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[Metastockusers] Re: Stationarity and Real World application of statistics



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Trading Reference Links

League Rules specifically prohibit me from entering Dr. Ehlers into
your pissing contest.  You must get approval directly from him.  I
think you can contact him through his site:

www.mesasoftware.com

Let us know who wins.... :)



--- In Metastockusers@xxxxxxxxxxxxxxx, "superfragalist"
<jackolso@xxxx> wrote:
> I thought John Ehlers completed some course work toward his doctorate
> but didn't finish his diseration or all of the classes. Is "Dr." the
> correct designation?
> 
> 
> 
> 
> --- In Metastockusers@xxxxxxxxxxxxxxx, "bradulrich33"
> <bradulrich@xxxx> wrote:
> > Yes, some peeople seem to think holy grail for some reason when you
> > mention Dr. Ehlers or signal processing techniques.  I don't ever
> > remember him saying that.  His stuff is meant to:
> > 
> > 1.) Smooth data with less lag time through the use of filters designed
> > for signal processing.
> > 
> > 2.) Look for and quickly measure cycles in the data.  Sometimes there
> > are cycles, sometimes there are not.
> > 
> > 3.) Transform the very un-gaussian distribution of price data to a
> > more gaussian distribution.  (TradeStats!!! I like that term) in order
> > to make more realistic, but obviously not perfect, measurments of
> > statistical extremes. Many people ignore this VERY important fact when
> > trying to apply statistics to price data.  Price data has almost the
> > exact opposite of a gaussian distribution.
> > 
> > All of these are applied to real measured data, and do not make
> > assumptions about future data.  These are referred to as causal
> > filters, as opposed to non-causal filters which require data from
> > ahead of the measured point to create the filter.
> > 
> > Only one of Dr. Ehlers techniques, the Sinewave indicator, attempts to
> > use a non-causal filter, in this case, he assumes the the cycle phase
> > will exist as it does now for another few bars, and advanced a measure
> > of this phase in order to make a prediction. 
> > 
> > You are right, you cannot assume that the cycle and phase will stay
> > the same in the future...You just have to make a measurement with as 
> > little lag as possible, and sometimes make the assumption that they
> > will stay the same, or at least in the general vicinity.
> >  
> > It seems as though the Stationarity principle can be applied to cycle
> > and phase the same as it can to mean and variance???
> > 
> > There are ways of measuring cycle and phase in price data the same as
> > there are ways of measuring mean and variance, both require a bit of
> > lag of course, but that does not make them unusable. In fact, Ehlers'
> > methods of measuring cycle and phase are very responsive. Everyone
> > acknowledges that both are simply measurements of previous activity,
> > and not necessarily an indication of future activity. 
> > 
> > 
> > I am by no means an expert on the subject, but I think the idea of
> > Stationality applies mainly to the ideas in Signal theory regarding
> > sampling and reconstruction of signals, which is not what we are doing
> > here.  We are borrowing some techniques related to the field to let us
> > make a more "informed" model, but there are still many assumptions
left.
> > 
> > That being said, there are still limiting assumptions, and thus
> > improvements that can be made on top of Ehlers' stuff given a general
> > understanding of the reasoning behind his ideas.  Non of these
> > improvements will come close to the theoretical holy grail, but they
> > will remove a few false signals, and they will get you in a bar-or-two
> > earlier on some decisions. 
> > 
> > People should not look at his techniques as alternatives to most
> > others.  I have found the best results come from using his stuff with
> > many other techniques that make improvements upon "traditional"
> > indicators and techniques.
> > 
> > Thanks,
> > 
> > Brad Ulrich
> > www.thedml.com
> > 
> > 
> > 
> > 
> > 
> >  tecto put is shortly
> > 
> > --- In Metastockusers@xxxxxxxxxxxxxxx, "teclogeo" <teclogeo@xxxx>
wrote:
