Trading Math - Part I

[HATEtheRisk]

Quote from bwolinsky:

Well, I see 9 figures in sight for me and for my most important family and friends, too.

Trading is about making money, you're right, but I think there is something to be said for theories that have validity and sound basis as well as at least 100 pages of explanation. Which could be more technical in nature than in defining the parameters of the system.

I like pairs trading and price physics which is the best form of trend following that has ever been theorized and the results only a complete imbecile would try to deny wrt their robustness.

I didnt say, that trend following systems must be bad.
Of course there are very good ones.
I have made some on my own.
But, how i told you, i decided for me - i dont like it.
because i make more money, with doing more trades instead of 1 or 2.

That is because i am not a very patient guy.
I just cant wait all the time until price makes that long moves, while watching all the other trade oppurtunities go away without me.

Wish you the best.

regards

 

[bwolinsky]

Quote from HATEtheRisk:

I didnt say, that trend following systems must be bad.
Of course there are very good ones.
I have made some on my own.
But, how i told you, i decided for me - i dont like it.
because i make more money, with doing more trades instead of 1 or 2.

That is because i am not a very patient guy.
I just cant wait all the time until price makes that long moves, while watching all the other trade oppurtunities go away without me.

Wish you the best.

regards

When it comes to HFT it's all about getting between the bid and ask still, so unless you've got an in with a market making firm you might be overtrading even if you are profitable with or without automation.

 

[HATEtheRisk]

Quote from bwolinsky:

When it comes to HFT it's all about getting between the bid and ask still, so unless you've got an in with a market making firm you might be overtrading even if you are profitable with or without automation.

I dont call my trading High Frequency Trading, not at all.
I am not a scalper or a short term daytrader.
I am a long term daytrader and a short term + long term swing trader.

I do never overtrade.

It is all only in view of the trader.

What might be overtrading (taking too much risk) for the one person is a standard for another person.

I have said it a thousand times here, you can not compare two systems of different traders. Everyone have his/her own definition.

cheers

 

[phattails]

I started to write, the I erased and rewrote because I couldn't be concise, so I'll just say that

1) the spread needs to be formalized because this will have a huge impact on the system-- e.g. the market moves to zero before we can act.

2) The example can be made more interesting by having more trading systems on other markets. (we can start with independent markets)

3) The "trading system" by definition of having a positive expectancy, will be at least some function of the underlying data generating process, but in any case the example is a function of at least two random processes, the market M and the trading system X.



P.S. I recently read an article recently on the flaw of the solution for the St. Petersburg Paradox. The authors "corrected solution" was the same, but the reasoning was different.

Quote from intradaybill:

OK guys, let me try to state the problem better:

Define:

1. A trading system that generates entries and exits with some frequency F > 0 per unit time and starts with bankroll B.
2. A Cummulative profit objective P
3. A time to quit for good objective T
4. The probability of ruin R such that bankroll B reaches 0.

The questions (problems) are:

(1) Given P = Pquit and/or T = Tquit are there conditions that may lead to R =1? In other words, even if there is a quit time or quit profit, under which conditions ruin R = 1 is certain? Please exlude the case where expectancy is negative.

(2) Alternative, if there are no P and T constraints is ruin certain (R = 1)?

I think (2) has been answered already. (1) remains.