- Dealing With the Small Samples of Technical Analysis May 30, 2014
Technical analysis introduces data-mining bias because of the reuse of data. Due to this fact, trading signals based on small samples are not just naive, they are very dangerous. The problem of small samples can be resolved only if they are increased. Anything else ...
- The Fundamental Problem of Backtesting and Why It Has Not Helped Much Technical Traders May 11, 2014
Trying to discover an edge by randomly backtesting ideas is equivalent to looking for a needle in a haystack. More than 25 years have passed since backtesting software became available to retail traders but the difficulty in finding an edge ...
- Bears Should Keep Low Expectations For A Trend Reversal April 10, 2014
Yesterday’s rally was fueled by promises of low rates and more quantitative easing. As long as, one way or the other, inflation is kept low, bears should have low expectations for a trend reversal. In the best case, the correction ...
- Dealing with Long/Short Data Bias When Developing Trading Algos April 5, 2014
A fundamental principle of trading system development, whether automatic or manual, is that the data sample used to test hypotheses must include a wide variety of market conditions. Systems developed on data samples that are biased in a single direction are usually non-robust and ...
- Chart Patterns Without Statistics is Naive Technical Analysis March 26, 2014
Anyone who makes bets in a game of chance without having a measure of the expectation is a naïve gambler.
- Kelly Fraction and Leverage May Lead to Underperformance or Even Ruin [Premium Articles] March 23, 2014
In this blog post it is shown that in the case of S&P 500 Index, use of the Kelly ratio has not provided protection to investors from large drawdowns and that use of Kelly leverage has led to total ruin. It turns out ...
- Market Risk: Principles and Practice March 7, 2014
The longer a position is exposed to different market conditions, the higher the probability of an adverse event occurring but actual losses depend on entry level. In this article I provide a simple method for estimating the risk of a passive investor or trend-follower.
- Introducing the Gambler’s Fallacy Indicator [Trader Education] February 26, 2014
This is a simple indicator of momentum but it can also point to extreme levels in the sense of gambler’s fallacy.
- Long-Only Position Traders in SPY Never Lose February 7, 2014
A long-only position trader in SPY must be very unlucky or must trade worse than random to lose money. This is what a randomization analysis using SPY historical data from inception shows. Long positions held for an average of 5 weeks, initiated ...
- Taking Advantage of Multiple CPU Cores When Running Price Action Lab January 28, 2014
In this article we present a scheme for taking advantage of multiple CPU cores when running searches on long files with Price Action Lab. Using this scheme the search time is reduced by a factor equal to the number of running ...