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Bill, Al, Ken & all,
One of my "golden rules": seek and trade only
issues that have patterns of "non-random" accumulation and distribution.
Many issues spew "random" numbers, month after month, year after year, and
traders insist on trying to unlock these difficult puzzles (created bythe
"random walk" these issues march to).
Doesn't it make more sense to concentrate on issues
that have demonstrated a "pattern" of supply and demand? The force
behind price movement, for all issues, can be debated (market maker
influence, commercial interest, fund participation, etc.). If trader's
allocate all of their time trying to apply approaches to "random numbers"...I
believe they might be disappointed.
It's my opinion (for what it's worth), themarkets
you select to trade are more important than the approach you apply. Why
force math on issues that continually change character or exhibit a very random
pattern?
Take care,
Steve Karnish, CTACedar Creek Trading<A
href="">www.cedarcreektrading.com1-877-668-1125
<BLOCKQUOTE
>
----- Original Message -----
<DIV
>From:
wavemechanic
To: <A
href=""
title=amibroker@xxxxxxxxxxxxxxx>amibroker@xxxxxxxxxxxxxxx
Sent: Thursday, June 20, 2002 9:31
AM
Subject: Re: [amibroker] Trends, random
series
Al:
It is difficult to understand how this approach can
produce patterns and harmonics (e.g., Elliott Wave, Fibonacci, Gann, etc.)
that relate to the past. If this is so, then either such analysis is
worthless, which would have to be convincingly demonstrated to numerous users,
or the Chande approach does not provide valid out of sample data.
One or the other, but not both.
Bill
<BLOCKQUOTE
>
----- Original Message -----
<DIV
>From:
Avcinci
To: <A
href=""
title=amibroker@xxxxxxxxxxxxxxx>amibroker@xxxxxxxxxxxxxxx
Sent: Wednesday, June 19, 2002 8:12
PM
Subject: Re: [amibroker] Trends,random
series
William (and Richard),
Let me try to explain Leo’s
scrambler. It was developed by Tushar Chande from his book Beyond Technical
Analysis, 2nd ed. Chande randomly rearranges the data of a ticker to create
new sequences. He does this as follows: he observes the relationship between
the O, H, L, and C of the 2nd bar by using the C of the
1st bar as reference. So, he writes the relationship as:
DeltaO = O –ref(C,-1);
DeltaH = H –ref(C,-1);
DeltaL = L –ref(L,-1);
DeltaC = C –ref(C,-1);
He samples with replacement
with these formulas and creates patterns that bear the market’s signature as
defined by relative price relationships. The next step is to use a random
number generator to scramble the bars. When you have a new sequence, you
need a starting point, which is usually the prior C. The new bar is derived
from the prior C as follows (where the Syn prefix stands for the new
synthetic values):
Syn-C = ref(C,-1) +
deltaC;
Syn-H = ref(C,-1) +
deltaH;
Syn-L = ref(C,-1)
+deltaL;
Syn-O=ref(C,-1) + deltaO;
He calculates the interbar
relationships as defined above for a ticker of your choice. He uses a random
number generator to pick a number from 1 to x (x determined by the no. of
bars you want to scramble). That number is the next bar of the sequence.
Suppose on the 10th pick, you pick bar 5. Then the original bar 5
becomes bar 10 of the new sequence. The bars may repeat. You can generate as
long a sequence as desired. You use the synthetic values determined by the
equations above to establish the next bar’s appearance. Thus, what you wind
up doing is encapsulating the market behavior in the original bar 10 and
reproducing it in another sequence to create new synthetic data. You can
generate a variety of chart patterns of any length using data scrambling.
According to Chande, you can generate 100 years of data and test your system
against a variety of market conditions. Since these are the types of
patterns you are likely to see in the future, this is the most rigorous
out-of-sample testing you can achieve.
The above commentarywas
partly plagiarized from Chande’s book, and it is merely a synopsis. To get a
clearer understanding of the methodology with spreadsheet examples, you
should read his chapter devoted to scrambling.
I have attached 2 gifs
showing what scrambled data look like on 2 different tickers. Note thatthe
patterns are not any more unusual than those of normal chart patterns, and
you can see definite trends developing. In fact, if you look at recent real
charts of the market indices, you will see many instances of V-tops and
V-bottoms, which is what William was concerned about earlier today. Hope
this helps. Many thanks to Leo Timmermans for programming Chande’s scrambler
for Amibroker. I asked him recently if he could program it in such a way to
create synthetic data for an entire watch list at one time. That might be
tricky, but he said he would look into it.
