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Hi Brian,
same here. I actually looking at your traders challenge.
Why did you exclude the trades with no loss and no gain?
Y
--------------------------------------------------
From: "richpach2" <richpach2@xxxxxxxxx>
Sent: Wednesday, February 25, 2009 9:45 AM
To: <amibroker@xxxxxxxxxxxxxxx>
Subject: [amibroker] Re: Monte Carlo analysis for trading systems
> Howard and Brian,
>
> I agree with Keith. You have not looked at "out-of-sample" interest in
> this subject because of the people like Keith and me who are keen
> followers and students but do not feel they can contribute at this
> point in time. We are not part of the data sample which you can test.
> So, I'd say at least in this case 'out-of-sample" results will be much
> higher than "in-sample" results of current contributing participants.
>
> Regards
> Richard
>
>
>
> --- In amibroker@xxxxxxxxxxxxxxx, Keith McCombs <kmccombs@xxx> wrote:
>>
>> Howard and Brian --
>> Just because most of the posting on this subject has been limited to
> the
>> two of you, don't assume there is little interest. Some of us, such as
>> myself, have been following the discussion closely. However, I for
> one,
>> do not feel qualified to comment on the subject.
>>
>> BTW, I have David Aronson's "Evidence-based Technical Analysis". I
> read
>> about half of it. For the most part, I found it to be understandable,
>> but far too verbose. To me, he seems to be saying the same thing,
> over,
>> and over, and over, again.
>>
>> I'm looking forward to Howard's new book in October. In the mean time,
>> could either of you suggest some references that are less verbose and
>> more on the practical side than Aronson's tome.
>>
>> Thank you.
>> -- Keith
>>
>> Howard B wrote:
>> >
>> > Hi Brian --
>> >
>> > You wrote:
>> > "I am amazed at the low level of interest in the subject, by traders
>> > in general, and also that 'we' haven't moved along very quickly,
>> > since Pardo e.g. there's not a lot of quality books, on simulation
>> > for trading, available."
>> >
>> > I agree that there has been a relatively low level of interest.
>> >
>> > I agree that when Bob Pardo's first book was published in 1992, it
> was
>> > the best available. Since then there are several books that discuss
>> > trading systems development with varying degrees of understanding of
>> > the issues involved in modeling and simulation of financial trading
>> > systems.
>> >
>> > As examples:
>> >
>> > Perry Kaufman's "Trading Systems and Methods", 1992, followed by "New
>> > Trading Systems and Methods" in 2005.
>> > Van Tharp's "Trade Your Way to Financial Freedom", 1998, and its
>> > Second Edition, 2007.
>> >
>> > There is a fair amount of literature that discusses ARCH, GARCH,
>> > ARIMA, and related models. But those are mathematically
>> > sophisticated, difficult to implement, and do not apply well to short
>> > term systems.
>> >
>> > David Aronson's "Evidence-based Technical Analysis", 2007, is
>> > excellent and does recognize the need for out-of-sample testing and
>> > describes the walk-forward process.
>> >
>> > But, modesty aside, my own "Quantitative Trading Systems", 2007, is
>> > unique in identifying the key issues involved in designing trading
>> > systems, with the desire that they will be profitable when traded.
> It
>> > goes on to describe the combination of custom objective function,
>> > out-of-sample testing, and automated walk-forward testing which,
> in my
>> > opinion, is the only way to estimate what the results of actually
>> > trading the system are likely to be. And, it includes practical
>> > examples illustrating how to design, test, and validate trading
>> > systems using methods that are reasonably rigorous. The tutorial and
>> > reference, "Introduction to AmiBroker", 2008, works through a series
>> > of exercises illustrating the features of AmiBroker; beginning with
>> > installation and displaying the first chart and progressing through
>> > automated walk-forward testing. The sequel, "Advanced AmiBroker", to
>> > be published about October 2009, will discuss and give AmiBroker code
>> > for the practical analysis of portfolios, risk, and position
> sizing --
>> > all important features of realistic trading and trading management.
>> >
>> > Why is there so little apparent interest? Some possible reasons:
>> > 1. Until AmiBroker, there has not been a retail-level trading system
>> > development platform that provided the capabilities needed.
>> > Specifically, the abilities to define an objective function and
>> > perform automated walk-forward testing, and to work with
> portfolios as
>> > well as with individual issues.
>> > 2. University courses in modeling and simulation that cover
>> > non-stationary time series with a focus on trading systems are rare
>> > (non-existant?).
>> > 3. As soon as any attempt is made to be rigorous in modeling and
>> > validation technique, the mathematics involved put many people off.
>> > 4. The popular press seems content with suggesting that backtesting
>> > is an adequate validation technique. Since all backtesting results
>> > look good when backtesting is finished, it is easy to be disappointed
>> > and discouraged when out-of-sample testing shows poorer results.
>> > 5. Coupling the fact that the rewards for developing profitable
>> > trading systems are so great with the fact that increased use of a
>> > profitable system reduces the profitability for everyone using it,
>> > people who have discovered good techniques tend to be reluctant to
>> > share them.
>> > 6. There has been a lack of accessable educational material
>> > describing how a person might go about learning the techniques needed
>> > to be successful.
>> >
>> > Thanks for listening,
>> > Howard
>> > www.blueowlpress.com <http://www.blueowlpress.com>
>> >
>> >
>> > On Mon, Feb 16, 2009 at 6:14 PM, brian_z111 <brian_z111@xxx
>> > <mailto:brian_z111@...>> wrote:
>> >
>> > > I know both David Aronson and Tim Masters. I like and recommend
>> > >David's
>> > > book, "Evidence-based Technical Analysis".
>> >
>> > I find that DA and TM's public work is the most challenging,
> and up
>> > to date material on system evaluation, going around i.e. for the
>> > general trading community (don't know what is happening in
> academia).
>> >
>> > I am benchmarking my ideas against theirs.
>> >
>> > I was giving Tims paper a careful re-reading yesterday and went to
>> > sleep (very quickly) with EBTA in my hand (no reflection on
> the book).
>> >
>> > I don't think I will be going head to head with them any time
> soon,
>> > for obvious reasons, but I will be noting my concerns, about
> MCP as a
>> > tool for system evaluation, at the Zboard.
>> >
>> > Naturally I will only do that in a naive way and won't be
> exhibiting
>> > the mathematical rigor, and testing, that TM does in his paper
>> > (others are welcome to do that, if they are interested, or
> refute my
>> > arguments in writing anywhere they like ... I will upload any
> quality
>> > posts mailed to me).
>> >
>> > I am amazed at the low level of interest in the subject, by
> traders
>> > in general, and also that 'we' haven't moved along very quickly,
>> > since Pardo e.g. there's not a lot of quality books, on simulation
>> > for trading, available.
>> >
>> > (Haven't read the Scherer and Martin book, recommended by Patrick
>> > yet).
>> >
>> > Please let me know of any other hardcore authors worth
> referencing.
>> >
>> >
>> > > Tim's paper on
>> > > Monte Carlo makes some assumptions that I think are
> inappropriate
>> > >for use
>> > > when analyzing financial trading systems.
>> >
>> > I am grateful that he made the effort and 'published' it.
>> > It is the only definitive method I have found.
>> >
>> > I also have some concerns about the method, albeit basic ones:
>> >
>> > - it involves so many exceptions, to the extent that it is almost
>> > impractical for general trading applications (admittedly TM has
>> > provided a template that we can adjust to suit our own
> cirumstances)
>> >
>> > - so far I am sceptical, about the possibility of mathematically
>> > detecting survivor bias in optimization runs etc.
>> >
>> > Note that I don't claim 100% understanding of MCP, or Whites
> Reality
>> > Check, at this stage .... the fact that the MCP algorithm is
> written
>> > in a foreign language doesn't make it easy for me (I haven't
> looked
>> > at the C# version in our file section yet).
>> >
>> >
>> > > Two, I feel that Monte Carlo analysis is of limited
>> > > value when the trading system is completely deterministic.
>> >
>> > I am not sure what you mean by 'deterministic' with regard to MCP.
>> >
>> > Can you elaborate?
>> >
>> > Re BiSim:
>> >
>> > I feel it has some advantages over MCP and bootstrapping, at
> least as
>> > an eductational tool and possibly in some limited trading
>> > applications..... one of the advantages is that it is a
> convergence
>> > simulation (it approaches the mean outcome quickly and without
>> > massive effort) ... another is that it is very comfortable with
>> > correlation (in fact I think other 'modellers' make hard work
> out of
>> > handling it).
>> >
>> > I hope to explore topics like that at the board.... obviously
>> > developing rigorous signinficance tests is going to be a
> challenge,
>> > if I get that far.
>> >
>> > As I said, I am working live (I am not sure where it is
> going!), so
>> > if my future 'research' shoots down my own theories so be it.
>> >
>> > Thanks for the feedback.