> > > >Engineers agree with Mark Twain: there are lies, damn lies, and
> > then there
> > > is statistics
> > > 
> > >  
> > > 
> > > Err.sorry, but that is a slightly misplaced quote. Yes, Mark Twain
> > said it
> > > and yes it can be true when statistics are deliberately used to
> mislead
> > > people as in the way politicians regularly use them. But engineers.?
> > I know
> > > you are one, but I would like to venture a bit of personal
> > experience that
> > > may persuade you and others interested in how statistics are
regularly
> > > applied in a Real World application that you may not have considered
> > before
> > > now. Perhaps that may then help you shed a more favourable light on
> > the way
> > > stats are applied in the world of trading.
> > > 
> > >  
> > > 
> > > In my previous life I was a geologist working for a large mining
> > company. My
> > > claim to fame in that area is that I was on the (small) team
that was
> > > responsible for one of the more significant gold discoveries of
> > recent years
> > > (for those interested, the Geita deposit in Tanzania.now
belonging to
> > > Anglogold-Ashanti). So, the point here is that I have some
> experience in
> > > using statistical modelling.namely in the practical application of
> > > "geostatistics".
> > > 
> > >  
> > > 
> > > Geostats is nothing fancy.it's just the name given by geologists
> to the
> > > practice of determining the size and internal grade distribution of
> > an ore
> > > body using statistical methods. Basically one has a limited data
> set of
> > > samples from drill holes and uses that to come up with a 3-D model
> > of the
> > > ore body and the distribution of metal within that body.and then
> to put
> > > levels of statistical confidence in that model. Those levels of
> > confidence
> > > determine (usually within industrial standards) how much more,
if any,
> > > drilling is required to satisfy the *mining engineers* that what you
> > have is
> > > not just a mineral deposit but an ore body (the former is just metal
> > in the
> > > ground, whereas the latter can actually be mined economically).
> > > 
> > >  
> > > 
> > > Mining engineers know that this is only a model. They know that it
> > is not
> > > 100% fact (as the only way to determine that is to actually mine the
> > thing).
> > > They know the statistical confidence levels and therefore they
> know that
> > > there are likely to be some errors in the model. This means that
> > when the
> > > miners actually come to take the gold out of the ground there will
> > be less
> > > in some places and (more pleasantly) more in others. And yet, look
> > at what
> > > happens.capital flows, mines get built, people get employed,
dirt gets
> > > shifted, metal comes out of the ground. And all that hangs on a few
> > > statistical inferences made by a bunch of Neanderthal geologists.
> > Not bad,
> > > eh?
> > > 
> > >  
> > > 
> > > So there is no question of "lying". To do so would involve not only
> > gross
> > > professional negligence on behalf of the geologist, but it would
> > mean that
> > > everything that else that normally follows would fall
> apart.usually long
> > > after all the capital has been spent and the people have been
> > employed, i.e.
> > > when it's far too late. Also, in the case of deliberate scams like
> > Bre-X,
> > > the use of geostatistical "lies" can affect the whole industry.
> > > 
> > >  
> > > 
> > > Now, with all that said, you might be surprised to find that the
> > principle
> > > of stationarity is relaxed almost to the point of irrelevance in
> > > geostatistics. Nature is a wonderful thing, but it rarely conforms
> > to simple
> > > mathematical models and so, skipping over the jargon, we basically
> > find that
> > > we have to make some pretty sizeable assumptions and generalisations
> > when
> > > coming up with the models. Are we lying when we "bend the rules" so?
> > I don't
> > > think so.we are not agreeing with Mark Twain at all. He was
> implying, I
> > > think, that statistics are determined and then manipulated for an
> > ulterior
> > > motive. That is different from honestly recognising, discussing
> and then
> > > trying to work around the limitations of the practice.
> > > 
> > >  
> > > 