Al V.
<BLOCKQUOTE
>
----- Original Message -----
<DIV
>From:
<A href=""
title=wpeters_1@xxxx>wpeters_1
To: <A
href=""
title=amibroker@xxxxxxxxxxxxxxx>amibroker@xxxxxxxxxxxxxxx
Sent: Wednesday, June 19, 20021:22
PM
Subject: RE: [amibroker] Trends,
random series, etc : was MetaStock and AmiBroker
<FONT color=#0000ff face=Arial
size=2>AL,
<FONT color=#0000ff face=Arial
size=2>
<FONT color=#0000ff face=Arial
size=2>With randomised data isn't there a chance that the so-called
'trend' can reverse on the next tick 'more-so' than data based on human
intervention. And that includes mechnical systems (ie. if enough traders
started using a certain indicator).
<FONT color=#0000ff face=Arial
size=2>The obvious predictability in human behaviour is what can give you
the little advantage and this is not in totally randomised
data.
<FONT color=#0000ff face=Arial
size=2>
<FONT color=#0000ff face=Arial
size=2>Surely if so your 'randomised' data 'trend' does not have anequal
chance of reversing on each and every tick then its not
randomised.
<FONT color=#0000ff face=Arial
size=2>
<FONT color=#0000ff face=Arial
size=2>Very interesting topic.
<FONT color=#0000ff face=Arial
size=2>William
<FONT face=Tahoma
size=2>-----Original Message-----From: Al Venosa
[mailto:avcinci@xxxx]Sent: Wednesday 19 June, 2002
10:54 AMTo: amibroker@xxxxxxxxxxxxxxxSubject:Re:
[amibroker] Trends, random series, etc : was MetaStock and
AmiBroker
Richard,
I'm glad you took the liberty of changing the subject line. I don't
think you are being a pessimistic, grumpy old man (sorry, don't know how
old you are). Let me throw in another 2 cents into the discussion of
trends. You said in order to have a trend, there must exist some
information in the immediate past that would cause the trend to persist
for a long enough time to profit from the move. I cannot agree more.
That is absolutely true. A bad earnings report comes out on INTC, and
the market immediately reacts by selling. This is further fueled bysome
nitwit analyst who changes his buy recommendation to hold or sell (of
course, always after the fact!). Then, all the other individual
"investors" climb aboard and do more selling, driving the prices still
further down. Then, the company foretells that over the next several
quarters there will be more of the same in regards to diminished sales,
inducing further pessimism that drives the prices still further. All of
this information results in a downward trend. This does not nor cannot
happen with random events like coin tosses. So, technically speaking,
you are perfectly correct in your assertions .
Now, the trend follower comes in. He couldn't care less what is
driving the prices down. In fact, he purposefully never pays attention
to news events and announcements that may drive prices in one direction
or another. He doesn't care about the cause of the trend. All he does is
climb aboard the resulting trend, using whatever entry he has fashioned
to enable him to take advantage of this 'breakout' and whatever exit
that enables him to exit when the trend falters. Who was taking the
other side of the market when Neeson was loading up on Nikkei futures,
driving the Barings Bank into bankruptcy? The trend followers who
recognized what was happening and capitalized. What I'm saying is, the
trend follower buys or sells all breakouts (however you want to define
the term 'breakout') and hopes that the resulting price behavior
continues long into the future. With the scrambler, these 'trends' can
indeed take place even with randomized data, as you have already pointed
out. What I'm suggesting is that your system of entries and exits
doesn't have a clue what caused the breakout to occur because it's
nothing more than a mathematical algorithm that trades based on certain
signals programmed by the user when certain price behavior occurs. I
contend you can test your system on such price behavior just to learn
how well the system reacts to price breakouts and to see if, indeed, it
is effective in finding trends in the data, albeit randomized data.By
the way, these comments are not limited to trend following systems.I
chose that trading approach merely as an example to make my point.
Richard, I'm not trying to be argumentative on this topic. I'm just
pointing out why I think there might be value in testing a fully
optimized trading model on randomized data. Thanks for the provocative
discussion.
Al V.
>From: "Richard Alford"
>Reply-To: amibroker@xxxxxxxxxxxxxxx
>To:
>Subject: [amibroker] Trends, random series, etc : was
MetaStock and AmiBroker
>Date: Wed, 19 Jun 2002 08:35:15 -0500
>
>I agree on the oxymoronic nature of so called random
series. The problem results from using very particular distributions for
the random numbers which allows the mathematicians to write books and
teach classes. The Gaussian functions are one of the most well-behaved
functions around.
