Trading System Junkyard

beginner_av · #11 10th April 2008, 12:05 AM

defining the above and initial data mining would be a good starting point.

uasish · #12 10th April 2008, 09:53 AM

Plz Watch how they approach .

oxusmorouz · #13 10th April 2008, 12:37 PM

Quote:

Originally Posted by beginner_av

What should be the first step in system development?

Defining the instrument. Benchmarking.

raosrinivas · #14 10th April 2008, 12:47 PM

Quote:

Originally Posted by oxusmorouz

Defining the instrument. Benchmarking.

i thought Benchmarking is the last thing you do...

oxusmorouz · #15 10th April 2008, 12:59 PM

Quote:

Originally Posted by beginner_av

Thats good SGM. Lets take that as a starting point. What would you do next?
On the side Sanjay, why and how did you come to that premise (for discussion purposes)?

A = If markets are efficient, follow benchmark.
B = If inefficiency exists, trade trading system signals.

Instead of going into either of these assumptions and testing if these assumptions work on future data set, a simpler solution would be to allow the market to determine which survives, and trade the premise for which the equity curve is higher. If little correlation exists between strategies followed in either assumptions, returns of the trading system will be ~= the higher equity curve and the risk characteristic will be that of the benchmark.

Maybe this answers Srinivas' question too.

raosrinivas · #16 10th April 2008, 01:38 PM

Quote:

Originally Posted by oxusmorouz

A = If markets are efficient, follow benchmark.
B = If inefficiency exists, trade trading system signals.

Instead of going into either of these assumptions and testing if these assumptions work on future data set, a simpler solution would be to allow the market to determine which survives, and trade the premise for which the equity curve is higher. If little correlation exists between strategies followed in either assumptions, returns of the trading system will be ~= the higher equity curve and the risk characteristic will be that of the benchmark.

Maybe this answers Srinivas' question too.

oxy, Traders as species exist today just based on the premise that Markets are inefficient and they want to monetize the inefficiencies, doubting market in efficiency is doubting their own existence, if markets were efficient, everyone will invest in an index and find a job. do you think anyone will take the bait for the first ?

oxusmorouz · #17 10th April 2008, 02:11 PM

Quote:

Originally Posted by raosrinivas

oxy, Traders as species exist today just based on the premise that Markets are inefficient and they want to monetize the inefficiencies, doubting market in efficiency is doubting their own existence, if markets were efficient, everyone will invest in an index and find a job. do you think anyone will take the bait for the first ?

If each and every trader had spotted that inefficiency, there would be none going bust. Most traders trade who boast to have spotted some inefficiency would fall under the dreaded "clustering illusion".
Are markets purely efficient or purely inefficient or partly inefficient? If some inefficiency is spotted on training data, would such an inefficiency hold good for future data set as well? Would it continue for an indefinite period of time? If not, when does it cease to exist? If it ceases to exist what effect will it have on my investment returns? If the markets are partly inefficient, when does inefficiency exists and when does it not?
These are questions to be answered if we are to go by a single premise hypothesis (i.e, market is efficient or the market is inefficient). Market "determined" strategy adoption eliminates these assumptions, since we are assured of ~ at least the benchmark returns and at the same time, can trade the inefficiency to ~ its fullest extent. In short, we are just doing away with assumptions necessary otherwise.

uasish · #18 10th April 2008, 03:28 PM

So we are in no way going to perform below Benchmark .

raosrinivas · #19 10th April 2008, 03:44 PM

Quote:

Originally Posted by uasish

So we are in no way going to perform below Benchmark .

that's what i thought he was pointing to ,

oxy,

i am a man of simple english

http://simple.wikipedia.org/wiki/Wik...lish_Wikipedia

i got confused

there.

Adheer · #20 10th April 2008, 04:32 PM

The market is what it is... Whether a market is efficient or not is relative to the system being traded.

Efficiency of the markets cannot be quantified purely with buying and selling triggers. There are a lot more parameters that go into it.

70% of the traders blow up their capital in the first 3 years. Does that mean they are worse than the markets in terms of efficiency ?

For a trader, whether the markets are efficient or not can be determined only when the trade has been closed or the trader goes bankrupt. As long as a trade is open, whether the system is smarter than the markets is purely guess.

The smartest traders and Nobel laureates at LTCM had figured out how to make money from the inefficiencies of the market. And they made money ... for 3 years. And he lost 3 times of what they had made the next year !!

On the other hand, smart Math PhDs at Jim Simmons hedge fund Renaissance Technologies have been consistently producing nearly 30% annual returns for the last 15 years.

I think it was Warren Buffet who said "The markets can remain irrational longer than a trader can remain solvent."

So, I think we are onto a philosophical discussion ...