5 ms·

I have no idea what that guy is talking about with double moving averages and what not, but I'd bet that a few simple IF/THEN statements could have produced sim

by matt1 18y ago

I have no idea what that guy is talking about with double moving averages and what not, but I'd bet that a few simple IF/THEN statements could have produced similar results over the same period of time. Say it hand done well, would you go an invest a few thousand dollars using the IF/THEN algorithm? On a similar note, say this guy did lose his $3500. Do you think you'd be reading this post on how to automate day trading? Randomness and the survivorship bias play a huge, huge role here. As far as the website ideas go, I'm pretty sure that some very smart people have demonstrated that using past performance to estimate future performance simply does not work; no amount of tweaking buy/sell algorithms will help you predict where the market is going tomorrow.

pjharrin 18y ago
What is investing if its not a IF/THEN statement? If price goes up then sell, if price goes down then buy. If the company meets these financial criteria then buy, if not then sell. If the price approaches a resistance level then sell. Whether your basing the investment decisions on fundamental or technical analysis, either way its an IF/THEN statement at some level.
- fattyfatfat 18y ago
  touche
- Prrometheus 18y ago
  >If price goes up then sell, if price goes down then buy By how much? Within what time period? Are there any other factors that might be pertinent? The world is not simple.
  - pjharrin 18y ago
    Hence why I said "at some level"
- byrneseyeview 18y ago
  Is there any decision that can't be restated as an arbitrarily complicated series of if/then statements? If you're patient, you can do addition using just if-thens (IF N1 = 1 and N2 = 5 THEN answer = 6), etc.
fattyfatfat 18y ago
Matt1, you're exactly right. its just a bunch of if then statements. I played with quite a few variations of a VERY simple, primitive strategy. I'm the first to admit that that day's P&L was largely the product of luck. In fact, I had quite a bit of remorse after the fact and was thankful that the coin flipped my way that day. Regarding predictive engines, you're definitely right as well. Most educated financial professionals don't believe tat you can predict future price movement with any degree of certainty, but there IS a fairly large following up that believes that price behavior is at least price reverting in the short term. I got lucky, I basically flipped a coin and HAPPENED to do it on a day where the SP500 moved a LOT. moving averages do TERRIBLY in environments where the market doesn't trend hugely in one direction. I think I talked about that a bit later. On that note though, I still work with this, though my approach has changed dramatically. Its certainly possible to structure a trading strategy to fit your risk profile. Nobody can win every time, but you can design the strategy to provide losses you are comfortable with. Regarding tweaking buy/sell algos to predict future movement though, there's plenty of literature on that on both sides, so I won't really argue with you. If you're itnerested, I recommend reading about high frequency algorithmic trading. You can also read my similar blog posts about why I think technical analysis is absolute drivel and the potentical justification for running a moving average algo.
sdfx 18y ago
I think the no-arbitrage principle comes into play as well: If there is an (easy) set of rules that you can follow to make money, then there are enought people to act according to these rules so that you can't win anything. Seriously, this simplistic view of the market is just a threat to your hard earned bucks. There are historical prices available at finance.google.com. Backtesting your strategy before playing around with real money is probably a good idea.
- matt1 18y ago
  Again, that assumes that the future can be predicted using past results. Even if you had an algorithm that seemed to predict the dips and peaks in the market, it would not be a good predictor of future performance. I recommend Random Walk Down Wallstreet or Fooled by Randomness or, if you really want a brutal introduction to randomness, play and study the mathematics of poker.
- wildwood 18y ago
  How high to you have to jack up a) the number of people who believe in this principle, and b) the number of simple ways to make money (possibly multiplied by the number of available markets), before this principle is no longer true?
mixmax 18y ago
using past performance to estimate future performance simply does not work This is not always true. I had a theory a few years ago that went like this: The price of a stock is a direct function of the perceived price of the company multiplied by a risk factor: The more risk the less the stock is worth. On the day the yearly report is publicised for a company the risk is big just before the publication because nobody knows for sure what the numbers are, and low just after the publication because everybody now knows. So according to my theory the stock price of an arbitrary company should statistically go up on the day that the yearly report is made public. I, painstakingly, found some historical data on this (it wasn't easy) and found that it was spot on. A bit of statistical analysis showed thet there was a definite gap to be exploited. A friend of mine showed in his Masters thesis that there were certain patterns that would almost always be present in IPO's that could be exploited if you knew them. So there are definitely loopholes where past behaviour shows future performance, but not a lot of them. And professional investors aren't always as smart as they're made out to be. I know a few, and hackers are a lot smarter in regard to numbers.
- mattmaroon 18y ago
  The problem is that the market is dynamic and chaotic. Measuring past data doesn't give you much indication of how much your algorithm would have made, even in hindsight, because every buy and sell you would have executed would have changed the market and the future. Even relatively small orders can have big ripple effects, especially if they just happen to trigger standing limit orders. Genuinely measuring the market (by trading) changes it.
  - mixmax 18y ago
    Yes, in that respect it's like physics - by measuring you are altering the experiment. The volume on the day the reports came out was quite heavy, but if you had bought a substantial amount of stock it would certainly alter the market as you say. The point is that I'm pretty certain there are holes that will allow you to look at historic data and make statistically good buys - but you have to look where noone else is looking. Like the correlation of Nokia stock to the Finnish weather. Some of these will be large enough that you can make money, even though you alter the experiment. On an unrelated note - I just read through your blog and found it very insightful :-)

by matt1 18y ago

pjharrin 18y ago

What is investing if its not a IF/THEN statement? If price goes up then sell, if price goes down then buy. If the company meets these financial criteria then buy, if not then sell. If the price approaches a resistance level then sell. Whether your basing the investment decisions on fundamental or technical analysis, either way its an IF/THEN statement at some level.

