a trading problem for mathematicians

[trhudson]

Quote from trend2009:

Suppose I have two trading methods with no correlation to each other. each of the two methods, if applied alone to the market, has a winning rate of 60%. the question is: if the two methods applied at the same time to the market (the signal must be agreed by the two methods at the same time), what is the winning rate?

Any mathematician here gives a try? and show how you get the result?

You have two uncorrelated methods and you want to determine what will happen when they both agree?

First you might want to start by finding how often they agree.

 

[noddyboy]

Quote from noddyboy:

If you have systems of prob p1 and p2, the combined is
2 * p1 * p2

If you have 3 systems, the combined is
4 * p1 * p2 * p3.

I know...you are going to ask why you can get > 1 prob.
Well, in that case, the systems are not independent, which is why the solution is nonsense.

And if they are all coin flips, then you have a 50% probability.

My assumptions are:
Market goes up or down 1 unit.
Your system have a equal likelihood of giving an up or an down signal.

 

[trhudson]

Quote from jhiro:

40% as soon as you start trading real money

Half that

 

[kut2k2]

Quote from trend2009:

Suppose I have two trading methods with no correlation to each other. each of the two methods, if applied alone to the market, has a winning rate of 60%. the question is: if the two methods applied at the same time to the market (the signal must be agreed by the two methods at the same time), what is the winning rate?

Any mathematician here gives a try? and show how you get the result?

36% ( .6 x .6 = .36 ).

"The signal must be agreed by the two methods at the same time"

Amazing how many people here didn't read the OP.

 

[total_keops]

Quote from trend2009:

I guess you misunderstood the problem. The problem is that the trading signal from method A must be confirmed by method B so that the signal is valid.

One thing for sure over 98% of the people here have no clue what you are talking about! Including me. Any example?

 

[total_keops]

Quote from total_keops:

One thing for sure over 98% of the people here have no clue what you are talking about! Including me. Any example?

Is it like your RSI is one 0.60 and the MACD is another 0.60 and you trade when both agree on a signal?

 

[trend2009]

correct. though RSI and MACD are not good example since they are somewhat correlated.

Quote from total_keops:

Is it like your RSI is one 0.60 and the MACD is another 0.60 and you trade when both agree on a signal?

 

[trhudson]

Quote from trend2009:

correct. though RSI and MACD are not good example since they are somewhat correlated.

That's not what the original post said, it says:

Suppose I have two trading methods with no correlation to each other. each of the two methods, if applied alone to the market, has a winning rate of 60%. the question is: if the two methods applied at the same time to the market (the signal must be agreed by the two methods at the same time), what is the winning rate?

So, are you looking for the winning rate of two methods with zero correlation and you want to know the win rate when they both agree?

What if they never agree?

And, you aren't willing to tell how often they agree?

Or do you know?

 

[ElectricSavant]

This is fascinating!...I am subscribing! ☺

ES

 

[total_keops]

Quote from trend2009:

correct. though RSI and MACD are not good example since they are somewhat correlated.

One could run a Monte Carlo simulation to find out. I am not sure there is a simple analytical solution. But the simulation is not plain vanilla since you have to care about two processes behing uncorellated. Unfortunately I am way to busy and lazy to do it.