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This is a fun discussion.
Bill, you said "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.)." Perhaps you are right about that. I don't know. I would ask, however, how you define "once in awhile." You can be a successful trader with a system that generates only 20% winners if the system being traded is a positive expectancy system (i.e., if the avg win/avg loss ratio is high enough). I'm convinced that money management is the key (Holy Grail, if you will) to success in trading. If you trade a system that gives you 80% losers, but those losses are tiny compared to the occasional huge winner, you can do quite well over the long run. It's going to take lots of intestinal fortitude to experience 80% losers, but I'm sure there are those out there who do.
Look, all I'm saying is that the scrambler is just another tool that can be used by us in Amibroker. That's all. I'm not advocating trading random price patterns. I'm just saying that it might be useful to test your system on synthetic data. After I've done it, I'll report back and let you guys know what happened. Like I said, I'm willing to eat Markov monkey if I'm wrong. Al Venosa
>From: "wavemechanic"
>Reply-To: amibroker@xxxxxxxxxxxxxxx
>To:
>Subject: Re: [amibroker] Trends, random series
>Date: Thu, 20 Jun 2002 12:21:21 -0400
>
>
> ----- Original Message -----
> From: Al Venosa
> To: 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, but not 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 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 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 can give you the little advantage and this is not in totally randomised data.
> >
> > Surely if so your 'randomised' data 'trend' does not have an 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, 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 pointe! d 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'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 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 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 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 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 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 to be 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 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 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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