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As a financial modeller and recovering engineer and having
done several dozens of models I would be interested, though
lightly :)
Remember, Long Term Capitol Management had 2-3 Nobel prize
winning modellers, god's wallet and they almost brought
down the banking system. The more I try the more I realize:
simpler is better and more complex is no substitue for
psychology or money management.
There was a wonderful post here for a book, partially
finished called: Fooled by Randomness. I STRONGLY suggest
reading it. The address is:
http://home.netcom.com/~ntaleb/fryegg.htm
Thomas "Typically Fooled" Alexander
Bilo Selhi wrote: this should be very interesting
thread to the minority of the listparticipants that are
systematic traders and rocket scientists.i figured that it
would be the ultimate market study oriented thread:*** let
us in short go over the most common and not so common (
forecasting techniques ), their basicmath, classify them,
go over their advantages and disadvantages,give them 1-10
stars as far as the success rate in term of utilizing
thosein your trading system...sounds like fun, aint it?for
those who are lost here is a little introduction:to be able
to come up with a successful tradable system that hashigh %
winners coupled with high win/loss ratio and other
criteriayou need to model the markets that is to come up
with a *mathematicalmodel that describes the theory price
movements thru a *mathor what we call the *process.once a
suitable mathematical model is found and the process math
is workedout, we go into *phase two which is working with
the model by utilizingthe math to *forecast prices and
*make decisions base on those forecasts.as the end of the
result we come up with*buy and sell arrows on the
tradestation screen that tell us when to enterand when to
exit. ( fail to go thru the above process and you will have
aclusterf...k of trading signals )in short the PATH is: (
whether you realize it or not )market theory ( why prices
move and how they move? ).... thenmath model ( process,
what is the math behind price movement )....thenforecasting
( where the price will go based on the math model andinput
parameter ? )... thendecision making ( do we buy or do we
sell based on the forecast )evaluate the success rate ( how
good is the model and is this modeltradable? )ok?now
everyone of us tried different approaches starting from the
simple oneslikepattern probabilistic models to more complex
once like lately mentionedstatespace model or NN models,
etc...most of traders have no good models and therefore
have to good tradingsystems :-)on top of that...some of us
have been looking for years for that perfect model that
explainsit allthat we call the holy grail of system trading
and some of us are juststarting toget into it... so this
might be of interestSO....the purpose of this thread is to
share the experience thru discussingdifferenttypes of
market modeling techniques, the process math
descriptions,forecastingmethods based on those models,
literature references, advantages anddisadvantages and the
success rate based on utilizing those in trading.( this
does not have to be applied only to trading systems, could
applicableto options trading, derivatives pricing, non
price time series forecasting,etc.. )these would be an
equivalent of the encyclopedia of market modelingtechniques
compiled by us... or at lleast a compilation of the
existingpointers tomarket theories.if you are a smart
person, then you must realize that this just might wellbe
theultimate thread... the review, so to speak, of the
search for the holygrail...so i encourage you to
participate as much as you can.this might save us some
months of work and jump start our research since wecan
filter out junk from something that works, bounce ideas,
etc...here is the framework for this thread ( PLEASE STAY
ON IT ):1. Give the name of the model or process ( ARIMA or
Random Walk forinstance )2. Classify it ( Stochastic, Non
Probabilistic, Deterministic,Chaos NLD, General Time Series
Fit Model, Special, NN/AI, New etc )be specific about
classification ie.. if it's mix then describe it
assuch...3. Give basic math ( if you know it ), give the
field of math that the modelutilizes or at least the
general formula for the process OR4. Book or publication
reference to it. ( Box Jenkins, etc. )5. Tell your story as
far as playing with the model and testing it.6. Describe
your general view about the model, its advantages
anddisadvantages7. Since we are TS oriented tell us if you
found implementation of the modelin EL, VB, C or other
code.8. Tell the list the success rate of it if you have
incorporated it intoyour system.9. Give your overall score
from 1 to 10 stars... 2 and 1/2 stars...10. Tells us if you
are an expert in some of the modeling techiniques orat
least tell the list your current points of interest or some
new stuffthat you found...let's see if we could pull that
off on the this or omega list and bouncesome ideas.we
should at least find some individuals that have some
experience tocontribute.my personal interest in this is to
bounce ideas and see where people goand may be give and get
a couple of pointers myself as far aswhere i found the
success and failure as far as different approaches...***if
you have no interest in this thread then don't divert this
thread intodiscussing1st grade algebra or what computer you
need to run your trading software,please...( or better yet
Mark Brown, why don't you create a list called HolyGrailand
maybe we can take insome people and off load some traffic
onto that, how's that? )also, there are hundreds of market
models out there so the job is to filterout whatworks or
might work from what did not work, obviously will not work
or mightworkif altered...the best way is to start with the
most known one such as random walk theoryor probabilistic
models ( indicator or price or combination patterns ),how's
that?take one model apart and move on...sounds like
ultimate fun to me....bilo.psif there is enough interest*in
the next post i will give general classifications and the
descriptions ofthe modelsbut first i would like to see some
hands as far as who wants to bethe millionaire system
trader :-) and is interested in this thread.
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