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This proves nothing. Your model is flawed. Generate a chart with one
dimensional Brownian motion and there's not a person on this board who
would be able to tell it from a "real" price chart. An omniscient
being could create perfect deterministic models of the markets but for
mere mortals, there's significant randomness caused by an incredibly
complex mix of competing forces that "nudge" prices in different
directions, from institutional purchases to Johnny Jones cashing in to
pay for his daughter's wedding to daytraders, etc., etc., etc.
Certain forces will prevail and/or be in synch to varying degrees over
time. But even in a totally random process, anything that can happen,
will happen if you wait long enough.
--- In amibroker@xxxxxxxxxxxxxxx, uenal.mutlu@xxxx wrote:
> // generate random series in the range 0 to 100 and plot it
> Graph = Random() * 100;
> Plot(Graph, "Random graph", colorBlue);
>
> Does any real chart look like such a random chart: NO.
> This proves the basic fact that nothing in the markets
> is or was ever random.
> UM
>
>
>
> ----- Original Message -----
> From: "palsanand" <palsanand@xxxx>
> To: <amibroker@xxxxxxxxxxxxxxx>
> Sent: Monday, November 17, 2003 1:19 AM
> Subject: [amibroker] Re: Backtest using equity curve
>
>
> In his book "The Profit Magic of Stock Transaction Timing", J.M.
> Hurst proves that market movement is not random, and by analyzing a
> large "stable" of underlying instruments one could find excellent
> opportunities for profit each and every day. The movement is not
> random but non-stationary because markets do not move without a
> purpose or a goal, they move because of an imbalance between supply
> (sellers) and demand (buyers) with the price tending to equalize it.
> However the outcomes are random, i.e, unknown and the probability of
> winning is undetermined, i.e., not a constant.
>
> Identifying persistent price patterns helps one to determine the
> dependance of the outcomes. The existence of a pullback or a rally
> situation is dependant on the existance of a previous uptrend or a
> downtrend and so is the existance of a trend reversal. What's real
> price movement in response to a clear signal and what's just random
> noise? Figuring out the difference is vital and according to John F.
> Ehlers in a recent article in S & C Magazine such a distinction can
> be important to trading. If one could avoid periods when the market
> has no clear trend (just enjoy being flat), one could avoid whipsaws
> and get cleaner trades. If one could identify periods that were
> filled with noise and no clear signals in either direction, one
could
> also switch trading tactics to suit the situation, for e.g., day-
> trading instead of position-trading. At the very least, one would
> know what situation one faces.
>
> rgds, Pal
> --- In amibroker@xxxxxxxxxxxxxxx, "quanttrader714"
> <quanttrader714@xxxx> wrote:
> > You guys are confusing randomness, independence and stationarity
> big time.
> >
> > --- In amibroker@xxxxxxxxxxxxxxx, "Dave Merrill" <dmerrill@xxxx>
> wrote:
> > > agreed. if the fact that a trading system did well in the past
> has no
> > > bearing whatsoever on whether it does well in the future, how
can
> we
> > know
> > > anything at all about the future performance of a proposed
trading
> > system?
> > >
> > > dave
> > >
> > > The gambler”Ēs fallacy is a fallacy because the gambler
ignores
> the
> > > independence of the outcomes and looks for patterns that do not
> > exist. If
> > > we have designed trading systems based on recognition of
patterns
> that
> > > precede profitable trading opportunities, and if those patterns
> are
> > > persistent, then we no longer have random, independent outcomes.
> Our
> > > trading systems do have serial dependencies and upward sloping
> equity
> > > curves. So analysis of the equity curve provides an indication
> of the
> > > health of the trading system.
> > >
> > >
> > >
> > > Howard
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