>> >
>> > brian+z
>> >
>> >
>> > --- In amibroker@xxxxxxxxxxxxxxx
>> > <mailto:amibroker%40yahoogroups.com>, Howard B <howardbandy@>
>> > wrote:
>> > >
>> > > Hi Brian --
>> > >
>> > > I know both David Aronson and Tim Masters. I like and recommend
>> > David's
>> > > book, "Evidence-based Technical Analysis". Readers of both
> David's
>> > work and
>> > > mine will find that David is even more conservative than I am
>> > regarding
>> > > interpretation of in-sample versus out-of-sample results. Tim's
>> > paper on
>> > > Monte Carlo makes some assumptions that I think are
> inappropriate
>> > for use
>> > > when analyzing financial trading systems. Two points in
>> > particular. One, I
>> > > feel that neither bootstrapping nor jacknifing should be
> used when
>> > sampling
>> > > financial time series. Two, I feel that Monte Carlo analysis
> is of
>> > limited
>> > > value when the trading system is completely deterministic. I'll
>> > bring those
>> > > up when I next talk with Tim.
>> > >
>> > > Thanks,
>> > > Howard
>> > >
>> > > On Thu, Feb 12, 2009 at 4:54 PM, brian_z111 <brian_z111@> wrote:
>> > >
>> > > > No rush.... I have been sitting on it for at least 2 years
> now.
>> > > >
>> > > > The full BinomialSimulation story won't be finished for
> months...
>> > I
>> > > > will only post about once a month.
>> > > >
>> > > > First I am going to track back to the beginning, for the
> benefit
>> > of
>> > > > non-mathematicians.
>> > > >
>> > > > Also, I will upload some stress test files, OR post images
> of the
>> > key
>> > > > graphs from those files, so interested parties don't need to
>> > repeat
>> > > > the massive simulations, for samples with bias and/or higher
>> > > > dispersion, that I have already done.
>> > > >
>> > > > (Given your experience you would probably be best to sit
> back and
>> > > > wait until I post the BS maths expression ... it will be
> very easy
>> > > > for you to test and critique my theory at that stage ...
> you can
>> > > > leave the hack work to me).
>> > > >
>> > > > Note that it is a work in progress i.e. I am working
> 'live', warts
>> > > > and all, and I might not finish it, or leave it on the net, (I
>> > like
>> > > > the Buddhist idea of 'pointing to the way' and demonstrating
>> > > > impermanence).
>> > > >
>> > > > I probably won't 'advertise' here, in this forum, but BS posts
>> > will
>> > > > go onto the Zboard blog page so they can get picked up by RSS.
>> > > >
>> > > > The other pages at the site, which are mainly just
> resources etc,
>> > > > won't be disseminated via RSS.
>> > > >
>> > > > FYI I think BS is a significant method compared to
> bootstrapping
>> > and
>> > > > MonteCarlo (considering their pros and cons) e.g. I
> disagree with
>> > > > some of the assumptions of Timothy Masters, in his 2006 MCS
>> > article
>> > > > at Aronsons 'EvidenceBasedTechnicalAnalysisSite' site... I
> also
>> > found
>> > > > TM indecisive at some key points along the way.
>> > > >
>> > > > However, I am not going to follow the academic method of
> citing
>> > > > others and criticising their work.
>> > > >
>> > > > I am very pleased you are looking at it.
>> > > >
>> > > > It has to stand up to the critique of informed mathematicians,
>> > like
>> > > > yourself (more so than other new ideas because I am a naive
>> > > > mathematician and an intuitive rather than a trained
>> > > > objectivist/academic).
>> > > >
>> > > > Around 20 people downloaded the file .... some of them
> would be
>> > just
>> > > > curious, or 'getting an education' (which are good things in
>> > > > themselves) .... so at best there are only a few hard core
>> > analysts
>> > > > considering my 'thesis'.
>> > > >
>> > > > Pity QT isn't still around ... he was a very nice guy and very
>> > good
>> > > > on this stuff ;-)
>> > > >
>> > > > The Zboard site does allow for collaboration.
>> > > >
>> > > > If one or two self-managing people came along who wanted
> to add
>> > > > something I could give them access ..... in that case the site
>> > would
>> > > > stay online for the benefit of future googling traders who
> are in
>> > > > search of trading truths.
>> > > >
>> > > > Cheers and thanks for your interest ... it's a compliment.
>> > > >
>> > > > brian.
>> > > >
>> > > > --- In amibroker@xxxxxxxxxxxxxxx
>> > <mailto:amibroker%40yahoogroups.com> <amibroker%40yahoogroups.com
>> > <http://40yahoogroups.com>>,
>> > Howard B
>> > > > <howardbandy@> wrote:
>> > > > >
>> > > > > Hi Brian --
>> > > > >
>> > > > > The zboard file worked fine.
>> > > > >
>> > > > > I have been snowed under with maintenance jobs the past
> week, so
>> > > > it'll take
>> > > > > me a couple of days to look at it.
>> > > > >
>> > > > > Thanks,
>> > > > > Howard
>> > > > >
>> > > > > On Tue, Feb 10, 2009 at 1:06 AM, brian_z111
> <brian_z111@> wrote:
>> > > > >
>> > > > > > Howard,
>> > > > > >
>> > > > > > I might move to MediaFire completely .. they are free
>> > > > and 'permanent'
>> > > > > > but the ads are terrible.
>> > > > > >
>> > > > > > With Rapidshare I will have to pay for some space to
> keep the
>> > > > files
>> > > > > > longer than 90 days but it is ad free.
>> > > > > >
>> > > > > > Haven't decided.
>> > > > > >
>> > > > > > Two files for you to try are at MF..... the PDF should
> give
>> > you a
>> > > > > > quick test of the download.
>> > > > > >
>> > > > > > Refer to Mirror Site links:
>> > > > > >
>> > > > > > http://zboard.wordpress.com/downloads/
>> > <http://zboard.wordpress.com/downloads/>
>> > > > > >
>> > > > > > Future:
>> > > > > >
>> > > > > > - may upload the stress test files
>> > > > > > - I have a math method in mind to bypass the number
> crunching
>> > > > > > - the math formula would make it pretty easy to do in AFL
>> > except
>> > > > it
>> > > > > > needs a trade array (workarounds possible with current AB
>> > version
>> > > > I
>> > > > > > guess)
>> > > > > > - part 2 files explore sample error/variance (if they are
>> > going
>> > > > > > somewhere I will post on that ... I recall I did find some
>> > > > > > interesting relationships in error propogation but I
> haven't
>> > > > looked
>> > > > > > at it for a couple of years)
>> > > > > >
>> > > > > > Let me know if you can't download from mediafire
>> > > > > >
>> > > > > > OR if you can recommend a good filesharing site
>> > > > > >
>> > > > > > brian
>> > > > > >
>> > > > > >
>> > > > > > --- In amibroker@xxxxxxxxxxxxxxx
>> > <mailto:amibroker%40yahoogroups.com> <amibroker%
>> > 40yahoogroups.com <http://40yahoogroups.com>><amibroker%
>> >
>> > > > 40yahoogroups.com <http://40yahoogroups.com>>,
>> > > > > > "brian_z111" <brian_z111@> wrote:
>> > > > > > >
>> > > > > > > The BS file is too big for Yahoo group files ... also it
>> > would
>> > > > clog
>> > > > > > > up limited space.
>> > > > > > >
>> > > > > > > I thought about AB third party but I have to
>> > download/maintain
>> > > > > > third
>> > > > > > > party software to FTP upload.... that annoys me
> somewhat (I
>> > am a
>> > > > > > very
>> > > > > > > independent type).
>> > > > > > >
>> > > > > > > The Zboard/WordPress arrangement is a trial ... if
> it goes
>> > > > smoothly
>> > > > > > I
>> > > > > > > will keep it going for a while.
>> > > > > > >
>> > > > > > > I am happy with the WordPress (limited filetype/space)
>> > > > arrangement,
>> > > > > > > with a file host for sharing.
>> > > > > > >
>> > > > > > > So, now I will consider other filesharing hosts.
>> > > > > > >
>> > > > > > > Anyone you can download from?
>> > > > > > >
>> > > > > > > I can put one somewhere else for you.
>> > > > > > >
>> > > > > > >
>> > > > > > > Don't worry I will make sure you get one, way or
> another.
>> > > > > > >
>> > > > > > > Better to get another host though because there will
> be at
>> > least
>> > > > > > one
>> > > > > > > more big file ..... if I keep going there might be
> plugins
>> > one
>> > > > day
>> > > > > > so
>> > > > > > > I need a universal host.
