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----- Original Message -----
From: "quanttrader714" <<A
href=""><FONT
size=2>quanttrader714@xxxxxxxxx<FONT
size=2>>
To: <<A
href=""><FONT
size=2>amibroker@xxxxxxxxxxxxxxx<FONT
size=2>>
Sent: Monday, November 17, 2003 9:39
AM
Subject: [amibroker] "Random prices" (was Re: Backtest
using equity curve)
This proves nothing. Your model is flawed.
Generate a chart with onedimensional Brownian motion and there's not a
person on this board whowould be able to tell it from a "real" price
chart.
Right. Here is a nice website that
demonstrates: <A
href="">http://www.ms.uky.edu/~mai/java/stat/brmo.html
<FONT
size=2>
An omniscientbeing could create perfect
deterministic models of the markets but formere mortals, there's significant
randomness caused by an incrediblycomplex mix of competing forces that
"nudge" prices in differentdirections, from institutional purchases to
Johnny Jones cashing in topay for his daughter's wedding to daytraders,
etc., etc., etc. Certain forces will prevail and/or be in synch to varying
degrees overtime. But even in a totally random process, anything that
can happen,will happen if you wait long enough.--- In
<FONT
size=2>amibroker@xxxxxxxxxxxxxxx,
<FONT
size=2>uenal.mutlu@x... 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" <<FONT
size=2>palsanand@x...>> To:
<<FONT
size=2>amibroker@xxxxxxxxxxxxxxx<FONT
size=2>>> 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, onecould> 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 <A
href=""><FONT
size=2>amibroker@xxxxxxxxxxxxxxx,
"quanttrader714"> <<A
href=""><FONT
size=2>quanttrader714@x...>
wrote:> > You guys are confusing randomness, independence and
stationarity> big time.> >> > --- In
<FONT
size=2>amibroker@xxxxxxxxxxxxxxx, "Dave
Merrill" <<FONT
size=2>dmerrill@x...>>
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, howcan> we> > know> > >
anything at all about the future performance of a proposedtrading>
> system?> > >> > > dave> > >>
> > The gambler”Ēs fallacy is a fallacy because the
gamblerignores> the> > > independence of the outcomes
and looks for patterns that do not> > exist. If> >
> we have designed trading systems based on recognition
ofpatterns> 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------------------------ Yahoo! Groups
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