On Randomness

April 28, 2013

On Randomness

When looking at stock price series, you often hear that such series are random or almost random in nature and if such was the case, then such series would have little predictability if any. However, some interesting observations could be made depending on the model used to mimic random stock prices.

Welcome

March 4, 2013

Welcome

You will find on my web page many stock trading simulations and the mathematical framework which enabled their iterative designs. The programs which produced the simulated results are just that: programs, trading scripts that could be executed on your machine as well as anybody else's machine. My programs are different from most for sure, but they are still just programs: trading procedures, code sequences. Nothing more.

On Cutting Losses

April 27, 2013

On Cutting Losses

Over the past few weeks I've been posting in a LinkedIn forum on the subject of trends, randomness and designing out-performing trading strategies. It started as an attempt to answer the question: "Cut your losers and let your winners run". What I wanted to show was this type of market wisdom is not necessarily true.

A Trading Machine V

April 3, 2013

Designing a Trading Machine V

From the observations made in Designing a Trading Machine IV, it was said to find and select some n(ΔP > T) on a daily basis (or any trading interval for that matter) where n was the number of profitable trades exceeding a certain threshold T.

A Trading Machine IV

March 30, 2013

Designing a Trading Machine IV

In Designing a Trading Machine III, I was making the point that ΔP > 0 was a sufficient condition to make a profit: P(out) – P(in) > 0. It says nothing about how the profit is made, but it does say that to have one, the relation must hold. This relation could be considered time, and size independent.

A Trading Machine III

March 28, 2013

Designing a Trading Machine III

Designing a Trading Machine II ended with the presentation of a simulation test where the objective was to increase the number of profitable trades over the trading interval. The selected script was transform in order to increase its buying procedures and thereby increase its number of trades (some 40-fold over the original) for the 6 years trading interval.

A Trading Machine II

March 26, 2013

Designing a Trading Machine II

Following the previous article: Designing a Trading Machine, it's time to start designing it. Some considerations or constraints will first be addressed, and from there start to give a structure to a trading strategy that will or should survive over the years.

A Trading Machine

March 19, 2013

Designing a Trading Machine.

I participate in a LinkedIn forum on automated trading strategies, here are some my observations over the past few days, starting with March 11th.

This forum is about automated trading strategies, and yet a lot of talk is on discretionary trading methods which by definition are not automated. In fact, if your trading method is not programmable, it is discretionary; and thereby can not be systematically back tested; otherwise going full circle it would be amenable to code.

An Experiment II

January 19, 2013

An Experiment II

In my previous note: An Experiment, I chronicled the process of modifying the Livermore Market Key trading script after having issued a challenge to anyone wishing to show their system development skills. What follows is the continuation of that article starting with its ending.

An Experiment

January 10, 2013

An Experiment

In early June 2011, I had this great idea: take a known and publicly available trading strategy; offer a challenge to improve its performance level using what ever enhancements one could bring to the task. I figured it would be a simple way to showcase my own trading philosophy; if it was any good, it would easily show in the test results.

Winning the Game 1.1

December 5, 2012

Winning the Game 1.1

To make the concepts in my trading methodology clearer and mainly to answer some recent criticism concerning the mathematical expressions used in my notes, short of maybe giving my programs away, I opted to revisit the foundations on which my methods rest and explain them in more detail.

Winning the Game

October 30, 2012

Winning the Game

How can I win the stock market game? One asks this simple question and is bound to receive a million answers. Almost everyone has a piece of advice on this subject with lots of investment folklore, hot tips and unsubstantiated claims.

A Kind of Review

September 30, 2012

A Kind of Review

I have had this web page up for over 15 months now. Its prior version has been on since 2008, and during all this time I have promoted the concept of trading over a stock accumulation process as a methodology that has more than the potential to out-perform most trading methods out there.

Script Transform

September 8, 2012

Script Transform

I occasionally participate in the Automated Trading Strategies forum on LinkedIn. And over the past few weeks, I provided some comments which elaborate on the trading methods I use in my strategy design. The following observations are almost in chronological order.

Everyone has a trading method. However, what ever it is, it must do the job, it must deliver. Otherwise why spend so much time and effort to produce under-performers.

On Compounding

August 19th, 2012

On Compounding

Designing a very profitable trading system is all about compounding. And if there is one thing that any trading method should strive for is to acquire, as much as possible, long term sustainable alpha points. Playing for a 40% return in one year has little value if it is lost the year after ($1.00 x 1.40 x (1 - 0.40) = $0.84).

The following graph shows $1,000 at various rates of return over 40 years:

A Changing Game

August 6th, 2012

A Changing Game

My latest paper: A Changing Game is out. It summarizes some of my latest articles on random trading over randomly generated stock prices made to mimic real stock prices including rare events or infrequent price gaps. An Excel file is provided for the more venturous. It contains a lot of lessons for those that want to look beyond what is there.

On Doubling Time

July 30, 2012

On Doubling Time

The stock market game is a compounding rate of return game. The main objective is to obtain a compounded annual rate of return as high as possible over the longest time interval within portfolio constraints of which the first is not to go bankrupt.

Changing the Game III

July 8, 2012

Changing the Game III

After the conclusion of my previous note: Changing the Game II, it was time to put the finishing touches to the Excel file.

This file is a working model designed to showcase some basic trading principles and methodology. It is not an end all, but it does show that accumulating shares and trading over this accumulative process can generate profits even if the entries and exits are taken at random.

Changing the Game II

July 4, 2012

Changing the Game II

In the previous chapter: Changing the Game, it was presented that even trading randomly over randomly generated stock prices could not only generate a positive outcome to the portfolio payoff matrix, but that this outcome could generate exponential growth.

To some, it is unthinkable that a trading strategy governed by randomly generated trades over randomly generated stock prices (including unpredictable gaps) could have profits on an exponential growth rate or even a positive growth rate for that matter. As was said in prior notes, the expected value of using heads or tails to determine some other heads or tails' bet is zero. Except if one or both coins are slightly biased.

Changing the Game

June 25, 2012

Changing the Game

The Setup

In my last commentary: Randomly Trading, I presented the execution of a randomly generated trading strategy over randomly generated stock prices. The original intent was to answer someone on a LinkedIn forum on how to build a payoff matrix: Σ(H.*ΔP). So model 1 (very basic Excel file) was provided to show how to set up all 4 of the needed matrices: P, ΔP, H and H.*ΔP. Each matrix dealing with an aspect of a the payoff matrix used to simulate a portfolio of 10 stocks over 250 trading days (about a 1 year trading interval).

Leftover Bollinger Band

June 1, 2012

Leftover Bollinger Band

After dumping the Ichimoku script and starting to transform a Bollinger Band trading system found on the old Wealth-Lab 4 site, it was obvious that this new system had more potential. At least it could kept part of its identity.

It turned out that this “new” 2008 system was a variation of a 2002 Bollinger Band system designed by Mark Brown participating in one of the forums I visit on LinkedIn. At times, the world may be very small.

End of Ichimoku

May 23, 2012

End of Ichimoku

The Ichimoku Kinko script was improved to such an extent that it has become an enviable script with desirable long term performance results. Over its almost 6 year test, it achieved a 47% CAGR while accumulating shares and cash in its account. It's average hit rate improved from some 35% to over 70%. 40 of the 43 stocks in the portfolio showed higher performance results. Of the 16 stocks showing losses in the original test, only 3 remained with total losses representing less than 1% of the generated portfolio profits. A very small price to pay for the added performance.