>> > > > > > >
>> > > > > > >
>> > > > > > > brian_z111
>> > > > > > >
>> > > > > > > Zboard.wordpress.com <http://Zboard.wordpress.com>
>> > > > > > >
>> > > > > > >
>> > > > > > >
>> > > > > > > --- In amibroker@xxxxxxxxxxxxxxx
>> > <mailto:amibroker%40yahoogroups.com> <amibroker%
>> > 40yahoogroups.com <http://40yahoogroups.com>><amibroker%
>> >
>> > > > 40yahoogroups.com <http://40yahoogroups.com>>,
>> > > > Howard B
>> > > > > > <howardbandy@> wrote:
>> > > > > > > >
>> > > > > > > > Hi Brian --
>> > > > > > > >
>> > > > > > > > I use a Hughes satellite connection to the
> Internet. It
>> > seems
>> > > > > > that
>> > > > > > > Hughes
>> > > > > > > > appears to Rapidshare as a single user (which is
> always
>> > over
>> > > > its
>> > > > > > > limit), so
>> > > > > > > > I am never able to download a Rapidshare file. If
>> > possible,
>> > > > > > could
>> > > > > > > you
>> > > > > > > > upload the files to the Yahoo AmiBroker file section?
>> > > > > > > >
>> > > > > > > > Thanks,
>> > > > > > > > Howard
>> > > > > > > >
>> > > > > > > >
>> > > > > > > > On Sat, Feb 7, 2009 at 9:10 PM, brian_z111
> <brian_z111@>
>> > > > wrote:
>> > > > > > > >
>> > > > > > > > > I am using Rapidshare for file sharing.
>> > > > > > > > >
>> > > > > > > > > Free downloads are available but they are slower
> than
>> > paid
>> > > > > > > download
>> > > > > > > > > and limited to 1 download per time ... wait a
> while and
>> > you
>> > > > can
>> > > > > > > > > download again (still good value for my customers).
>> > > > > > > > >
>> > > > > > > > >
>> > > > > >
>> > http://rapidshare.com/files/195190948/BinomialMaster_ABVersion.xls
>> >
> <http://rapidshare.com/files/195190948/BinomialMaster_ABVersion.xls>
>> > > > > > > > >
>> > > > > > > > > A short ReadMe, to help understand the file, is at:
>> > > > > > > > >
>> > > > > > > > > http://zboard.wordpress.com/
>> > <http://zboard.wordpress.com/>
>> > > > > > > > >
>> > > > > > > > > I can answer a few questions about the details
> in the
>> > file
>> > > > for a
>> > > > > > > > > limited time (while my memory is fresh) .... post
>> > > > questions, if
>> > > > > > > any,
>> > > > > > > > > via comments at the Zboard.
>> > > > > > > > >
>> > > > > > > > >
>> > > > > > > > > --- In amibroker@xxxxxxxxxxxxxxx
>> > <mailto:amibroker%40yahoogroups.com> <amibroker%
>> > 40yahoogroups.com <http://40yahoogroups.com>><amibroker%
>> > > > 40yahoogroups.com <http://40yahoogroups.com>><amibroker%
>> > > > > > 40yahoogroups.com <http://40yahoogroups.com>>,
>> > > > > > > > > "brian_z111" <brian_z111@> wrote:
>> > > > > > > > > >
>> > > > > > > > > > File limits prevented me uploading the
>> > BinomialSimulation
>> > > > file
>> > > > > > > (s)
>> > > > > > > > > to
>> > > > > > > > > > this group ... 20MB per file. I will post
> links to at
>> > > > least
>> > > > > > one
>> > > > > > > > > > example, at the following temporary site, sometime
>> > this
>> > > > week:
>> > > > > > > > > >
>> > > > > > > > > > http://zboard.wordpress.com/
>> > <http://zboard.wordpress.com/>
>> > > > > > > > > >
>> > > > > > > > > > I will post some basic notes afterall because the
>> > task of
>> > > > > > > following
>> > > > > > > > > > the Excel sheets would be beyond anyone
> without them.
>> > > > > > > > > >
>> > > > > > > > > > The site might live on for a while after that.
>> > > > > > > > > >
>> > > > > > > > > >
>> > > > > > > > > > --- In amibroker@xxxxxxxxxxxxxxx
>> > <mailto:amibroker%40yahoogroups.com> <amibroker%
>> > 40yahoogroups.com <http://40yahoogroups.com>><amibroker%
>> > > > 40yahoogroups.com <http://40yahoogroups.com>><amibroker%
>> > > >
>> > > > > > 40yahoogroups.com <http://40yahoogroups.com>>,
>> > > > > > > > > "brian_z111" <brian_z111@> wrote:
>> > > > > > > > > > >
>> > > > > > > > > > > I decided to post the Binomial Simulation
> files a
>> > few
>> > > > days
>> > > > > > > > > ago ...
>> > > > > > > > > > I
>> > > > > > > > > > > am not going to announce the upload so this
> post is
>> > the
>> > > > > > > > > discussion
>> > > > > > > > > > > link for them (one or more files will appear
> at some
>> > > > stage).
>> > > > > > > > > > >
>> > > > > > > > > > > FTR They do predict the eq dist quite well, for
>> > biased
>> > > > and
>> > > > > > > none
>> > > > > > > > > > > biased 'coins' but there is one thing about them
>> > that
>> > > > does
>> > > > > > > > > concern
>> > > > > > > > > > > me ... I referenced the same synthetic trade
> series
>> > to
>> > > > make
>> > > > > > > the
>> > > > > > > > > > > binomial distribution and to create the
> synthetic eq
>> > > > > > > curves ...
>> > > > > > > > > > that
>> > > > > > > > > > > seems a bit incestuous in some ways.
>> > > > > > > > > > >
>> > > > > > > > > > > On the other hand they could be full of
> incorrect
>> > math
>> > > > > > > > > assumptions
>> > > > > > > > > > > cos I got the math off Wikipedia!
>> > > > > > > > > > >
>> > > > > > > > > > > Guru Brian ;-)
>> > > > > > > > > > >
>> > > > > > > > > > >
>> > > > > > > > > > > --- In amibroker@xxxxxxxxxxxxxxx
>> > <mailto:amibroker%40yahoogroups.com><amibroker%
>> > 40yahoogroups.com <http://40yahoogroups.com>><amibroker%
>> > > > 40yahoogroups.com <http://40yahoogroups.com>><amibroker%
>> > > >
>> > > > > > > 40yahoogroups.com <http://40yahoogroups.com>>,
>> > > > > > > > > "brian_z111" <brian_z111@>
>> > > > > > > > > wrote:
>> > > > > > > > > > > >
>> > > > > > > > > > > >
>> > > > > > > > > > > > > This is a valid model as long as
> stationarity
>> > > > holds ...
>> > > > > > I
>> > > > > > > > > have
>> > > > > > > > > > > > > simulated random trading 'systems' and
>> > predicted the
>> > > > > > > outcome
>> > > > > > > > > by
>> > > > > > > > > > > > using
>> > > > > > > > > > > > > binomial probability, that references a
>> > frequency
>> > > > > > > > > distribution
>> > > > > > > > > > of
>> > > > > > > > > > > > the
>> > > > > > > > > > > > > randomly generated trades, and it
> predicted the
>> > > > actual
>> > > > > > > equity
>> > > > > > > > > > > > > distributions extremely well (a
> lognormal dist
>> > > > appears
>> > > > > > at
>> > > > > > > > > very
>> > > > > > > > > > > high
>> > > > > > > > > > > > > N's).
>> > > > > > > > > > > >
>> > > > > > > > > > > >
>> > > > > > > > > > > > More precisely, I have simulated trade series,
>> > using
>> > > > the
>> > > > > > > RNG in
>> > > > > > > > > > > > Excel, for random walks (50/50 systems)
> and biased
>> > > > > > systems,
>> > > > > > > > > with
>> > > > > > > > > > > > normally distributed trade series (I used
>> > > > > > > CentralLimitThereom
>> > > > > > > > > to
>> > > > > > > > > > > > create NormDists from the uniform output
> of the
>> > > > generator.
>> > > > > > > > > > > >
>> > > > > > > > > > > > I simulated equity curves, using the synthetic
>> > trades,
>> > > > > > and
>> > > > > > > at
>> > > > > > > > > the
>> > > > > > > > > > > > same time used BinomialProb to model the
> predicted
>> > > > > > > distribution
>> > > > > > > > > > of
>> > > > > > > > > > > > the eq curves (I imagined I was tossing a coin
>> > with
>> > > > > > variable
>> > > > > > > > > > values
>> > > > > > > > > > > > for heads and tails ... of course in
> trading we
>> > can
>> > > > win
>> > > > > > > lose or
>> > > > > > > > > > > draw
>> > > > > > > > > > > > whereas in my model we can only win or lose).
>> > > > > > > > > > > >
>> > > > > > > > > > > > You might like to see the files?
>> > > > > > > > > > > >
>> > > > > > > > > > > > I am bored with that topic.
>> > > > > > > > > > > >
>> > > > > > > > > > > > I am not a mathematician ... it might be a
> load
>> > of old
>> > > > > > > rubbish
>> > > > > > > > > > for
>> > > > > > > > > > > > all I know.
>> > > > > > > > > > > >
>> > > > > > > > > > > > As our discussion shows .. we can't get any
>> > > > statistical
>> > > > > > > > > certainty
>> > > > > > > > > > > > anywhere in trading ... only
> approximations and
>> > > > > > > probabilties.
>> > > > > > > > > > > >
>> > > > > > > > > > > > It is just another approximation, like MCS and
>> > > > involves
>> > > > > > > massive
>> > > > > > > > > > > > number crunching.
