A truly riskless system?

Quote from Martinghoul:

Aha, now we're getting into the issues with the zero bound, but you should realize that it's a red herring. After all, the real argument you're making is not for +/- 100% or 200% moves, but rather for +/- epsilon, where epsilon tends to 0. You shouldn't confound the issues of the zero bound and the constraints it imposes on the resulting distribution with your basic binomial tree argument.
More...
Martinghoul, if eur/usd follows a random walk, then (eur/usd)*x is equally probable as (usd/eur)*x. And (usd/eur)*x=(eur/usd)*(1/x). Therefore eur/usd*2 is equally probable as eur/usd*0,5 and eur/usd*3 is equally probable as eur/usd*0,333333.
If you consider this logic wrong, then I will not try to convince you.
 
Quote from sambian:

Martinghoul, if eur/usd follows a random walk, then (eur/usd)*x is equally probable as (usd/eur)*x. And (usd/eur)*x=(eur/usd)*(1/x). Therefore eur/usd*2 is equally probable as eur/usd*0,5 and eur/usd*3 is equally probable as eur/usd*0,333333.
If you consider this logic wrong, then I will not try to convince you.
More...
I consider this logic wrong, indeed...
 
There is an obvious mathematical error being made by the writer of the article. But I will not point it out because I'm a bastard. This discussion is very similar to the "perpetual motion device".
 
Quote from epetrov:

Hey sambian,
to profit from a randomness is basically not possible.
More...
Hi, epetrov.
A whole lot of financial theories are based on the assumptions that prices follow a random walk. I think that this is not true and in this article I have presented a logical argument. Since there is no error in my arguments, then if prices followed a random walk, everybody would be making profits. And this is simply not possible.

Anyway, the fact that prices don't follow random walk doesn't mean that there is no randomness in trading. I have almost finished an article with examples of riskless profits from the real world, and the system will be profitable also in the future (i.e. out of sample). Right now I don't have time, but soon I will post it and you will see examples of profiting from randomness :)
 
by far the most accurate and concise line of reasoning I have ever seen on ET. Its a true pleasure to follow your posts Martinghoul.

Quote from Martinghoul:

Aha, now we're getting into the issues with the zero bound, but you should realize that it's a red herring. After all, the real argument you're making is not for +/- 100% or 200% moves, but rather for +/- epsilon, where epsilon tends to 0. You shouldn't confound the issues of the zero bound and the constraints it imposes on the resulting distribution with your basic binomial tree argument.
More...
 
the positive expected return comes from the second order of taylor expansion.
it is too small for practical use.



Quote from SmokeAndMirrors:

Sorry didn't bother to read anything but the title... For a short time maybe..for the long run...Hell No!
More...
 
In flucotating markets (70% of the time) the system works well because with the more expensive currency we buy the cheaper one, after they return and so on.
In real world I don't know.
We have to backtest the system with the last year End Of Week Forex data with end of week re-adjusments in order to see the result. It can be done on Excel. Any volunteer to do that?:)
 
Quote from sambian:

Martinghoul, if eur/usd follows a random walk, then (eur/usd)*x is equally probable as (usd/eur)*x. And (usd/eur)*x=(eur/usd)*(1/x). Therefore eur/usd*2 is equally probable as eur/usd*0,5 and eur/usd*3 is equally probable as eur/usd*0,333333.
If you consider this logic wrong, then I will not try to convince you.
More...
Sorry, sambian, I wish to clarify, if I may... Your error is in the very first sentence above. What you're defining as a "random walk" simply isn't.

Specifically, the concept you're trying to operate with, the symmetric ordinary random walk (SORW) is defined as X(t) = X(0) + sum(Z(k)), where 1 <= k <= t and P(Z(k) = 1) = P(Z(k) = -1) = 0.5 for all k. Note that for the SORW, E[X(t)]=0 for all times t.

What you have defined is not a random walk, because you have used two random variables, eur/usd and usd/eur. That's your fallacy, which, unfortunately, makes your riskless system a fantasy.
 
You must log in or register to reply here.
Back
Top