Do you mind sharing how you conduct this statistical analysis and what are the inputs, calculation ?
peace,
surf
TA - Objective or Psychological Skill?
- Thread starter cornix
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Do you mind sharing how you conduct this statistical analysis and what are the inputs, calculation ?
peace,
surf
I choose a price action pattern to study, open a spreadsheet and log data surrounding every appearance of that pattern until I've compiled stats for enough trades to determine if some sort of statistical significance jumps out at me.
I do everything by hand, no automated backtesting for me.
I already know in advance that I'm looking for two kinds of opportunities, so that narrows down the data I need to collect.
1) I look for patterns where the R:R is equal, but the win rate is at least 60%
2) I look for patterns where the R:R is positive enough to overcome a win rate of 50%
I eyeball things at first and do quick mental calculations. Or sometimes while trading day after day, I notice a certain thing seems to happen "a lot". I know from experience that this belief that something happens more often than not is frequently nothing more than selective memory, so I define the pattern and the context in which I imagine it's happening more often than not, and I then do the statistical analysis by looking for every appearance of the pattern over the past 4 weeks to see if there's any significance to it, or if I was merely remembering the successes and ignoring the failures. If a 4-week review shows promise, I continue to evaluate the setup until I have a sample size that satisfies me.
I probably did this the hard way, but it's done. I've been trading the same two core setups for a long time now.
I'm curious how the research could be so specific as to be all encompassing.
How do we define breakouts? Intraday? On what time frame? A breakout on a 5 minute chart could just be noise on a 60 minute chart. Daily?
Then if you get really specific as NoDoji did in specifying breakout of a previous high/low when there is a trend in progress, as opposed to a range breakout, are we to believe that the folks who programmed the backtest were so good that they could capture this?
So, to begin with, could you tell us what specifically the research tested? Not questioning it, but let's be clear on what we are discussing first.
If the market is fractal, as technical analysts state, then timeframe shouldn't matter to the efficiency of breakouts. I am in the process of moving to Palm Beach thus my books are all packed away--otherwise I would directly answer you. Rather, may i suggest, At the most simple, well designed tests on massive data size was published in my old boss's book "how markets really work" by larry connors. I am sure someone here has this book and can comment-----
surf
Here is a basic article from a 'friend' of mine explaining HFT and how it effects you----
http://www.investopedia.com/financi...ined-the-stock-market-for-the-rest-of-us.aspx
Does It Hurt the Retail Investor?
What is important to most of the investing public is how HFT affects the retail investor. This is the person whose retirement savings are in the market, or the person who invests in the market in order to gain better returns than the near non-existent interest that comes from a savings account. A recent study shed some light on this question.
According to The New York Times, a top government economist found that HFT firms are taking significant profits from what they call traditional investors, or those who are not using computer algorithms.
Studying the S&P 500 e-mini contracts, researchers found that high-frequency traders made an average profit of $1.92 for every contract traded with large institutional investors and an average of $3.49 when they traded with retail investors. This allowed the most aggressive high-speed trader to make an average daily profit of $45,267 according to the 2010 data. The paper concluded that these profits were at the expense of other traders and this may cause traders to leave the futures market.
Although the authors did not study the equity markets where high-frequency traders account for a large amount of stock trading volume - possibly 70% or more, according to some reports - they say it is likely that they would reach the same conclusions.
The Bottom Line
The overall sentiment that the small investor cannot win in this market is beginning to proliferate. Some blame the massive amount of uninvested cash as proof that many have given up and lost confidence in the markets. This has become such a problem that even high-frequency traders are looking to other world markets to find the liquidity they need to conduct operations. Regulators around the world are looking at ways to restore consumer confidence in the stock market. Some have proposed a per share trading tax while others, such as Canada, have increased the fees charged to HFT firms.
Because of the relative newness of HFT, the process of regulation has come slowly, but one thing that does appear to be true is that HFT is not helping the small trader.
http://www.investopedia.com/financi...ed-the-stock-market-for-the-rest-of-us.aspx:D
And another snippet:http://www.news-sentinel.com/apps/pbcs.dll/article?AID=/20121020/BUSINESS/310209965
HFT is giving billions in exchange and trading profits to the money hawks while delivering less safe, stable and efficient markets to you and me. On Oct. 16 the Wall Street Journal told of the latest version of the HFT game, recent hard-to-explain prices in the natural gas futures market. Called âbanging the beehive,⦠high-speed traders send a flood of orders in an effort to trigger huge price swings just before the (government's weekly gas supply and demand) data hitâ the market. The cost to this fake market-making is measurable.
If you think someone should do something about this madness, someone is.
http://www.investopedia.com/financi...ined-the-stock-market-for-the-rest-of-us.aspx
Does It Hurt the Retail Investor?
What is important to most of the investing public is how HFT affects the retail investor. This is the person whose retirement savings are in the market, or the person who invests in the market in order to gain better returns than the near non-existent interest that comes from a savings account. A recent study shed some light on this question.
According to The New York Times, a top government economist found that HFT firms are taking significant profits from what they call traditional investors, or those who are not using computer algorithms.
Studying the S&P 500 e-mini contracts, researchers found that high-frequency traders made an average profit of $1.92 for every contract traded with large institutional investors and an average of $3.49 when they traded with retail investors. This allowed the most aggressive high-speed trader to make an average daily profit of $45,267 according to the 2010 data. The paper concluded that these profits were at the expense of other traders and this may cause traders to leave the futures market.
Although the authors did not study the equity markets where high-frequency traders account for a large amount of stock trading volume - possibly 70% or more, according to some reports - they say it is likely that they would reach the same conclusions.
The Bottom Line
The overall sentiment that the small investor cannot win in this market is beginning to proliferate. Some blame the massive amount of uninvested cash as proof that many have given up and lost confidence in the markets. This has become such a problem that even high-frequency traders are looking to other world markets to find the liquidity they need to conduct operations. Regulators around the world are looking at ways to restore consumer confidence in the stock market. Some have proposed a per share trading tax while others, such as Canada, have increased the fees charged to HFT firms.
Because of the relative newness of HFT, the process of regulation has come slowly, but one thing that does appear to be true is that HFT is not helping the small trader.
http://www.investopedia.com/financi...ed-the-stock-market-for-the-rest-of-us.aspx:D
And another snippet:http://www.news-sentinel.com/apps/pbcs.dll/article?AID=/20121020/BUSINESS/310209965
HFT is giving billions in exchange and trading profits to the money hawks while delivering less safe, stable and efficient markets to you and me. On Oct. 16 the Wall Street Journal told of the latest version of the HFT game, recent hard-to-explain prices in the natural gas futures market. Called âbanging the beehive,⦠high-speed traders send a flood of orders in an effort to trigger huge price swings just before the (government's weekly gas supply and demand) data hitâ the market. The cost to this fake market-making is measurable.
If you think someone should do something about this madness, someone is.
NoDoji, you are the best. I need to thank you again for helping me progress in my trading. I didn't want to answer in Jeredibb's thread where Jack Hershey is speaking in Fractals to him, if only Jeredibb chose to pursue simple price action trading, and worked on his psychology, he would probably make it.
No worries about the books and move, understandable.
I understand the point about the market being fractal, but is this actually statistical or numerical self-similarity, which would be necessary for statistical measures to apply to breakouts spanning the various timeframes?
Anyway, on page 2 he describes it as self-affinity.
http://www.scientificamerican.com/article.cfm?id=multifractals-explain-wall-street
Hershey will be along soon to confuse everyone.