>> > > > > > > > > > > >
>> > > > > > > > > > > > I didn't finish it because I wanted a
> quick and
>> > dirty
>> > > > > > > method.
>> > > > > > > > > > > >
>> > > > > > > > > > > > The files are rough as old bags.
>> > > > > > > > > > > >
>> > > > > > > > > > > > I didn't make notes so even I have a hard time
>> > > > following
>> > > > > > the
>> > > > > > > > > > > > logic ... I had a look at them the other day I
>> > had to
>> > > > > > start
>> > > > > > > > > > tracing
>> > > > > > > > > > > > the formulas in the cells to see how I had
> done
>> > it.
>> > > > > > > > > > > >
>> > > > > > > > > > > > I'll post some of them in the file section
> one day
>> > > > (Howard
>> > > > > > > > > > collects
>> > > > > > > > > > > > trading things).
>> > > > > > > > > > > >
>> > > > > > > > > > > > I won't scrub them up though ... take them or
>> > leave
>> > > > > > them ...
>> > > > > > > > > > sorry
>> > > > > > > > > > > no
>> > > > > > > > > > > > questions or explanations (anyway Howard
> and other
>> > > > maths
>> > > > > > > people
>> > > > > > > > > > > know
>> > > > > > > > > > > > how to do that stuff).
>> > > > > > > > > > > >
>> > > > > > > > > > > >
>> > > > > > > > > > > > --- In amibroker@xxxxxxxxxxxxxxx
>> > <mailto:amibroker%40yahoogroups.com><amibroker%
>> > 40yahoogroups.com <http://40yahoogroups.com>><amibroker%
>> > > > 40yahoogroups.com <http://40yahoogroups.com>><amibroker%
>> > > >
>> > > > > > > 40yahoogroups.com <http://40yahoogroups.com>>,
>> > > > > > > > > "brian_z111" <brian_z111@>
>> > > > > > > > > > wrote:
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > Gidday Mate,
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > I wasn't planning on posting again today
> as I am
>> > > > going
>> > > > > > > away
>> > > > > > > > > for
>> > > > > > > > > > a
>> > > > > > > > > > > > few
>> > > > > > > > > > > > > days ..... a good question though so I
> couldn't
>> > > > resist.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > I did notice Fred's comment on the
> priority he
>> > > > places on
>> > > > > > > > > > > > sensitivity
>> > > > > > > > > > > > > analysis.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > He has made the comment before and I came to
>> > that
>> > > > view
>> > > > > > > > > > > > independently
>> > > > > > > > > > > > > a way back anyway (Howard's random noise
> test is
>> > > > another
>> > > > > > > > > > > > interesting
>> > > > > > > > > > > > > idea for single sample analysis).
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > I also recall that he doesn't believe
>> > scrambling the
>> > > > > > > order of
>> > > > > > > > > > the
>> > > > > > > > > > > > > trades provides any meaningful feedback.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > That isn't a reason for me not to reach
> my own
>> > > > > > > conclusions.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > Fred has also talked about small N retesting
>> > (walk
>> > > > > > > forward),
>> > > > > > > > > > and
>> > > > > > > > > > > > > adjusting his system rules, on a short term
>> > basis,
>> > > > so
>> > > > > > > while I
>> > > > > > > > > > am
>> > > > > > > > > > > > not
>> > > > > > > > > > > > > keen on the idea I am keeping an open
> mind on
>> > the
>> > > > > > subject.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > >
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > > This is the second time in the >past few
>> > > > > > > > > > > > > > days that you seem to have equated
>> > > > trading/backtesting
>> > > > > > > > > system
>> > > > > > > > > > > > > >outcomes
>> > > > > > > > > > > > > > to a random series of coin flip outcomes
>> > (random
>> > > > > > binary
>> > > > > > > > > > > > occurances).
>> > > > > > > > > > > > > >
>> > > > > > > > > > > > > > Serious question... what is your
> point? What
>> > is
>> > > > the
>> > > > > > > > > > relevence
>> > > > > > > > > > > os
>> > > > > > > > > > > > > >the
>> > > > > > > > > > > > > > "Coin Flip" metaphor where trading
> systems is
>> > > > > > concerned?
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > Well, developers are selling software
>> > specifically
>> > > > > > > designed
>> > > > > > > > > for
>> > > > > > > > > > > > > performing MSC for trading analysis and at
>> > least one
>> > > > > > guy
>> > > > > > > has
>> > > > > > > > > > > > written
>> > > > > > > > > > > > > a book on the subject.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > In both software packages, that I have some
>> > > > familiarity
>> > > > > > > with,
>> > > > > > > > > > > their
>> > > > > > > > > > > > > model assumes stationarity, and independency
>> > i.e.
>> > > > their
>> > > > > > > model
>> > > > > > > > > > > > treats
>> > > > > > > > > > > > > the data as if it is the outcome of a
> coin toss
>> > with
>> > > > > > > variable
>> > > > > > > > > > > > values
>> > > > > > > > > > > > > on the +- side of the coin.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > This is a valid model as long as
> stationarity
>> > > > holds ...
>> > > > > > I
>> > > > > > > > > have
>> > > > > > > > > > > > > simulated random trading 'systems' and
>> > predicted the
>> > > > > > > outcome
>> > > > > > > > > by
>> > > > > > > > > > > > using
>> > > > > > > > > > > > > binomial probability, that references a
>> > frequency
>> > > > > > > > > distribution
>> > > > > > > > > > of
>> > > > > > > > > > > > the
>> > > > > > > > > > > > > randomly generated trades, and it
> predicted the
>> > > > actual
>> > > > > > > equity
>> > > > > > > > > > > > > distributions extremely well (a
> lognormal dist
>> > > > appears
>> > > > > > at
>> > > > > > > > > very
>> > > > > > > > > > > high
>> > > > > > > > > > > > > N's).
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > The value, to me in that model, is that
> it is a
>> > > > > > training
>> > > > > > > tool
>> > > > > > > > > > > that
>> > > > > > > > > > > > > conditioned me to accept variance as
> 'normal'
>> > and
>> > > > if the
>> > > > > > > > > market
>> > > > > > > > > > > is
>> > > > > > > > > > > > > stationary then it would have direct
> relevance
>> > to
>> > > > > > > > > trading.....
>> > > > > > > > > > > the
>> > > > > > > > > > > > > worst case outcome would be that I could
> incur
>> > > > losses,
>> > > > > > > with a
>> > > > > > > > > > > > > probability as indicated by the Cumulative
>> > > > Distrubution
>> > > > > > > > > > Function
>> > > > > > > > > > > > for
>> > > > > > > > > > > > > the possible equity outcomes (simulation
> is one
>> > way
>> > > > for
>> > > > > > > non -
>> > > > > > > > > > > > > mathematicians to calc this and view it in a
>> > chart).
>> > > > > > > > > > > > >
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > Ask yourself ....
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > afer you have conducted a successful
> OOS, and
>> > > > collated
>> > > > > > the
>> > > > > > > > > > trade
>> > > > > > > > > > > > > sample, when you start to trade it do you
>> > expect:
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > - all trades to be the same, or similar, and
>> > occur
>> > > > with
>> > > > > > > the
>> > > > > > > > > > same
>> > > > > > > > > > > > > frequency (TradeSim),
>> > > > > > > > > > > > > - all trades to be the same, or similar, and
>> > have
>> > > > > > > variations
>> > > > > > > > > in
>> > > > > > > > > > > the
>> > > > > > > > > > > > > frequency (MSA),
>> > > > > > > > > > > > > - something else?
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > Trading, however, is not a coin toss.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > It is more like a sample generator that
> produces
>> > > > trades
>> > > > > > > as a
>> > > > > > > > > > > result
>> > > > > > > > > > > > > of presenting dynamic data to the system
>> > (filter).
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > To what extent could a 'real life' trading
>> > system
>> > > > > > emulate
>> > > > > > > a
>> > > > > > > > > > coin
>> > > > > > > > > > > > > toss, with variable values ... how could
> that
>> > come
>> > > > > > about?
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > (interesting that the very functional optF
>> > formula
>> > > > came
>> > > > > > > about
>> > > > > > > > > > as
>> > > > > > > > > > > > the
>> > > > > > > > > > > > > variable value coin toss staking formula).
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > Is it possible or not?
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > A lot of people seem to think it is,
> judging by
>> > > > their
>> > > > > > > books
>> > > > > > > > > and
>> > > > > > > > > > > > > software.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > Presumably, when the underlying data
> changes,
>> > the
>> > > > sample
>> > > > > > > > > > profile
>> > > > > > > > > > > > > (mean, StDev etc) can change and we end
> up with
>> > a
>> > > > > > better
>> > > > > > > or
>> > > > > > > > > > worse
>> > > > > > > > > > > > > outcome than anticipated by the OOS.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > So, does the non-stationary behaviour of the
>> > markets
>> > > > > > > > > invalidate
>> > > > > > > > > > > the
>> > > > > > > > > > > > > coin toss model?
