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<BLOCKQUOTE
>
----- Original Message -----
<DIV
>From:
Al Venosa
To: <A title=amibroker@xxxxxxxxxx
href="">amibroker@xxxxxxxxxxxxxxx
Sent: Thursday, June 20, 2002 11:51
AM
Subject: Re: [amibroker] Trends, random
series
Bill,
I'm not enough of a theoretician or mathematician to be able to respond to
your question intelligently. I do know that there are just as many smart
people out there who think Gann, Fib numbers, Elliot wave patterns, etc. are
as much nonsense as there are those who think the opposite.
The bottom line is if half of the
world that believes in patterns and harmonics of any type (e.g., EW,
candlesticks, etc.) is right than Chande's approach is wrong for that type of
analysis. Arguably, a non-pattern based indicator could be
evaluated with Chande-type data, but not for the pattern-based part of
the TA world.
How predictive are these numbers?
There are many examples, and statistics
in some instances, that demonstrate their usefulness and predicitive
abilities, which is why there are many followers.
Again, if they were that predictive of price action, everyone would
be using them.
Everyone finds the approach that feels
comfortable. If there was anything that was 100% predicitive of price
action everyone would use it. But the fact is nothing is that good,so
choose your poison.
For every example you give that would support the use of Elliot waves or
Fib numbers, I'll bet you can find just as many examples that do not support
such numbers. Who's right? No one and everyone. It's a matter of what you
want to believe, your perception, what works for you. If Chande's synthetic
numbers happen to produce a beautiful Elliot wave pattern, does that confirm
the validity of Elliot wave as a predictive tool? The Chande numbers
likely will, at times, produce good Fib numbers, waves, and Gann charts, but
there will also be many times when they don't. Just l! ike in real price
action.
But Chande would have to produce the
patterns (e.g., impulsive followed by corrective, candlestick formations
at turns, etc.) that are actually observed with the appropriate frequency, and
a random approach will simply not do that. Yes, in time I am sure
that scrambler will produce some valid patterns just as Richard's monkeys
wrote novels, etc. But once in a while is not good enough, as a
result the general applicability of Chande's approach is
questionable, although as I noted it might be OK for non-pattern based
indicators (e.g., MACD, etc.).
Al Venosa
>From: "wavemechanic"
>Reply-To: amibroker@xxxxxxxxxxxxxxx
>To:
>Subject: Re: [amibroker] Trends, random series
>Date: Thu, 20 Jun 2002 11:31:00 -0400
>
>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, butnot
both.
>
>Bill
> ----- Original Message -----
> From: Avcinci
> To: 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 abovefor
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 ofdata
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 r!
igorous out-of-sample testing you can achieve.
>
>
>
> The above commentary was 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 that the 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.
>
> ----- Original Message -----
> From: wpeters_1
> To: amibroker@xxxxxxxxxxxxxxx
> Sent: Wednesday, June 19, 2002 1:22 PM
> Subject: RE: [amibroker] Trends, random series, etc : was
MetaStock and AmiBroker
>
>
> AL,
>
> 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).
> The obvious predictability in human behaviour is what cangive
you the little advantage and this is not in totally randomised data.
>
> Surely if so your 'randomised' data 'trend' does not havean
equal chance of reversing on each and every tick then its not randomised.
>
> Very interesting topic.
>
> William
> -----Original Message-----
> From: Al Venosa [mailto:avcinci@xxxx]
> Sent: Wednesday 19 June, 2002 10:54 AM
> To: amibroker@xxxxxxxxxxxxxxx
> Subject: 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 by some 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 o!
f this information results in a downward trend. This does not nor cannot
happen with random events like coin tosses. So, technically speaking, youare
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 attentionto
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 thatthe
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 pointe! d out. What I'm suggesting is that your system of entriesand
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't say 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 knowof
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 upward bias 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 value in 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 enough to be of value in system testing? Thanks, Richard. By
the way, I agree that this discussion, interesting as it is, has absolutely
nothing to do with 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 probably even
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 trends in random price bars, it oughtto
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 avery
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 isno
information in random data and no expectation of the past affecting the 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 a fair 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 doneany
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 to be able to pick up on
those short, seemingly non-random trends (even though they were developedfrom
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 12or
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 about it.
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 previousx
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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