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http://www.traders.com/Documentation/FEEDbk_docs/Archive/102001/Abstra
cts_new/Bryant/byrant.html
rgds, Pal
--- In amibroker@xxxxxxxxxxxxxxx, "Gary A. Serkhoshian"
<serkhoshian777@xxxx> wrote:
> Jitu,
>
> It seems like on more highly-tuned signals you can slap a trendline
on the equity curve or a 100ma (per Dimitris idea) as a circuit
breaker. Selection methods based on equity curves are, as Fred puts
it, "ambulance chasing". I would agree with that.
>
> FWIW,
> Gary
>
> jtelang <jtelang@xxxx> wrote:
> Gary,
>
> I agree with all 3 points, especially 2 and 3, but don't
> agree on using the equity curve as a feedback mechanism.
> It actually contradicts points 2 and 3, IMO.
>
> What's the point in using *current* equity curve as a
> driving force in changing the strategy (or sticking with it)
> rather than studying what caused such equity pikes in your
> backtests in the first place, and then switching strategies when
> those conditions occur again? There's a significant difference in
> the two...
>
> And all this talk about markets constantly changing, etc. begs
> a fundamental question... What percentage of behaviors in
> the market can one identify that one positively can NOT
> identify in say last 20 years of the market history? That
> example of going through a totally different kind of jungle
> is not valid when considers the fact that you can play with
> 99% of the jungle simulations before ever you set your foot
> in one.
>
> Jitu
>
> --- In amibroker@xxxxxxxxxxxxxxx, "Gary A. Serkhoshian"
> <serkhoshian777@xxxx> wrote:
> > Pal,
> >
> > You description of stationarity vs non-stationarity was nothing
> short of poetic. I had to read through your e-mail twice, but
thanks
> for taking the time.
> >
> > I certainly agree it is good to know that we are not dealing with
a
> stationary data series. The big headline I take away from all this
> discussion is:
> >
> > 1. Beware of over-optimizing.
> > 2. Build in ways of detecting market changes
> > 3. Have circuit breakers on your systems assuming #2 doesn't
work.
> >
> > I'm an Army guy. So, if you can't break it down to some useable
> rules, it's just talk. After all, we trade where the rubber meets
> the road, not in the clouds with all the academics.
> >
> > Regards,
> > Gary
> > palsanand <palsanand@xxxx> wrote:
> > I agree. I would love to hear your comments on the following:
> >
> > The more you have information, the more you are confident about
the
> > outcome. Now the problem: by how much? Common statistical method
is
> > based on the steady augmentation of the confidence level, in
> > nonlinear proportion to the number of observations. That is, for
an
> n
> > times increase in the sample size, we increase our knowledge by
the
> > square root of n. Suppose I am drawing from an urn containing red
> and
> > black balls. My confidence level about the relative proportion of
> red
> > and black balls, after 20 drawings is not twice the one I have
> after
> > 10 drawings; it is merely multiplied by the square root of 2
(that
> > is, 1.41).
> >
> > Where statistics becomes complicated, and fails us, is when we
have
> > distributions that are not symmetric, like the urn above. If
there
> is
> > a very small probability of finding a red ball in an urn
dominated
> by
> > black ones, then our knowledge about the absence of red balls
will
> > increase very slowly – more slowly than at the expected square
root
> > of n rate. On the other hand our knowledge of the presence of red
> > balls will dramatically improve once one of them is found. This
> > asymmetry in knowledge is not trivial--it is a central
philophical
> > problem for such people as Hume and Karl Popper. I can confirm
that
> > an investor trader is a bad investor (if he blows up); but I can
> > never rule out that he may be one.
> >
> > To assess an investor's performance, we either need more astute,
> and
> > less intuitive, techniques, or we may have to limit our
assessments
> > to situations where our judgment is independent of the frequency
of
> > these events.
> >
> > But there is even worse news. In some cases, if the incidence of
> red
> > balls is itself randomly distributed, we will never get to know
the
> > composition of the urn. This is called the problem of
stationarity.
> > Think of an urn that is hollow at the bottom. As I am sampling
from
> > it, and without my being aware of it, some vicious child is
adding
> > balls of one color or another. My inference becomes thus
> > insignificant. I may infer that the red balls represent 50% of
the
> > urn while the vicious child, hearing me, would swiftly replace
all
> > the red balls with black ones. This makes much of our knowledge
> > derived through statistics quite shaky.