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > That is the ineresting question, and I don't
>> > know
>> > > > the
>> > > > > > > answer
>> > > > > > > > > to
>> > > > > > > > > > > it,
>> > > > > > > > > > > > > or even if there is a definite answer.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > I was hopeful that people would pick up
> on that
>> > key
>> > > > > > point
>> > > > > > > and
>> > > > > > > > > > > shed
>> > > > > > > > > > > > > some light on the subject.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > I know, from my long hours of simulating
> random
>> > > > data,
>> > > > > > what
>> > > > > > > > > > random
>> > > > > > > > > > > > > behaviour looks like when I see it.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > Clearly the markets have a certain amount of
>> > random
>> > > > > > > behaviour.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > Howard commented somewhere, or another, that
>> > there
>> > > > is a
>> > > > > > > > > certain
>> > > > > > > > > > > > > amount of randomness in the market (I can't
>> > recall
>> > > > the
>> > > > > > > method
>> > > > > > > > > > he
>> > > > > > > > > > > > used
>> > > > > > > > > > > > > to measure it).
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > It is quite easy to observe if data has any
>> > random
>> > > > > > > qualities,
>> > > > > > > > > > > > > especially if we measure the core attributes
>> > (50/50
>> > > > > > heads
>> > > > > > > and
>> > > > > > > > > > > tails
>> > > > > > > > > > > > > and its persistence into 2,3,4 heads in
> a row
>> > etc).
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > Once again I ask you to consider:
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > if I measure the S&P500 index, on close,
> and it
>> > > > goes up
>> > > > > > > > > approx
>> > > > > > > > > > 50
>> > > > > > > > > > > > and
>> > > > > > > > > > > > > down approx 50 (+- variance that is
> typical of a
>> > > > random
>> > > > > > > > > > binomial
>> > > > > > > > > > > > > event) and the subsequent second head or
> tail
>> > follow
>> > > > > > with
>> > > > > > > 0.5
>> > > > > > > > > > > prob
>> > > > > > > > > > > > > etc I am justified in considering it top
> be a
>> > pseudo
>> > > > > > > random
>> > > > > > > > > > > > binomail
>> > > > > > > > > > > > > event?
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > I have done quick and dirty
> measurements, and
>> > > > accurate
>> > > > > > > > > > > > measurements,
>> > > > > > > > > > > > > on dependency (or on its inverse, which is
>> > > > > > independency)
>> > > > > > > and
>> > > > > > > > > > find
>> > > > > > > > > > > > > that there is a good deal of
> independency in the
>> > > > > > markets
>> > > > > > > (I
>> > > > > > > > > > > posted
>> > > > > > > > > > > > > some q&d code to measure that last week).
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > I have speculated before, on the point,
> that the
>> > > > > > rational
>> > > > > > > > > > market
>> > > > > > > > > > > is
>> > > > > > > > > > > > > the market that follows fundamental
> value, which
>> > > > tends
>> > > > > > to
>> > > > > > > be
>> > > > > > > > > >=
>> > > > > > > > > > > the
>> > > > > > > > > > > > > yearly (macro) timeframe, and,
> everything else
>> > is
>> > > > the
>> > > > > > > > > > irrational
>> > > > > > > > > > > > > market.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > Consider an intraday market ... what is
> rational
>> > > > about
>> > > > > > the
>> > > > > > > > > > price
>> > > > > > > > > > > > > movement during any given part of the day?
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > - Draw a trend line on the chart .. we will
>> > assume
>> > > > that
>> > > > > > we
>> > > > > > > > > know
>> > > > > > > > > > > > what
>> > > > > > > > > > > > > a trend is for this exercise, although
> that is a
>> > > > > > debatable
>> > > > > > > > > > point.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > - The trend, a straight line, is
> rational (it is
>> > > > > > perfectly
>> > > > > > > > > > > > following
>> > > > > > > > > > > > > fundamental value).... it is 2007 and it is
>> > up ;-)
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > - All of the ups and downs that occur
> around it
>> > are
>> > > > > > > > > irrational
>> > > > > > > > > > > > > (bucking the trend).
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > - The trend line goes under the pivot lows.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > - Your system buys at the pivot lows and
> sells
>> > at =
>> > > > = 2
>> > > > > > > StDev
>> > > > > > > > > > > above
>> > > > > > > > > > > > > the trend line.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > - Place a stop under the trend line at - 1
>> > stDev.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > - Assume no commission and no slippage.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > - Your payoff ratio is 2/1
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > - assume there is no variance in
> volatility so
>> > the
>> > > > PR
>> > > > > > is a
>> > > > > > > > > > > constant
>> > > > > > > > > > > > > value
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > - the win/loss ratio is determined by
> the random
>> > > > > > > meandering
>> > > > > > > > > of
>> > > > > > > > > > > the
>> > > > > > > > > > > > > irrational price movements up and down.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > Note they are irrational because people are
>> > buying
>> > > > and
>> > > > > > > > > selling
>> > > > > > > > > > at
>> > > > > > > > > > > > the
>> > > > > > > > > > > > > wrong time and for the wrong reasons -
> if they
>> > were
>> > > > > > > rational
>> > > > > > > > > > they
>> > > > > > > > > > > > > would only be buying selling as fundamental
>> > values
>> > > > > > change.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > - the trade series produced would look
> exactly
>> > that
>> > > > that
>> > > > > > > > > > produced
>> > > > > > > > > > > > by
>> > > > > > > > > > > > > a coin tossed with +2, -1 value on it.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > Now, you have tested this system, OOS,
> and it
>> > is a
>> > > > > > winner.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > What chance for stationarity when you trade
>> > live?
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > If the trend continues there is a very good
>> > chance
>> > > > that
>> > > > > > > the
>> > > > > > > > > > > random
>> > > > > > > > > > > > > emualator (system meeting dynamic data) will
>> > > > continue to
>> > > > > > > > > > perform
>> > > > > > > > > > > > like
>> > > > > > > > > > > > > a biased coin +- variance i.e. the
> payoff ratio
>> > > > can't
>> > > > > > > change
>> > > > > > > > > > but
>> > > > > > > > > > > > the
>> > > > > > > > > > > > > W/L will (it always does when I toss a
> coin).
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > If the trend changes your winning model
> will be
>> > more
>> > > > > > > likely
>> > > > > > > > > to
>> > > > > > > > > > > bust.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > That could be the reason Fred, and
> others, like
>> > to
>> > > > > > > > > continually
>> > > > > > > > > > > > retest.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > I have another approach to getting
> around this
>> > > > problem
>> > > > > > > (this
>> > > > > > > > > is
>> > > > > > > > > > > > > actually the real point of my posts) ...
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > ..... to accomodate non-stationarity either
>> > adjust
>> > > > > > > quickly OR
>> > > > > > > > > > use
>> > > > > > > > > > > a
>> > > > > > > > > > > > > dimensionless model e.g. don't believe in
>> > trends and
>> > > > > > then
>> > > > > > > you
>> > > > > > > > > > > can't
>> > > > > > > > > > > > > be on the wrong side of them.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > >
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > However, that is only speculation.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > What do you think?
>> > > > > > > > > > > > >
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > Again ... what is the relevance of coin
> tosses
>> > to
>> > > > > > trading
>> > > > > > > IMO:
>> > > > > > > > > > > > >
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > - wonderful training tool
>> > > > > > > > > > > > > - a good OOS can not predict exactly
> what the
>> > > > outcome
>> > > > > > of
>> > > > > > > live
>> > > > > > > > > > > > trading
>> > > > > > > > > > > > > will be (subject to nonstationarity) and
>> > neither can
>> > > > > > > > > simulation
>> > > > > > > > > > > > (coin
>> > > > > > > > > > > > > tossing) but it gives a good
> approximation of
>> > the
>> > > > > > > > > possibilities
>> > > > > > > > > > > > (also
>> > > > > > > > > > > > > subject to non-stationarity).
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > As a quid pro quo .....
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > ..... if you, or anyone else, can give
> me any
>> > > > > > explanation
>> > > > > > > > > > and/or
>> > > > > > > > > > > > > proof that the coin toss metaphor has no
>> > relevance
>> > > > to
>> > > > > > > trading
>> > > > > > > > > I
>> > > > > > > > > > > > would
>> > > > > > > > > > > > > be delighted.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > Anyway, I think Patrick already answered the
>> > > > question,
>> > > > > > or
>> > > > > > > > > told
>> > > > > > > > > > us
>> > > > > > > > > > > > > where to find it.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > Good luck with your trading.
