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I don't know exactly what your Math Ph.D. is doing but I'll bet money it he is
using
the techniques described in the "Econometrics of Financial Markets" A book by
Lo & Campbell. Unfortunately you need a doctorate in Math to
figure out what the hell they are talking about.
However I think you could build a model that would take the best of both worlds
into account for example ,something like a very simple approach ,such as noting
retracements and having a statistical base line that tells you what retracements
at each level probability of turning or going on is .,At each level the money
management would vary ,,,this is what come to mind in going or fading ,,,I think
if you put in enough screen time you work it into your feel of the markets and
react. It would be nice to know the probabilities though .I have always worked
with the idea that retracments of .612 % or more are more trend reversals
,however even that has become less true in the last year or so . Of couse even
with trend reversals I would trade the retest of the low or high , so maybe the
less I know the better .
Ross Kovacs wrote:
> A recent post by Brent included this comment:
> "I got a copy of Perry Kaufman's Trading Systems and methods from my
> library. I was surprised how much this book covers. It makes me realize that
> almost every conceivable angle has been covered in the pursuit of trading."
>
> I must aver. I have a friend who manages over $100 m in a fund that has
> clients including Coca Cola's pension plan. My friend has a Ph.D. in math,
> specializing in statistics. He makes his investment decisions strictly on
> statistical analysis. I can never get him to describe specifics other than
> trades he is making. But some conversations have been borderline in
> allowing me to see inside his "box".
>
> His statistical methods allow him to switch between what we might describe
> as "trend following" to "fading the trend" strictly based on his
> probabilistic calculations. He would describe his fading trades as "waiting
> for the price to be in the tail of a probability distribution."
>
> When I discuss standard technical analysis indicators to him such as RSI or
> Bollinger Bands that might give the same buy/sell signal, he listens but not
> with great interest. He claims to have negligible knowledge of technical
> analysis and wants to remain that way. Perhaps a personal choice, perhaps a
> business choice since many pension fund managers view technical analysis as
> voodoo.
>
> Although I haven't read Perry Kaufman's book, I'd be surprised to see a
> purely statistical method in the book. I haven't seen a purely probability
> and statistical based method described anywhere, and my study includes an
> MBA in Finance as well as many years interest and use of technical analysis.
> One reason for this post is to ask any RTs have they seen or read of any
> methods based purely on probability and statistics? (I don't include Curtis
> Arnold's PPS in this category since that does rely on pattern recognition, a
> standard technical analysis category).
>
> A second reason is to try to open further debate. Anyone else seen or heard
> of methods "outside of the box" of methods that technicians or
> fundamentalists are familiar with?
>
> P.S. No flame intended. Brent used excellent etiquette by saying "almost
> every conceivable angle." My belief is that there are many new angles to
> be discovered. Unfortunately, many traders are secretive (including my fund
> manager friend) and don't reveal their "new" approaches.
>
> Ross Kovacs
>
> rossrk@xxxxxxxxxxxxxx
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