> >
> > The very same effect takes place in the market. We take past
> history
> > as a single homogeneous sample and believe that we have
> considerably
> > increased our knowledge of the future from the observation of the
> > sample of the past. What if vicious children were changing the
> > composition of the urn? In other words, what if things have
changed?
> > The "science" of econometrics consists of the application of
> > statistics to samples taken at different periods of time, which
we
> > called times series. It is based on studying the times series of
> > economic variables, data, and other matters.
> >
> > Studying the European markets of the 1990s will certainly be of
> great
> > help to a historian; but what kind of inference can we make now
> that
> > the structure of the institutions and the markets has changed so
> much?
> >
> > Stanford economist Mordecai Kurz puts it as follows:
> > The process of structural change (i.e. non-stationarity) in our
> > society is the central building block of its complexity and the
> root
> > cause of the diversity of beliefs about it. In such a system, the
> > past is not an entirely satisfactory basis for assessment of
risks
> in
> > the future.
> >
> > Practitioners of the "financial engineering" methods measure
risks
> (I
> > just use stops), using the tool of past history as an indication
of
> > the future. We will just say that the mere possibility of the
> > distributions not being stationary makes the entire concept seem
> like
> > a costly (perhaps very costly) mistake. This leads us to a more
> > fundamental question: the problem of induction which is a
different
> > subject.
> >
> > rgds, Pal
> >
> >
> >
> > --- In amibroker@xxxxxxxxxxxxxxx, "Gary A. Serkhoshian"
> > <serkhoshian777@xxxx> wrote:
> > > Ahh-hah ! You see this is where watching the equity curve
would
> > tell you that you are bouncing off trees rather than moving
through
> > the forest unimpeeded. Also, if you recorded your journey
through
> a
> > large forest rather through a simple patch of trees you would
have
> a
> > better gague on growth patterns of trees and hence your path.
> > >
> > > Taking this a step farther, pine trees grow differently than
> > redwoods. So, you would run into trouble if you took a recording
> of
> > a journey through a redwood forest, and used it to guide you
> through
> > a pine forest.
> > >
> > > What people fail to understand is by virtue of picking some set
> of
> > parameters we are optimizing. I see people with smug looks on
> their
> > face when they say they don't believe in optimizing, but are hell-
> > bent on making decisions with a 12,26,9 MACD.
> > >
> > > It's like a social drinker berating an alcoholic. They both
> drink
> > alcohol, it's just that the social drinker ensures he doesn't
wake
> up
> > in the gutter. Over optimizing is a disease just like over
> drinking.
> > >
> > > Regards,
> > > Gary
> > >
> > > Joseph Platt <jplatt@xxxx> wrote:
> > >
> > > Lots of talk lately about Optimization, Overoptimization,
> > > Robustivity, Randomness, etc. Regarding optimization here is a
> copy
> > > of an email I sent to a FastTrack friend of mine
> recently....don't
> > > know if it makes any sense or not.
> > >
> >
>
**********************************************************************
> > > ******************
> > > You know, most all systems depend on optimization at some level
> but
> > > one day when I was in a dreamy mood, (perhaps muscatel
induced),
> > this
> > > analogy with regards to optimization popped into my head. Takes
a
> > > little imagination....
> > >
> > > Suppose a person decided to take a one mile walk through a well
> > treed
> > > area of woods. He would have no trouble negotiating the path
> since
> > > the trees are quite visible and he could navigate a path right
> > around
> > > them.
> > >
> > > Suppose further that he had been carrying some kind of an
> > electronic
> > > recorder with him (this is the part that takes a little
> > imagination)
> > > and every step along the one mile stretch was recorded.
> > >
> > > Still feeling energetic he decides to pick up where he left off
> and
> > > try another one mile hike through the next stretch of woods. He
> > > reasons that it's not necessary to look for an unobstructed
path,
> > at
> > > least not as carefully as he did on the first stretch, because
> > after
> > > all he has a recording of the whole journey and all he has to
do
> is
> > > put it in the "play it again Sam" mode.
> > >
> > > The analogy doesn't have a very happy ending....he got through
> the
> > > second mile alive but just barely....you would hardly recognize
> him.
> > >
> > > But to be fair there is a difference between trees that, as far
> as
> > we
> > > know, grow randomly and the stock market which arguably isn't
> > totally
> > > random as many claim.
> > >
> >
>
**********************************************************************
> > > ******************
> > > I guess my friend got the email OK but his only response
> was "watch
> > > out for the trees".
> > >
> > > .....Joe Platt
> > >
> > >
> > >
> > >
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