> > > All this has direct implications to the world of trading. I've
> > already gone
> > > on too much so I'll only say now that you can draw two direct
> parallels
> > > between geostats and "trading stats" (Tradstats??!!). One is that
> > there is a
> > > known quantity.the drill hole data is dirt already taken out of the
> > ground
> > > and analysed - this compares with the historical data set in
> > trading. The
> > > second is that there is an unknown quantity that you want to
> > estimate, or
> > > model.the very sizeable un-mined bits of the deposit between the
drill
> > > holes(!) and the future data in trading. The only problem I can
> think of
> > > there is to do with continuity. The drill hole data is not spatially
> > > continuous in 3D, whereas the time-series trading data is. Oh well,
> > that's
> > > not relevant.what I'm trying to say is that you should not confuse
> > > statistical modelling with any sort of "holy grail". Perfection
> does not
> > > exist when dealing with models, as any experienced mining engineer
> > will tell
> > > you.but that doesn't mean in any way that a good model will not
> help in
> > > getting the job done. And engineering is, after all, about getting
> > the job
> > > done.
> > > 
> > >  
> > > 
> > > Hope that's helped open your mind a bit?!
> > > 
> > >  
> > > 
> > >  
> > > 
> > >   _____  
> > > 
> > > From: Metastockusers@xxxxxxxxxxxxxxx
> > [mailto:Metastockusers@xxxxxxxxxxxxxxx]
> > > On Behalf Of jawjahtek
> > > Sent: Friday, July 01, 2005 11:07 PM
> > > To: Metastockusers@xxxxxxxxxxxxxxx
> > > Subject: [Metastockusers] Re: New Adaptive Tools for Metastock
> > > 
> > >  
> > > 
> > > Random question and comment:
> > > 
> > > 1. Superfragalist, have you tried CSI data (assuming you use EOD
> data)? 
> > > There is no such thing as a good data provider, but at least CSI is 
> > > honest and up front about continually cleaning their data AND
telling 
> > > users what errors were made. If you use intraday data, I can see
how 
> > > you have been hosed. The only option that I have seen is to
match the 
> > > professional set ups: use multiple intraday suppliers.
> > > 
> > > 2. While I wish the developers of the new adaptive tools all of the 
> > > luck in the world, I don't believe that ANY application of 
> > > Communications (Signal) theory can be successfully applied to price 
> > > data. In academic terms, these theories require Stationarity. In 
> > > layman's terms, this means that the theories require a constant
range 
> > > of frequencies (cycle) and phases (time lag). Unfortunately,
> historical 
> > > price data tells us nothing about the future prices' frequency and 
> > > phase.
> > > 
> > > Statistician's definition of Stationarity: a statistical name for 
> > > expressing degrees of invariance in the properties of random
> functions; 
> > > it refers to the statistical model, and not to the data. Most
> commonly 
> > > used to indicate invariance in the mean and variance, but also
in the 
> > > variance of first differences.
> > > 
> > > I am an Electrical Engineer. Although EEs use the concept of 
> > > Stationarity, its meaning is slighly different in engineering. 
> > > Engineers agree with Mark Twain: there are lies, damn lies, and
then 
> > > there is statistics.
> > > 
> > > I will try the free trial, but I already know that the holy grail
> does 
> > > not (and cannot) exist.
> > > 
> > > 
> > > jawjahtek
> > > 
> > > 
> > > 
> > > 
> > > --- In Metastockusers@xxxxxxxxxxxxxxx, "superfragalist"
> <jackolso@xxxx> 
> > > wrote:
> > > > Well, I've got all those IVs hung off my wallet also. Reuters at
> least
> > > > cleans their data, which esignal doesn't do. In fact, esignal
can't
> > > > even adjust for splits. 
> > > > 
> > > > I didn't know netflix had DVDs on trading. I've just been
> trading DVDs
> > > > with them. 
> > > > 
> > > 
> > > 
> > > 
> > > 
> > > 
> > > 
> > >   _____  
> > > 
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> > > 
> > >  
> > > 
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> > >   
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> > >
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> > > 
> > >  
> > > 
> > >   _____




 
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