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:My experience with books like this is that they are great introductions to
:concepts but that they lack anything that can be applied to trading. They
:are long on discussion of all the successes of the methods and short on
:formulae, code, and details.
True (first time I've ever agreed with the Omega Man). I've read the
introducing chapter outlining those concepts in the book, "Computerized
Trading", edited by our own Mark Jurik. There are some useful items in that
chapter that can help your trading. The Hurst coefficient can be used to
determine if the trend will continue in the original direction or will it
reverse its direction anytime soon. You can also use it to select securities
that has a tendency to trend or not. By knowing what the Hurst coefficient
is, you would also know when to switch from trading range systems/indicators
to trending systems/indicators and vice versa.
But you're right. There's hardly any codes.
:That being said, genetic algorithms and fuzzy logic do seem to have
:applications to technical analysis. Nonlinear dynamics and Brownian motion
:motion do not seem to me to have as much application.
Nonlinear dynamics is the opposite of Brownian motion (which is an academic
codeword for random walk theory). By proving that Brownian motion does not
exist in markets, he has essentially debunk the random walk theory, modern
portfolio theory,etc. By doing so, one can take advantage of Paretian
statistics in arbitraging against others still using Gaussian statistics
(which can lead to mispricing - especially in the options market. The Black
Scholes model is based on Gaussian statistics, assuming a normal
distribution - but the fact that we have gap openings shows that
distributions are not normal.). He states that the Black-Scholes has a
tendency to underprice options and that by using models based on Paretian
statistics, one can arbitrage the two and be profitable.
Other than that...the concepts outline are new to me and I haven't master it
or sort it out yet. There are ideas in the book that makes sense and I
intend to explore them whenever I get a chance. And the concepts opened my
mind, giving me a whole new outlook on the markets and trading. I really do
think that May may be on to something (no pun intended).
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