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > brian_zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
>> > > > > > > > > > > > >
>> > > > > > > > > > > > >
>> > > > > > > > > > > > > --- In amibroker@xxxxxxxxxxxxxxx
>> > <mailto:amibroker%40yahoogroups.com><amibroker%
>> > 40yahoogroups.com <http://40yahoogroups.com>>
>> > > > <amibroker%
>> > > > 40yahoogroups.com <http://40yahoogroups.com>><amibroker%
>> > > >
>> > > > > > > 40yahoogroups.com <http://40yahoogroups.com>>,
>> > > > > > > > > "Phsst" <phsst@> wrote:
>> > > > > > > > > > > > > >
>> > > > > > > > > > > > > > Hello Brian,
>> > > > > > > > > > > > > >
>> > > > > > > > > > > > > > Thanks for the mention in your New Years
>> > post. I
>> > > > felt
>> > > > > > > > > > humbled
>> > > > > > > > > > > to
>> > > > > > > > > > > > > be in
>> > > > > > > > > > > > > > the same honerable mention list as
> Fred (He
>> > is a
>> > > > very
>> > > > > > > smart
>> > > > > > > > > > > Dude
>> > > > > > > > > > > > (no
>> > > > > > > > > > > > > > kidding!)) It took me a while (some years
>> > back) to
>> > > > > > > figure
>> > > > > > > > > out
>> > > > > > > > > > > > what a
>> > > > > > > > > > > > > > smart guy Fred really is. I've since
> learned
>> > that
>> > > > > > when
>> > > > > > > Fred
>> > > > > > > > > > > > speaks,
>> > > > > > > > > > > > > it
>> > > > > > > > > > > > > > pays to think and be silent for a good
> long
>> > while
>> > > > > > before
>> > > > > > > > > > > drawing
>> > > > > > > > > > > > any
>> > > > > > > > > > > > > > conclusions.
>> > > > > > > > > > > > > >
>> > > > > > > > > > > > > > To your "crystal clear" point... This
> is the
>> > > > second
>> > > > > > > time in
>> > > > > > > > > > the
>> > > > > > > > > > > > > past few
>> > > > > > > > > > > > > > days that you seem to have equated
>> > > > trading/backtesting
>> > > > > > > > > system
>> > > > > > > > > > > > > outcomes
>> > > > > > > > > > > > > > to a random series of coin flip outcomes
>> > (random
>> > > > > > binary
>> > > > > > > > > > > > occurances).
>> > > > > > > > > > > > > >
>> > > > > > > > > > > > > > Serious question... what is your
> point? What
>> > is
>> > > > the
>> > > > > > > > > > relevence
>> > > > > > > > > > > os
>> > > > > > > > > > > > > the
>> > > > > > > > > > > > > > "Coin Flip" metaphor where trading
> systems is
>> > > > > > concerned?
>> > > > > > > > > > What
>> > > > > > > > > > > am
>> > > > > > > > > > > > I
>> > > > > > > > > > > > > > missing?
>> > > > > > > > > > > > > >
>> > > > > > > > > > > > > > Your Bud... Phsst
>> > > > > > > > > > > > > >
>> > > > > > > > > > > > > >
>> > > > > > > > > > > > > >
>> > > > > > > > > > > > > > This is the second time
>> > > > > > > > > > > > > > --- In amibroker@xxxxxxxxxxxxxxx
>> > <mailto:amibroker%40yahoogroups.com><amibroker%
>> > 40yahoogroups.com <http://40yahoogroups.com>>
>> > > > <amibroker%
>> > > > 40yahoogroups.com <http://40yahoogroups.com>><amibroker%
>> > > >
>> > > > > > > 40yahoogroups.com <http://40yahoogroups.com>>,
>> > > > > > > > > "brian_z111"
>> > > > > > > > > <brian_z111@>
>> > > > > > > > > > > > wrote:
>> > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > To be chrystal clear about my
> hypothesis:
>> > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > We are trying to design a system that
>> > produces
>> > > > the
>> > > > > > > same
>> > > > > > > > > set
>> > > > > > > > > > of
>> > > > > > > > > > > > > > > trades, in the future, as it has in the
>> > past i.e
>> > > > > > > trades
>> > > > > > > > > and
>> > > > > > > > > > > not
>> > > > > > > > > > > > > > > combinations of trades.
>> > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > If a solid gold coin, minted by the US
>> > treasury,
>> > > > > > with
>> > > > > > > a
>> > > > > > > > > > head
>> > > > > > > > > > > > and a
>> > > > > > > > > > > > > > > tail clearly stamped on each side,
> and only
>> > two
>> > > > > > > values +1
>> > > > > > > > > > or -
>> > > > > > > > > > > 1
>> > > > > > > > > > > > > can't
>> > > > > > > > > > > > > > > reproduce two equity curves that
> look the
>> > same,
>> > > > > > after
>> > > > > > > N
>> > > > > > > > > > > tosses,
>> > > > > > > > > > > > > how
>> > > > > > > > > > > > > > > can we expect a trading system to do
> that
>> > when
>> > > > it
>> > > > > > has
>> > > > > > > a
>> > > > > > > > > > range
>> > > > > > > > > > > of
>> > > > > > > > > > > > > > > possible values?
>> > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > AND it doesn't get any better as N
>> > increases.
>> > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > Put your time and effort into
> maximising the
>> > > > > > STABILITY
>> > > > > > > > > > > > > > > (predictability, boundness) of the trade
>> > > > set 'with
>> > > > > > an
>> > > > > > > > > edge'
>> > > > > > > > > > > > THEN
>> > > > > > > > > > > > > use
>> > > > > > > > > > > > > > > MM to optimise the equity outcome
> the system
>> > > > > > produces
>> > > > > > > > > > > (optimise
>> > > > > > > > > > > > ==
>> > > > > > > > > > > > > > > your definition e.g. max return, min
> risk or
>> > > > > > > whatever).
>> > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > --- In amibroker@xxxxxxxxxxxxxxx
>> > <mailto:amibroker%40yahoogroups.com><amibroker%
>> > 40yahoogroups.com <http://40yahoogroups.com>>
>> > > > <amibroker%
>> > > > 40yahoogroups.com <http://40yahoogroups.com>><amibroker%
>> > > >
>> > > > > > > 40yahoogroups.com <http://40yahoogroups.com>>,
>> > > > > > > > > "brian_z111"
>> > > > > > > > > brian_z111@
>> > > > > > > > > > > > wrote:
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > Howard,
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > Thanks for your post.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > A very well written article.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > Some contrary comment (first
> referencing
>> > some
>> > > > of
>> > > > > > > your
>> > > > > > > > > > > points
>> > > > > > > > > > > > and
>> > > > > > > > > > > > > > > > then, later, some comments of my own):
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > > By trying many
>> > > > > > > > > > > > > > > > > combinations of logic and parameter
>> > values,
>> > > > we
>> > > > > > > will
>> > > > > > > > > > > > eventually
>> > > > > > > > > > > > > > > find
>> > > > > > > > > > > > > > > > >a system that is profitable for
> the date
>> > > > range
>> > > > > > > > > analyzed.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > You are assuming that all
> successful long
>> > term
>> > > > > > > traders
>> > > > > > > > > > > > arrived
>> > > > > > > > > > > > > at
>> > > > > > > > > > > > > > > > their system(s) by using this
> approach ...
>> > > > perhaps
>> > > > > > > > > there
>> > > > > > > > > > > are
>> > > > > > > > > > > > > > > systems
>> > > > > > > > > > > > > > > > out there that have no optimiseable
>> > parameters
>> > > > > > and
>> > > > > > > only
>> > > > > > > > > > one
>> > > > > > > > > > > > > > > > underlying logic.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > If so they are likely be based on
> primal
>> > > > market
>> > > > > > > > > behaviour
>> > > > > > > > > > > and
>> > > > > > > > > > > > > > > > therefore persistent across
> markets and
>> > time
>> > > > i.e
>> > > > > > > they
>> > > > > > > > > > would
>> > > > > > > > > > > > > have to
>> > > > > > > > > > > > > > > > be systems based on market
> characteristics
>> > > > that
>> > > > > > are
>> > > > > > > > > > > relatively
>> > > > > > > > > > > > > > > > stationary.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > > testing the
>> > > > > > > > > > > > > > > > > profitability of a trading
> system that
>> > was
>> > > > > > > developed
>> > > > > > > > > > > using
>> > > > > > > > > > > > > recent
>> > > > > > > > > > > > > > > > >data
>> > > > > > > > > > > > > > > > > on older data is guaranteed to over-
>> > > > estimate the
>> > > > > > > > > > > > > profitability of
>> > > > > > > > > > > > > > > > the
>> > > > > > > > > > > > > > > > > trading system.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > You know that in science
>> > (philosophy/logic) it
>> > > > > > only
>> > > > > > > > > takes
>> > > > > > > > > > > one
>> > > > > > > > > > > > > > > > refutation to dethrone the current
> ruling
>> > > > > > > hypothesis ...
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > if a long system, developed on the
> last 12
>> > > > months
>> > > > > > of
>> > > > > > > > > data
>> > > > > > > > > > > > (when
>> > > > > > > > > > > > > the
>> > > > > > > > > > > > > > > > market was experiencing a bear
> riot) is
>> > then
>> > > > > > tested
>> > > > > > > OOS
>> > > > > > > > > > on
>> > > > > > > > > > > the
>> > > > > > > > > > > > > > > prior
>> > > > > > > > > > > > > > > > years data it will outperform the in
>> > sample
>> > > > tests
>> > > > > > > (OOS
>> > > > > > > > > > > would
>> > > > > > > > > > > > be
>> > > > > > > > > > > > > > > > conducted on bull market data).
