Maths are necessary for development of all indicators, I also used to use an indicator called Tracker [INDEXIA] which I believe included laws of probability in forecasting [or was it lagging] markets.
I think we trade with some form of probability inbuilt into our decisions for example:-
At any given time running a slow stochastic/19 on a 30minute
chart at or near the top of its range the probability of a fall in the chart is greater than a further rise "on average" , if this is not the case then why use the indicator......although we do not carry out a formal analysis using probability theory we accept [on most trades] what we see .......as do the professionals...
Maths 1 Complete blind Guesswork 0
IMHO
I think we trade with some form of probability inbuilt into our decisions for example:-
At any given time running a slow stochastic/19 on a 30minute
chart at or near the top of its range the probability of a fall in the chart is greater than a further rise "on average" , if this is not the case then why use the indicator......although we do not carry out a formal analysis using probability theory we accept [on most trades] what we see .......as do the professionals...
Maths 1 Complete blind Guesswork 0
IMHO
Newtron Bomb
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Lies, lies and damb statistics
Throughout history we have looked at ways of recording what has happened from the amount of rain that has fallen or the number of crops that have yielded well. When we have a good crop we have recorded how that was achieved. Did we we use this fertilizer or that.. selective breading was developed in this way by taking the best cattle for a particular purpose to achieve (with higher probability) the best heard.
Surely we are doing the same whether we use FA or TA we are looking for what we consider the best parts of history to repeat itself so that it will give us the edge we are all looking for. And Based on our interpretation of of these statistics then we make a trading decision sometimes right sometimes wrong.
Trading by equations is not easy because we all see the same information differently and then there is a multitude of other factors to consider before we trade. Does it fit our R/R profile or money management rules and our ability to implement them always dictates the success or failure of every setup.
Throughout history we have looked at ways of recording what has happened from the amount of rain that has fallen or the number of crops that have yielded well. When we have a good crop we have recorded how that was achieved. Did we we use this fertilizer or that.. selective breading was developed in this way by taking the best cattle for a particular purpose to achieve (with higher probability) the best heard.
Surely we are doing the same whether we use FA or TA we are looking for what we consider the best parts of history to repeat itself so that it will give us the edge we are all looking for. And Based on our interpretation of of these statistics then we make a trading decision sometimes right sometimes wrong.
Trading by equations is not easy because we all see the same information differently and then there is a multitude of other factors to consider before we trade. Does it fit our R/R profile or money management rules and our ability to implement them always dictates the success or failure of every setup.
lol
my only comment is that it is not the 'market' which is 'chaotic'.
It's the traders !
if that is so then mathematics may only prove satisfactory
in statistical terms and therefore has no meaning.
does it play an important part in trading ?
well I suspect the use of mathematics helps to keep it 'chaotic' ?
my only comment is that it is not the 'market' which is 'chaotic'.
It's the traders !
if that is so then mathematics may only prove satisfactory
in statistical terms and therefore has no meaning.
does it play an important part in trading ?
well I suspect the use of mathematics helps to keep it 'chaotic' ?
Bonsai, i read a statement in a book " follow the herd ", and i think it was Sir Issac Newton who said " I can precisley predict the movement of the stars and planets, but i can not predict the madness of people." He lost money on the markets, i think i understand what you are saying. PeeDee.
Maths is vital to trading.
But not in the way most people think. Given that the market can and does do anything, maths has little or no relevance except in pricing options, derivatives or spreads etc. Maths applied to pure price is just adding another layer of personal beliefs. (Fibs etc)
According to Tharp "setups and entry each are about 10% of the equation, exits are about 30%, and position sizing is about 60%"
It is in position sizing that maths is critical to success. as they say is it all about how much or how many contract to use per trade. If you think about it, if trading is at best a 50/50 game (i know it is a negative game actually given commissions, tax etc) applying a constant number of contracts to each trade will at best lead to making no money over time. The secret is adding to the size of the bet when proved correct. So I start with a single unit bet, given I have no guarentee that the bet will be right (I am hopeful 'cause of analysis etc). If it proves wrong them my loss is a single unit. On the other hand if price action proves my annalysis correct I quickly increase bet size to capitalise on run. Hopefully the leverage correct bets more than outway my regular small losing bets.
That is were maths is critical to success- POSITION SIZING.
