isnt going to always behave in a predictable way and it may oscillate when the price is falling (which is the reason of using multiple confirmation indicators - not one of them is "perfect") - but the general rule of thumb for something like the MFI indicator is that in a falling market, the price, volume, trend etc will be decreasing and so will the indicator. Im not trying to open a discussing on the MFI indicator - Im seeing some contradictory signals being generated and Im wondering whether I need to do anything about it before putting these into a portfolio. Maybe its normal, but Im a newbie so I reserve the right to ask dumb questions.
Entry : Fast MA Cross Slow MA downward
Exit : Fast MA Cross Slow MA downward
Entry : Fast MA crossed above slow MA and;
Exit : Fast MA was lower than the slow MA
Although the first example with the MFI is not outside the bounds of reality, can someone please explain how the Fast MA can be both above and below the Slow MA at the same time?
There seem to be therefore 2 types of problem: 1) where the technical indicators are contradicting the assumed behaviour of that technical indictor and 2) where the indicators selected are contradicting each other. And since there doesnt look to be anything built in to stop these strategies being created, they are just as likely to crop up as not. There are three ways around this that spring to mind.
1) manually check the strategies for inconsistencies before putting them in a collection.
2) just ignore them or
3) how would it be possible to build in an integrity check which could avoid this situation, e.g. some additional rules for the software to follow, e.g.
- Entry and Exit rules cannot be the same
- Entry and Exit rules should be opposite if the same indicator is used (ie fast crosses above for entry, crosses below for exit)
- Entry rules should make sense, e.g. long entry should be MA rising (not MA falling)
Would appreciate some feedback, do I need to be worried or just checking my strategies more often?