Quote from TSGannGalt:
So, finally, after all the posts, we've come to an conclusion that there needs to be a "common definition" of what a "trend" is... via thoughts on noise and random...
Well... I feel that programmers are better than discretionary or "subjective" takers on coming up with a definition... so... programmers...
What would be a good pseudocode for a trend for a Base Class (Abstract Data Type)?
As usual, good question, TsG. Permit me to stay in my narrowly focussed pseudo fantasy world a little longer. Assume for the moment that I am a market player with no knowledge of the underlying market (which in my fantasy world is pseudo randomly generated as per a simple algorithm posted earlier). At this stage, I cannot define trend a priori, nor a posteriori for that matter. What I do know, however, is that I can consistently make money in this particular market by applying a technique (say KAMA) which seems to be able to exploit the very thing I can't define. Perhaps I can get closer to a definition if I eliminate KAMA.
Assume that somewhere within this thing called trend, the probability of continuation is higher than the probability of reversal. (Remember I only deal with 2 states.) And I base this on logic rather than knowledge of the underlying generating algorithm which, as I stated earlier, I do not possess. Assume also that we can define a basic trade with as few parameters as possible, having entry and exit rules that are totally independent of KAMA i.e. with target(s), (trailing) stop(s) etc.
Then maybe the following could be a winning strategy :
(a) Enter trade(n) in any direction.
(b) If trade(n) is a winning trade, trade(n+1) is to be opened in the same direction.**
(c) If trade(n) is a losing trade, trade(n+1) is to be opened in the reverse direction.
(d) Continue applying the rules in (b) and (c).
** Slippage and commissions don't exist in my world. However, one could achieve the same by not closing out and just resetting target and stops.
The assumption here is that by the application of Bayesian probabilities, the outcome of our last trade is the best indicator of what that thing called trend is.
Will I be able to eliminate KAMA using this embarrassingly simple strategy?
