Maths is not the key to trading

[Glenn]

Trader333

Looking at your spreadsheet, there are two hidden columns, C and D. These must contain other formulae which give the values C2 and D2 from A2 and B2.
So the formula C = Ln(X)/-Ln(Y) is not the whole picture.
The use of -Ln(Y) suggests that Y is always less than 1 in order to give a positive answer, so Y clearly isn't either of the two input values.

Glenn

 

[Scripophilist]

Cols C&D merely (D) convert integer 70 into a percentage probability (i.e. 0-1), (C) work out NOT(d). Nothing special. It would be easy to use parenthesis to clarify the equation.

C=(ln(x)/(-ln)

 

[Glenn]

Scrip
"Cols C&D merely (D) convert integer 70 into a percentage probability (i.e. 0-1), "
So there is a formula missing to calculate that probability.

"(C) work out NOT(d). "
Don't undesrtand what you mean by this.

Using the Input values on the spreadsheet, x=400 and y=70,
The Natural Log of 400 is 5.99146
the negative Natural Log of 70 is -4.24849

Therefore C works out at -1.4102563, which is nonsense.

Incidentally, has anyone tried entering other figures e.g. 10 total and 5 winners ?
This gives 45 consecutive losing trades ! Interesting.

Glenn

 

[Trader333]

Glenn,

If you highlight the whole spreadsheet and then adjust one column width a small amount then columns C and D will appear and are only used to convert percentage wins to a convertable formula between 0 and 1. The reason they are hidden is because there is no input to be placed in them and to prevent confusion for users and that is all.

As said previously the formula does not return a negative result because the - LN is always calculating a number between 0 and 1 which is a converted percentage. If it was greater than 1 then as you say it would give a negative number.


Paul

PS I take your point on only 10 trades. It is a while since I did this, in fact many years ago and I think it requires a minimum of 100 trades to be truly effective and also bear in mind that statistical analysis only works effectively on larger numbers. I found it useful for what I did and only put it on the boards to help people as I have nothing to sell.

 

[Glenn]

All I was pointing out was that the formula published by Scrip was not the whole formula.

e.g. To calculate Consecutive Losing Trades, the formula is
C = Ln(A2) / -Ln((100-B2)/100)

"As said previously the formula does not return a negative result because the - LN is always calculating a number between 0 and 1 which is a converted percentage"
Erm, you didn't say this previously and anyway what you say is not the case. The reason for using -Ln is that Column D2 (1-C2) creates a negative result, which has to be reversed to positive in order to give a sensible answer.

And for Scrip, the Priority method of dealing with a formula does not work as you think for division, no matter where you put the brackets.

Without intent I've probably got up everyones noses now, but I think it's important to be clear on the facts. No offence intended.

Glenn

 

[Trader333]

Glenn,

None taken and in fact you have probably helped refine it further as I will use your suggestion above. I cannot remember the exact details of how I came across this but at the time I wanted to get an idea of drawdown on a betting account. I somehow got this and, as said by Scriph, it was surprisingly accurate.

Cheers


Paul

 

[Glenn]

Paul
I take no credit for the formula in my previous post - all of it came from your spreadsheet. I just included the hidden bits.
So please don't take it as my suggestion or endorsement.

Glenn

 

[nautical]

While on the subject anyone having a liking for this kind of stuff may find the following like useful.

http://home.golden.net/~pjponzo/gummy_stuff.htm

It's the site of Peter Ponzo, a former maths professor from Canada. What he doesn't know about applying maths to investment and the markets isn't worth knowing it seems. Most of it will probably be over many of our heads but I found some useful nougats in there many of which are free to download/copy/use.

Chris

 

[Scripophilist]

nautical, thanks for the link. Will have a nose.

 

[Scripophilist]

"Without intent I've probably got up everyones noses now, but I think it's important to be clear on the facts. No offence intended."

The fact is the spreadsheet and forumla worked, but now nobody will use it because 99% of readers will be confused by the pointless discussion around the math behind it. Not the intention of the original post! I understand your need for clarity but I doubt if most will. No offence intended in either direction.

 

[Scripophilist]

When I bumped into the (refer to which version you like) formula. I looked at it disassembled it and then ran a couple of tests.

The first I did on Nvidia which is my favourite trading stock of the last couple of years.

From Feb 1st 2002 to 20th Aug 2003 there were 391 trading days. On average NVDA rose 44.47% of the time. Using the (unmodified) forumla on the spreadsheet, it predicted a winning run of 7.37 days (Lets round to 7) and a losing run of 10.15 days (Lets say ten).

During this period the max winning run, was 7, the max losing run was 9.

I went on to test with about ten different stocks and achieved similar results.

 

[Scripophilist]

I guess the trick on this one is to see if there is a formula to short cut having to do a probability tree to work out likley % loss or gain on a run in either direction. If anybody has a quick answer feel free to post!

 

[Glenn]

Scrip, please check your PM.

Paul
You didn't spot my 'deliberate mistake'.
When I substituted some other figures in the spreadsheet, I used 10 total and 5 winners. I should have used 10 total and 50% winners. This gives a rather different answer of 3 consecutive losing trades, not 45 !

Glenn

 

[peedee]

Hi guys, thanks for the posts, personally i havent looked at the thread for for a while i thought it was forgotten. There seems to have been some equations thrown into the argument but they seem to be more money management orientated rather than equtions that can pin point an absoloute entry/exit point. Cheers, Peedee.

 

[bisto]

trader333,

interested in your comments about other people knowing where the markets are going. i think the same way as you did!

my introduction to trading was the trading edge strategy www.tesstrader.com and after looking at other ways of tradng i still beleive that others - ie big money fund managers ect are moving the markets (and i am trying to jump on the train !)

what changed your mind ?


bisto

 

[peedee]

Two traders, dont know each other, one lives Newcastle the other Portsmouth and they have no communication. They both have the same TA and trading platform. Whos going to bet they get the same results, not me, unless theres a mathematical equation. Cheers, Peedee.

 

[peedee]

Thus, it boils down to individual judgement not maths. Cheers, Peedee.

 

[Trader333]

Bisto,

interested in your comments about other people knowing where the markets are going. i think the same way as you did!

Was this on another thread or could you remind me of the comments ?


Paul

 

[bisto]

No-one knows for certain where the market is heading. I used to think that there were a group of people who did and if only I could find out who they were and how they did it I would be made. What I do know is that they dont exist and once I realised that my trading changed quite dramatically.

Paul

 

[Trader333]

Bisto,

Thanks, I had forgotten there were two pages to this thread. My mind was changed by coming into contact with more and more consistently profitable traders many of whom are professional and none of whom claimed they could predict market direction.

What they all had in common was a strong money management strategy. I know there are a number of people who claim they know how to determine market direction but I have never been convinced by any of them and I have spent many thousands trying their systems and approaches. The fact is that you cannot predict "mass polarized human psychology" as it changes quite randomly in my view but what you can do is react to it.

Cheers


Paul