But not in the way most people think. Given that the market can and does do anything, maths has little or no relevance except in pricing options, derivatives or spreads etc. Maths applied to pure price is just adding another layer of personal beliefs. (Fibs etc)
According to Tharp "setups and entry each are about 10% of the equation, exits are about 30%, and position sizing is about 60%"
It is in position sizing that maths is critical to success. as they say is it all about how much or how many contract to use per trade. If you think about it, if trading is at best a 50/50 game (i know it is a negative game actually given commissions, tax etc) applying a constant number of contracts to each trade will at best lead to making no money over time. The secret is adding to the size of the bet when proved correct. So I start with a single unit bet, given I have no guarentee that the bet will be right (I am hopeful 'cause of analysis etc). If it proves wrong them my loss is a single unit. On the other hand if price action proves my annalysis correct I quickly increase bet size to capitalise on run. Hopefully the leverage correct bets more than outway my regular small losing bets.
That is were maths is critical to success- POSITION SIZING.
History suggests that they do. But as Keynes also said there are only two ccertainties in life- death and taxes. Knowing that I am going to die has little bearing on what I am doing to-day or even next week.
PS What is your definition of the long term. A day -trader might think 8 hours is long term, a position trader might think a month is a long term, whereas a historian might think 100 years is a long term.
All comes back to your belief systems. ie don't really understand your question in relation to your original query-is maths important to trading.
PS What is your definition of the long term. A day -trader might think 8 hours is long term, a position trader might think a month is a long term, whereas a historian might think 100 years is a long term.
All comes back to your belief systems. ie don't really understand your question in relation to your original query-is maths important to trading.
I think you'll find the StatArb'ers out there consider maths to be a pretty important part of their trading environment. As for be *the* key, well.... there is no *one* key, even the best black boxes have a bloke sitting there with a coffee and a danish checking the lights are on in the morning.
Just my £0.02....
Dave
Just my £0.02....
Dave
Scripophilist
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Life is best understood backwards but you have to live it forwards. That is the problem!!!
Scripophilist
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Why don't we post some maths here and let everybody be the judge if it is useful or not?
Scripophilist
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I have to thank somebody on the board for this gem that I had never come across before. I would like to give them credit for this but can't remember there name.
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The formula for probable consecutive losing (or winning) trades based on a known percentage of success is as follows:
C = Ln(X)/-Ln(Y)
Where C = Consecutive Losing trades
X = Number of trades made
Y = Losing percentage of trades
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I trialled this and backtested it on a number of positions and it is very accurate. I was suprised I had never used this before or thought of it myself!!
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The formula for probable consecutive losing (or winning) trades based on a known percentage of success is as follows:
C = Ln(X)/-Ln(Y)
Where C = Consecutive Losing trades
X = Number of trades made
Y = Losing percentage of trades
-----
I trialled this and backtested it on a number of positions and it is very accurate. I was suprised I had never used this before or thought of it myself!!
Scripophilist
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I should credit this one to Clem on ADVFN with whom, a couple of years ago, I was discussing my problem about time being the joker in the pack. He suddenly popped up a gem.
"The predicted range is the square root of the time series"
Uh? Well it goes like this.
If the average daily range is $0.76 then the predicted weekly range is $0.76*SQRT(5)
Unfortunately it is not as simple as that but you move a lot closer to the solution using this formula.
"The predicted range is the square root of the time series"
Uh? Well it goes like this.
If the average daily range is $0.76 then the predicted weekly range is $0.76*SQRT(5)
Unfortunately it is not as simple as that but you move a lot closer to the solution using this formula.
Scripophilist
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That's just how I entered it in Excel. I believe that Excel will calculate it in order of priority therefore the answer will not be negative.
Trader333
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Scripophilist,
It was me that posted the formula which I had primarily used for predicting horse racing wins and losses a few years ago but it is just as applicable to trading.
Glenn,
It doesnt give a negative answer for C see attached Excel spreadsheet which does it all for you.
Cheers
Paul
It was me that posted the formula which I had primarily used for predicting horse racing wins and losses a few years ago but it is just as applicable to trading.
Glenn,
It doesnt give a negative answer for C see attached Excel spreadsheet which does it all for you.
Cheers
Paul
Scripophilist
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Trader333, Thanks for spotting this thread. I give all acknowledgement to you!!
It's worth us having a chat at some point as my original background was gambling games before I realised there was a bigger, better and fairer Casino out there.
I am on MSN / YAHOO / AOL all the time my nickname is rather suprisingly "Scripophilist" or on AOL "ScripophilistUK"
It's worth us having a chat at some point as my original background was gambling games before I realised there was a bigger, better and fairer Casino out there.
I am on MSN / YAHOO / AOL all the time my nickname is rather suprisingly "Scripophilist" or on AOL "ScripophilistUK"