>
>wrt trends in scrambler and other "random" time series -
simply stated if they are truly random there is absolutely no
information about the past in the next event. Your coin toss observation
is a great example: given the 1/1000 case of 10 heads in a row the odds
of another head are precisely 50% for the next toss.
>
>In order to discuss a "trend" there must be some
information that persists. One can generally, perhaps always, see trends
in a random series - in hindsight - however it contains no predictive
information. There are systems that seek to identify trending vs.
trading range behavior (I think Ehlers addresses this issue - can'tsay
with how much success), however, they are inaccurate at the changes. A
moving average on the coin toss series will identify trends - but the
lag in the moving average that we all know of and try to remove is the
"hindsight" problem.
>
>Trend scale is still another issue. The apparent fractal
behavior of the stock market suggests that one can find trends, and/or
search for trends, over any time scale desired. (The inflationary or
perhaps evolving nature of economies have placed a long term upwardbias
on the trends that can confuse the issue.) Once again a moving average
of any length on a random series will display periods of upward and
downward "trends".
>
>Sorry to be such a pessimistic old grump.
>
>Cordially,
>
>Richard
>
> ----- Original Message -----
> From: Avcinci
> To: amibroker@xxxxxxxxxxxxxxx
> Sent: Tuesday, June 18, 2002 8:19 PM
> Subject: Re: [amibroker] Re: MetaStock and AmiBroker
>
>
> Richard,
>
> >>distribution of the trends is predictable for a
random series >> This sounds oxymoronic to me, i.e., predictable
distribution of random trends. But, I'll take your word for it. :-))
>
> Regarding the scale when speaking of trends, I was
referring to weeks to months, perhaps even a year or two at most
(stocks, not futures), but not decades. This brings us back to
discussing the Scrambler. You said you don't hold much if any valuein
it, but can you elaborate just a little more on what you mean in terms
of the scale I am referring to, because in a period of 130 trading days,
I noticed some pretty decent trends develop that lasted long enoughto
be of value in system testing? Thanks, Richard. By the way, I agreethat
this discussion, interesting as it is, has absolutely nothing to dowith
Metastock!!
>
> AV
>
> ----- Original Message -----
> From: Richard Alford
> To: amibroker@xxxxxxxxxxxxxxx
> Sent: Tuesday, June 18, 2002 3:55 PM
> Subject: Re: [amibroker] Re: MetaStock and AmiBroker
>
>
> wrt rsi/stochastics/cmo/etc... my point was that they
attempt to identify a phenomenon that has been observed as an indication
of overbought/oversold. There is a reasonable belief that the arithmetic
created to identify that behavior can be a useful indictor of that
condition. The comment offered for Elliot wave and Fibinacci behavior
also points to a large community that believes that there is a hidden
structure to the market and human behavior - I am not a devotee of that
belief, but I also have my doubts about Madam Cleo....
>
> wrt trends in random numbers: there is, of course, a
trend between any two non=equal numbers. Given a suitable sample,the
distribution of the trends is predictable for a random series - probably
also random and if the normal Gaussian (pardon the pun) distribution is
used, as the derivative (or instantaneous slope/trend) is a skewed
Gaussian. Interesting to the statisticians but not very useful to the
average investor.
>
> wrt: trending 30% - that really has to be a matter of
scale. If you chose a suitably long moving average you can probablyeven
consider today as part of a long time upward trend - not particularly
useful - although even my meager portfolio looks better today than it
did in 1970 - not saying much....
>
> Interesting discussion - don't have the faintest idea
what it has to do with MetaStock :)
>
> Cheers,
>
> Richard
>
>
> ----- Original Message -----
> From: Al Venosa
> To: amibroker@xxxxxxxxxxxxxxx
> Sent: Tuesday, June 18, 2002 2:28 PM
> Subject: Re: [amibroker] Re: MetaStock and AmiBroker
>
>
> Thanks, Richard. I always enjoy your mathematical
insights. I hope you didn't get the impression I was suggesting
'optimizing' on random bars. I was merely suggesting 'testing' your
already optimized system on the scrambled data, seeing if it can detect
those occasional occurrences of non-random behavior of random numbers,
that's all. Certainly if a trend-following system can detect trendsin
random price bars, it ought to be able to detect them in real,
non-random price bars, too, don't you think? Markets trend only about
30% of the time, as I am told, so wouldn't you consider non-trending
markets (i.e., sideways markets) somewhat representative of random price
behavior?
