It has been over 6 years since this thread was started. I'm still around, developing trading systems for my personal use only and I wanted to add a couple of things I've learned during that time regarding system development. I'm pleased to say after ...

One Way to Develop a Winning System

This is in relation to a REALLY interesting post by our esteemed OP over on a separate thread. In response to that post, I created some R code to determine the confidence interval for a given probability, trades and Reward:Risk. I didn't release the ...

Expectancy Management

You may have heard of the efficient frontier. I have created a simple R script to illustrate the Expectancy Frontier, or the border between profitability and loss given a series of win percentages and reward:risk ratios. How to read the picture. The ...

Expectancy Management

Nice job 9047!

Knowing your market by collecting stats

I've had a chance to think about this for a while - specifically the point made in the first sentence in the quote above. I suppose you're talking in terms of a strategy that has an entry / stop / target, or simply entry and some sort of exit / flat ...

Expectancy Management

For those who are interested in understanding a bit more about the nature of the mean reversion disadvantage I mention: url url

Pairs Trading: Reversion to the Mean

Peter, I'm aware of two main schools of thought regarding pairs trading. Both involve mean reversion. Both have plusses and minuses. 1) Empirical or model-free (correlation) The empirical school calculates a spread on two (or more) highly correlated ...

Pairs Trading: Reversion to the Mean

Yes that's my takeaway from the statement: It sounds like using an approach where many methods are used to identify the likely trend, and then bringing those estimates together to form a consensus opinion.

What Is a Trend?

Thanks for that reminder, betterlife. I think you might be referring to the tests referenced in Evidence Based Technical Analysis by Aronson. Please correct my citation if you are referring to another source. From the source cited above I've tested ...

My progress as a full-time investor & trader

I'm not sure how the Uncertainty principle applies to lag, but consider this. If you test the mutual information of data with various lags, you might find, as I have that lower lag data tends to contain more information about the current price than ...

Pairs correlation and Money Management

When I first saw your reply, I immediately thought that you had used the wrong equation for PF [F=p.R/(1-p)]. After taking a few minutes with this simplification I can see now what you mean. It isn't every day that acrary gets schooled! I found ...

Expectancy Management

Do a search for How to trade mean reversion, you might start with this link. You can also research stat arb methods, which typically employ mean reversion strategies such as found in this thread or this thread. As far as the question of science, I ...

The best scientifically-proven way to trade range markets?

Erik, thanks for your comments. It is well known that market distributions generally have fat tails. I presume you're talking about autocorrelation of price returns because autocorrelation of a price series would seem to be not very meaningful. How ...

What Is a Trend?

Hi stt, I agree with your points regarding selection bias. This is one reason why system development is no trivial matter. Manual selection methods, I think, are especially susceptible to the introduction of selection bias. This is the reason I ...

My progress as a full-time investor & trader

I agree that it is not the quantity of backtests that are run that gives them meaning. Proper backtesting procedures aren't followed by the vast majority of traders. The problem is compounded by using deceptive tools such as the MT4 backtester. And ...

My progress as a full-time investor & trader

Nice site. I wanted to add one more thought to this thread on expectancy management. The idea of consistency is a fairly important topic as it relates to system traders. Consistency can basically be defined as how many profitable periods a strategy ...

Expectancy Management

Trend traders are essentially attempting to buy high and sell higher. Counter trend or mean reversion (MR) traders are looking to buy low and sell high. The markets are known to have fat tails which means that there is an advantage to trend trading ...

What Is a Trend?

Right but the sine wave itself has stable variance, no? At any rate, stable variance is not even necessary if you have a fixed mean as in the above chart. A pair of bollinger bands would harvest those swings quite efficiently if this were a real ...

What Is a Trend?

Your explanation makes sense. I was thinking in more general terms rather than with the specific method you describe in mind. I think at some point many of us put together a currency strength grid and attempt to see if it is possible to identify and ...

Pairs correlation and Money Management

Yes this very nicely sums up my thoughts on the difference between deterministic and stochastic trend. Yes I think that is correct. The foreign exchange market is a closed/zero-sum system in that all currencies affect all other currencies. One ...

What Is a Trend?