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Wavemechanic and Mark,
Thanks for the post re Brownian motion, but what I can't figure out is what is the practical take away from all this?
Thanks,
Gary
wavemechanic <wd78@xxxxxxxxxxxx> wrote:
----- Original Message -----
From: "quanttrader714" <quanttrader714@xxxxxxxxx>
To: <amibroker@xxxxxxxxxxxxxxx>
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: http://www.ms.uky.edu/~mai/java/stat/brmo.html
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 amibroker@xxxxxxxxxxxxxxx, 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" <palsanand@x...>> 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, 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 amibroker@xxxxxxxxxxxxxxx, "quanttrader714"> <quanttrader714@x...> wrote:> > You guys are confusing randomness, independence and stationarity> big time.> >> > --- In <A
href="">amibroker@xxxxxxxxxxxxxxx, "Dave Merrill" <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 Sponsor ---------------------~-->Buy Ink Cartridges or Refill Kits for your HP, Epson, Canon or LexmarkPrinter at MyInks.com. Free s/h on orders $50 or more to the US & Canada.http://www.c1tracking.com/l.asp?cid=5511<FONT
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