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > > There is very little reason to
> expect
>> > that
>> > > > > > future
>> > > > > > > > > > > behavior
>> > > > > > > > > > > > and
>> > > > > > > > > > > > > > > > > profitability of well known trading
>> > systems
>> > > > > > will
>> > > > > > > be
>> > > > > > > > > the
>> > > > > > > > > > > > same
>> > > > > > > > > > > > > as
>> > > > > > > > > > > > > > > past
>> > > > > > > > > > > > > > > > > behavior.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > Do we have any empirical evidence
> of this?
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > First we would have to have an agreed
>> > > > definition
>> > > > > > > > > of 'well
>> > > > > > > > > > > > > known',
>> > > > > > > > > > > > > > > > make a list of the systems, and then
>> > perform
>> > > > > > massive
>> > > > > > > > > > > testing.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > To scrupulously prevent any bias
> creeping
>> > > > testing
>> > > > > > > would
>> > > > > > > > > > > have
>> > > > > > > > > > > > to
>> > > > > > > > > > > > > be
>> > > > > > > > > > > > > > > > conducted live, and not on historical
>> > data.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > We only know that they were
>> > successful 'in the
>> > > > > > > past' by
>> > > > > > > > > > IS
>> > > > > > > > > > > > > testing,
>> > > > > > > > > > > > > > > > or by claim.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > Do we have any, or many, certified
>> > performance
>> > > > > > > records
>> > > > > > > > > > > > provided
>> > > > > > > > > > > > > by
>> > > > > > > > > > > > > > > > traders who claim to have had
> success with
>> > > > > > > those 'well
>> > > > > > > > > > > known'
>> > > > > > > > > > > > > > > systems.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > > Statistics gathered from in-sample
>> > results
>> > > > have
>> > > > > > > > > > > > > > > > > no relationship to statistics
> that will
>> > be
>> > > > > > > gathered
>> > > > > > > > > > from
>> > > > > > > > > > > > > trading.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > Not, so.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > They have every bearing on the stats
>> > gathered
>> > > > in
>> > > > > > > > > trading
>> > > > > > > > > > > > because
>> > > > > > > > > > > > > > > only
>> > > > > > > > > > > > > > > > systems with good IS performance
> make it
>> > to
>> > > > the
>> > > > > > OS,
>> > > > > > > or
>> > > > > > > > > > live
>> > > > > > > > > > > > > > > trading,
>> > > > > > > > > > > > > > > > phase.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > OOS testing is only proceeded with
>> > because the
>> > > > > > > analyst
>> > > > > > > > > > has
>> > > > > > > > > > > > every
>> > > > > > > > > > > > > > > > expectation, or hope, that the good IS
>> > stats
>> > > > will
>> > > > > > be
>> > > > > > > > > > > > reproduced
>> > > > > > > > > > > > > OOS.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > In fact it is the relative performance
>> > between
>> > > > > > the
>> > > > > > > IS
>> > > > > > > > > and
>> > > > > > > > > > > OOS
>> > > > > > > > > > > > > stats
>> > > > > > > > > > > > > > > > the encourages us to proceed or abort.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > Re trading the edge erodes the edge:
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > It is an assumption that all
> players are
>> > > > trading
>> > > > > > > > > > > systems ...
>> > > > > > > > > > > > > many
>> > > > > > > > > > > > > > > are
>> > > > > > > > > > > > > > > > not, in fact the vast majority are
> not....
>> > > > those
>> > > > > > who
>> > > > > > > > > > aren't
>> > > > > > > > > > > > > control
>> > > > > > > > > > > > > > > > vastly greater sums of money than
> those
>> > who
>> > > > do.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > It is an assumption that all wins
> erode
>> > the
>> > > > > > > system ...
>> > > > > > > > > > they
>> > > > > > > > > > > > > could
>> > > > > > > > > > > > > > > be
>> > > > > > > > > > > > > > > > just lucky wins that the trader can't
>> > exploit
>> > > > long
>> > > > > > > > > term,
>> > > > > > > > > > or
>> > > > > > > > > > > > > > > > successful wins that the trader
> doesn't
>> > > > sustain
>> > > > > > e.g
>> > > > > > > > > they
>> > > > > > > > > > > > might
>> > > > > > > > > > > > > not
>> > > > > > > > > > > > > > > > have the capital, use the correct
> staking
>> > or
>> > > > > > > maintain
>> > > > > > > > > > self-
>> > > > > > > > > > > > > > > discipline
>> > > > > > > > > > > > > > > > in the future.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > Only a very small percentage of
> traders
>> > are
>> > > > > > > successful,
>> > > > > > > > > > and
>> > > > > > > > > > > > > hence
>> > > > > > > > > > > > > > > > trading a successful system ...
> every one
>> > else
>> > > > > > who
>> > > > > > > is
>> > > > > > > > > > > trading
>> > > > > > > > > > > > is
>> > > > > > > > > > > > > > > just
>> > > > > > > > > > > > > > > > making noise.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > There are millions of system
> permutations,
>> > > > > > > instruments,
>> > > > > > > > > > > > markets,
>> > > > > > > > > > > > > > > > staking systems etc ..... how many
>> > successful
>> > > > > > > traders
>> > > > > > > > > > would
>> > > > > > > > > > > > it
>> > > > > > > > > > > > > take
>> > > > > > > > > > > > > > > > to exahaust all of the successful
>> > > > permutations?
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > > The follow-on point, which
> relates to
>> > Monte
>> > > > > > Carlo
>> > > > > > > > > > > analysis,
>> > > > > > > > > > > > is
>> > > > > > > > > > > > > > > that
>> > > > > > > > > > > > > > > > > rearranging the in-sample trades
> gives
>> > no
>> > > > > > insight
>> > > > > > > > > into
>> > > > > > > > > > > the
>> > > > > > > > > > > > > future
>> > > > > > > > > > > > > > > > > characteristics of the system.
> Yes, you
>> > can
>> > > > see
>> > > > > > > the
>> > > > > > > > > > > effect
>> > > > > > > > > > > > of
>> > > > > > > > > > > > > > > taking
>> > > > > > > > > > > > > > > > > the trades in different orders.
> But why
>> > > > bother?
>> > > > > > > They
>> > > > > > > > > > are
>> > > > > > > > > > > > still
>> > > > > > > > > > > > > > > > > in-sample results and still have no
>> > value.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > If you are engineering an F1
> racing car
>> > there
>> > > > is
>> > > > > > > only
>> > > > > > > > > > track
>> > > > > > > > > > > > > > > > testing/simulation (99.9 of the
> time) and
>> > > > racing
>> > > > > > > > > > > performance
>> > > > > > > > > > > > > (1% of
>> > > > > > > > > > > > > > > > the time).
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > The more information you gather
> off the
>> > track
>> > > > the
>> > > > > > > more
>> > > > > > > > > > > likely
>> > > > > > > > > > > > > you
>> > > > > > > > > > > > > > > are
>> > > > > > > > > > > > > > > > to perform on the track OR know
> what to
>> > adjust
>> > > > > > and
>> > > > > > > when
>> > > > > > > > > > to
>> > > > > > > > > > > > > adjust
>> > > > > > > > > > > > > > > it
>> > > > > > > > > > > > > > > > if performance doesn't meet
> expectations.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > Do you know of any F1 teams that don't
>> > > > > > > test/simulate?
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > Do you know of any F1 teams that only
>> > > > > > test/simulate
>> > > > > > > > > one,
>> > > > > > > > > > or
>> > > > > > > > > > > > > > > limited,
>> > > > > > > > > > > > > > > > metrics?
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > What is testing if not 'massive
>> > examination of
>> > > > > > what-
>> > > > > > > if
>> > > > > > > > > > > > > scenarios'?
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > Re MonteCarlo and stationarity
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > I haven't studied the subject in
> depth.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > Mainly it is has been used outside of
>> > trading
>> > > > and
>> > > > > > in
>> > > > > > > > > > > > different
>> > > > > > > > > > > > > ways
>> > > > > > > > > > > > > > > > to the ways that traders use it ....
>> > possibly
>> > > > it
>> > > > > > > would
>> > > > > > > > > > be
>> > > > > > > > > > > > best
>> > > > > > > > > > > > > to
>> > > > > > > > > > > > > > > > limit trading discussion to 'trading
>> > > > simulation'
>> > > > > > and
>> > > > > > > > > drop
>> > > > > > > > > > > the
>> > > > > > > > > > > > MC
>> > > > > > > > > > > > > > > part
>> > > > > > > > > > > > > > > > of the name.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > I have only found one book devoted
> to the
>> > > > subject
>> > > > > > > and I
>> > > > > > > > > > > regret
>> > > > > > > > > > > > > > > buying
>> > > > > > > > > > > > > > > > it .... 'MCS and System Trading'
> by Volker
>> > > > > > Butzlaff.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > I have also test driven TradeSim
> and MSA.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > Referencing their trading apps.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > TS arranges the trades, as a time
> series,
>> > and
>> > > > > > > randomly
>> > > > > > > > > > > walks
>> > > > > > > > > > > > > > > through
>> > > > > > > > > > > > > > > > all permutations to simulate 'live
>> > > > trading'.....