>
> I also get the impression you are not an advocate of
overbought/oversold oscillators, right?
>
> Al Venosa
> avcinci@xxxx
> >From: "Richard Alford"
> >Reply-To: amibroker@xxxxxxxxxxxxxxx
> >To:
> >Subject: Re: [amibroker] Re: MetaStock and AmiBroker
> >Date: Tue, 18 Jun 2002 12:55:33 -0500
> >
> >The non-random appearance of random numbers is a
very well know phenomenon - probably accounts for the continued
enthusiasm in slot machines in Vegas...
> >
> >I stand by my comments. In particular, the various
oversold/bought indicators rely on the observation that the close tends
to be higher in the l-h range in the overbought condition - the
persistence of such a trend is interpreted as buy-sell behavior.
> >
> >I personally see no use in random data. There is no
information in random data and no expectation of the past affectingthe
future - the only reason for technical analysis (other than too much
time on one's hands) is to glean information about the near future.
There are, of course, degenerate uses for random numbers in testing, but
to test, build, or, heaven forbid - optimize, using random time series
is pointless at best.
> >
> >wrt coin tosses: the coin is a Markov process of
length 0 - no memory. If the market is the same, we may as well head for
Vegas and get free drinks as we go broke. (OK - the market MAY be afair
game, but I doubt it.)
> >
> >Just some thoughts...
> >
> >Richard
> > ----- Original Message -----
> > From: Al Venosa
> > To: amibroker@xxxxxxxxxxxxxxx
> > Sent: Tuesday, June 18, 2002 9:57 AM
> > Subject: Re: [amibroker] Re: MetaStock and
AmiBroker
> >
> >
> > Well, Richard, to be honest, I haven't yet done any
back (er, I mean forward) testing of the random time bars created by
Scrambler. However, I have looked at the results of randomly scrambling
the bars and watching them form on the screen, and you can see definite
trends develop that can last several months, much like in real life. So,
at least theoretically, it seems to me that, if you are testing a
short-term or intermediate-term trend-following system, it ought tobe
able to pick up on those short, seemingly non-random trends (even though
they were developed from a random number generator). Remember, if you
flip an honest coin 1000 times, there is a low but finite probability
that it will come up heads 10 or 12 or 15 times in a row.
> >
> > AV
> >
> >
> > >From: "Richard Alford"
> >
> > >Reply-To: amibroker@xxxxxxxxxxxxxxx
> > >To:
> > >Subject: Re: [amibroker] Re: MetaStock and
AmiBroker
> > >Date: Tue, 18 Jun 2002 09:48:35 -0500
> > >
> > >I understood that the underlying premise of
technical analysis was that there IS information in the price-volume
behavior. If you test against random data the results had better result
in random behavior - perhaps mean behavior is more accurate.
> > >
> > >Perhaps I am delusional, however, I would
appreciate insight into the value of random time bars?
> > >
> > >Cordially,
> > >Richard
> > > ----- Original Message -----
> > > From: Al Venosa
> > > To: amibroker@xxxxxxxxxxxxxxx
> > > Sent: Tuesday, June 18, 2002 9:23 AM
> > > Subject: Re: [amibroker] Re: MetaStock and
AmiBroker
> > >
> > >
> > > Sorry, Dimitris, I thought you knew aboutit.
Go to post 19331 and download it, following Leo Timmerman's
instructions. What he has done is created a VBscript tool based on
Tuchar Chande's price bar scrambler that scrambles all the bars of a
given ticker from the previous x bars (bars and ticker set by the user)
and then re-orders those bars randomly into the future, thus creating a
ticker that you can use in forward-testing. If you set the no. of bars
to, say, 130, you can generate 6 months worth of new data for each
ticker you do this on. Very, very cool. It differs from William's
Simulator in that it actually generates new data rather than repeating
existing data from the last x bars. Try it, you'll like it.
> > >
> > > Al Venosa
> > >
> > > >From: "dtsokakis"
> > >
> > > >Reply-To: amibroker@xxxxxxxxxxxxxxx
> > > >To: amibroker@xxxxxxxxxxxxxxx
> > > >Subject: [amibroker] Re: MetaStock and
AmiBroker
> > > >Date: Tue, 18 Jun 2002 13:49:30 -0000
> > > >
> > > >What is Leo's scrambler ??
> > > >DT
> > > >--- In amibroker@xxxx, "Al Venosa" wrote:
> > > > >
> > > >
> > >
> > >
> >
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