fattyfatfat 18y ago
touche
Prrometheus 18y ago
>If price goes up then sell, if price goes down then buy By how much? Within what time period? Are there any other factors that might be pertinent? The world is not simple.
- pjharrin 18y ago
  Hence why I said "at some level"
byrneseyeview 18y ago
Is there any decision that can't be restated as an arbitrarily complicated series of if/then statements? If you're patient, you can do addition using just if-thens (IF N1 = 1 and N2 = 5 THEN answer = 6), etc.

fattyfatfat 18y ago

Matt1, you're exactly right. its just a bunch of if then statements. I played with quite a few variations of a VERY simple, primitive strategy. I'm the first to admit that that day's P&L was largely the product of luck. In fact, I had quite a bit of remorse after the fact and was thankful that the coin flipped my way that day. Regarding predictive engines, you're definitely right as well. Most educated financial professionals don't believe tat you can predict future price movement with any degree of certainty, but there IS a fairly large following up that believes that price behavior is at least price reverting in the short term. I got lucky, I basically flipped a coin and HAPPENED to do it on a day where the SP500 moved a LOT. moving averages do TERRIBLY in environments where the market doesn't trend hugely in one direction. I think I talked about that a bit later. On that note though, I still work with this, though my approach has changed dramatically. Its certainly possible to structure a trading strategy to fit your risk profile. Nobody can win every time, but you can design the strategy to provide losses you are comfortable with. Regarding tweaking buy/sell algos to predict future movement though, there's plenty of literature on that on both sides, so I won't really argue with you. If you're itnerested, I recommend reading about high frequency algorithmic trading. You can also read my similar blog posts about why I think technical analysis is absolute drivel and the potentical justification for running a moving average algo.

sdfx 18y ago

I think the no-arbitrage principle comes into play as well: If there is an (easy) set of rules that you can follow to make money, then there are enought people to act according to these rules so that you can't win anything. Seriously, this simplistic view of the market is just a threat to your hard earned bucks. There are historical prices available at finance.google.com. Backtesting your strategy before playing around with real money is probably a good idea.

matt1 18y ago
Again, that assumes that the future can be predicted using past results. Even if you had an algorithm that seemed to predict the dips and peaks in the market, it would not be a good predictor of future performance. I recommend Random Walk Down Wallstreet or Fooled by Randomness or, if you really want a brutal introduction to randomness, play and study the mathematics of poker.
wildwood 18y ago
How high to you have to jack up a) the number of people who believe in this principle, and b) the number of simple ways to make money (possibly multiplied by the number of available markets), before this principle is no longer true?

mixmax 18y ago

using past performance to estimate future performance simply does not work This is not always true. I had a theory a few years ago that went like this: The price of a stock is a direct function of the perceived price of the company multiplied by a risk factor: The more risk the less the stock is worth. On the day the yearly report is publicised for a company the risk is big just before the publication because nobody knows for sure what the numbers are, and low just after the publication because everybody now knows. So according to my theory the stock price of an arbitrary company should statistically go up on the day that the yearly report is made public. I, painstakingly, found some historical data on this (it wasn't easy) and found that it was spot on. A bit of statistical analysis showed thet there was a definite gap to be exploited. A friend of mine showed in his Masters thesis that there were certain patterns that would almost always be present in IPO's that could be exploited if you knew them. So there are definitely loopholes where past behaviour shows future performance, but not a lot of them. And professional investors aren't always as smart as they're made out to be. I know a few, and hackers are a lot smarter in regard to numbers.

mattmaroon 18y ago
The problem is that the market is dynamic and chaotic. Measuring past data doesn't give you much indication of how much your algorithm would have made, even in hindsight, because every buy and sell you would have executed would have changed the market and the future. Even relatively small orders can have big ripple effects, especially if they just happen to trigger standing limit orders. Genuinely measuring the market (by trading) changes it.
- mixmax 18y ago
  Yes, in that respect it's like physics - by measuring you are altering the experiment. The volume on the day the reports came out was quite heavy, but if you had bought a substantial amount of stock it would certainly alter the market as you say. The point is that I'm pretty certain there are holes that will allow you to look at historic data and make statistically good buys - but you have to look where noone else is looking. Like the correlation of Nokia stock to the Finnish weather. Some of these will be large enough that you can make money, even though you alter the experiment. On an unrelated note - I just read through your blog and found it very insightful :-)