>> > > > > > it
>> > > > > > > is
>> > > > > > > > > an
>> > > > > > > > > > > MM
>> > > > > > > > > > > > > test,
>> > > > > > > > > > > > > > > of
>> > > > > > > > > > > > > > > > some kind, because equity is allocated
>> > prior
>> > > > to
>> > > > > > the
>> > > > > > > > > walk
>> > > > > > > > > > > > > through.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > AB's backtester, in default mode, does
>> > this
>> > > > once.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > I assume other methods could be
> used ...
>> > as
>> > > > per my
>> > > > > > > > > > pervious
>> > > > > > > > > > > > XYZ
>> > > > > > > > > > > > > > > > example:
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > - abcXdefghi with simultaneous
> trades on
>> > day
>> > > > 4,
>> > > > > > > > > > > > > > > > - we can only achieve a finite set of
>> > > > > > permutations,
>> > > > > > > > > > > > > > > > - the outcome of massive sampling will
>> > tend to
>> > > > > > the
>> > > > > > > mean
>> > > > > > > > > +-
>> > > > > > > > > >
>> > > > > > > > > > > > > variance,
>> > > > > > > > > > > > > > > > - we can simulate the eq outcomes
> using
>> > random
>> > > > > > > sampling
>> > > > > > > > > > of
>> > > > > > > > > > > > > uniform
>> > > > > > > > > > > > > > > > size, ave the result per random
> series and
>> > > > then
>> > > > > > freq
>> > > > > > > > > dist
>> > > > > > > > > > > the
>> > > > > > > > > > > > > means
>> > > > > > > > > > > > > > > > (Central Limit Theoreom predicts a
> pseudo
>> > norm
>> > > > > > > dist).
>> > > > > > > > > > > > > > > > > 30 selections per series * ?
> series will
>> > > > > > achieve
>> > > > > > > an
>> > > > > > > > > > > approx
>> > > > > > > > > > > > of
>> > > > > > > > > > > > > > > > possible eq outcomes (I'm not sure if
>> > > > > > distrubtions
>> > > > > > > obey
>> > > > > > > > > > the
>> > > > > > > > > > > > > laws of
>> > > > > > > > > > > > > > > > sample error ... I don't think
> they do).
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > TradeSims real life simulation assumes
>> > > > > > stationarity
>> > > > > > > > > (the
>> > > > > > > > > > > > balls
>> > > > > > > > > > > > > in
>> > > > > > > > > > > > > > > the
>> > > > > > > > > > > > > > > > bin, and their values will remain
> constant
>> > > > into
>> > > > > > the
>> > > > > > > > > > future).
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > It also assumes that they will be
> selected
>> > > > from
>> > > > > > the
>> > > > > > > bin
>> > > > > > > > > > in
>> > > > > > > > > > > > the
>> > > > > > > > > > > > > same
>> > > > > > > > > > > > > > > > order, or frequency to be absolutely
>> > correct
>> > > > (the
>> > > > > > > order
>> > > > > > > > > > > > doesn't
>> > > > > > > > > > > > > > > > change anything only the
> frequency)....
>> > to be
>> > > > > > > precise
>> > > > > > > > > > about
>> > > > > > > > > > > > it,
>> > > > > > > > > > > > > > > their
>> > > > > > > > > > > > > > > > model assumes that if you have
> picked the
>> > > > worst
>> > > > > > > > > > historical
>> > > > > > > > > > > > loss
>> > > > > > > > > > > > > out
>> > > > > > > > > > > > > > > > of the bin 2/1000 trades that you
> will not
>> > > > only
>> > > > > > > > > > experience
>> > > > > > > > > > > > the
>> > > > > > > > > > > > > same
>> > > > > > > > > > > > > > > %
>> > > > > > > > > > > > > > > > as the worst loss in the future
> but that
>> > it
>> > > > will
>> > > > > > > also
>> > > > > > > > > > only
>> > > > > > > > > > > > occur
>> > > > > > > > > > > > > > > > 2/1000 times.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > MSA puts all of the balls in the
> bin and
>> > > > selects
>> > > > > > > them
>> > > > > > > > > in
>> > > > > > > > > > a
>> > > > > > > > > > > > way
>> > > > > > > > > > > > > that
>> > > > > > > > > > > > > > > > allows new combinations (frequencies)
>> > until
>> > > > all
>> > > > > > > possible
>> > > > > > > > > > > > > > > frequencies
>> > > > > > > > > > > > > > > > are exhausted i.e. they assume
>> > stationarity
>> > > > only
>> > > > > > in
>> > > > > > > > > > values
>> > > > > > > > > > > > but
>> > > > > > > > > > > > > not
>> > > > > > > > > > > > > > > > frequency of dist (they assume
> dist is a
>> > > > > > probability
>> > > > > > > > > > > > statement
>> > > > > > > > > > > > > and
>> > > > > > > > > > > > > > > > not a constant or series of
>> > constants).... to
>> > > > be
>> > > > > > > > > precise
>> > > > > > > > > > > > about
>> > > > > > > > > > > > > it
>> > > > > > > > > > > > > > > > they assume that if it can happen
> it will.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > So, stationarity is the issue.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > So many people are confusing
> variance with
>> > > > non-
>> > > > > > > > > > > > stationarity ....
>> > > > > > > > > > > > > > > they
>> > > > > > > > > > > > > > > > are being fooled by randomness e.g.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > we know that the trial records of fair
>> > coin
>> > > > > > tosses
>> > > > > > > are
>> > > > > > > > > > > > > stationary
>> > > > > > > > > > > > > > > AND
>> > > > > > > > > > > > > > > > they have a surprising range of
> outcomes
>> > > > > > > (variance) ...
>> > > > > > > > > > > this
>> > > > > > > > > > > > is
>> > > > > > > > > > > > > > > very
>> > > > > > > > > > > > > > > > easy to see if simulated and
> expressed as
>> > > > equity
>> > > > > > > > > outcomes.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > Therefore, in trading, we can, at the
>> > least
>> > > > > > expect a
>> > > > > > > > > > > > tremendous
>> > > > > > > > > > > > > > > > amount of variance ... no less
> than what
>> > can
>> > > > be
>> > > > > > > > > expected
>> > > > > > > > > > > from
>> > > > > > > > > > > > a
>> > > > > > > > > > > > > > > coin
>> > > > > > > > > > > > > > > > toss experiment ... this variance
> can be
>> > > > estimated
>> > > > > > > > > using
>> > > > > > > > > > > > several
>> > > > > > > > > > > > > > > > methods, simulation being one
> easy, push
>> > the
>> > > > > > > computer
>> > > > > > > > > > > button
>> > > > > > > > > > > > and
>> > > > > > > > > > > > > > > look
>> > > > > > > > > > > > > > > > at the graph method.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > So, the value of the simulation is in
>> > training
>> > > > > > the
>> > > > > > > mind
>> > > > > > > > > > to
>> > > > > > > > > > > > > accept
>> > > > > > > > > > > > > > > > variance and mentally prepare for the
>> > worst
>> > > > case
>> > > > > > > losses.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > However, it doesn't matter how we
> design
>> > our
>> > > > > > > systems we
>> > > > > > > > > > can
>> > > > > > > > > > > > not
>> > > > > > > > > > > > > do
>> > > > > > > > > > > > > > > > anything about stopping
> non-stationarity.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > Our system will get wiped out in
> OOS if
>> > it is
>> > > > not
>> > > > > > > > > robust
>> > > > > > > > > > OR
>> > > > > > > > > > > > if
>> > > > > > > > > > > > > the
>> > > > > > > > > > > > > > > > market changes.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > If our system is robust it will
> still get
>> > > > wiped
>> > > > > > out
>> > > > > > > if
>> > > > > > > > > > the
>> > > > > > > > > > > > > market
>> > > > > > > > > > > > > > > > changes.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > However, IMO, non-stationarity is
> not, or
>> > need
>> > > > > > not
>> > > > > > > be,
>> > > > > > > > > as
>> > > > > > > > > > > > > pervasive
>> > > > > > > > > > > > > > > > in trading as we think.
>> > > > > > > > > > > > > > > >
>> > > > > > > > > > > > > > > > As I have said in the past, and
> already in
>> > > > this
>> > > > > > > > > post ...
>> > > > > > > > > > > many
>> > > > > > > > > > > > > > > traders
>> > > > > > > > > > > > > > > > are slayed by the innocuous
> looking Black
>> > > > Swan,
>> > > > > > > because
>> > >
>> > ...
>> >
>> > [Message clipped]
>> >
>> >
>> >
>>
>
>
>
>
> ------------------------------------
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