BlueHorseshoe

I was fine with all of these except the second one. NLP type things always seem to get me. I have concluded that I must be highly suggestible and susceptible to linguistic programming, and for that reason I avoid both hypnotists and trading vendors . . . BlueHorseshoe

TradeRunner has it! It's interesting how many different ways people think about these things. I don't mean in terms of the answer they reach, but in terms of the process they use. Most of the confusion is about the difference between material implication and material equivalence - presumably this is what the question was intended to test. Using the initials of each item it should look like this: P = F ⇒ A = B This is not logically equivalent to: A = B ⇒ P = F If the two are equivalent rather than just one implying the other, then a two-way arrow is used in notation. So here's another puzzle as an extension of this: Why, if for a function f, if it it true that: x = 4 ⇒ f(x) = 16 Is it false that: f(x) = 16 ⇒ x = 4 ??? BlueHorseshoe

The Euro and the ES Compared This third chart shows the analysis for the Euro (series 1) and the ES (series 2) plotted together. The euro data has been derived from the E7 contract rather than the spot fx price, and all times are CME exchange time. The range for each hour is plotted as a percentage of the sum of the ranges for all hours in that day. Note that this is not the same as a percentage of the total daily range (as hourly bars exhibit considerable overlap). On average, larger ranges seem to be found in the ES later into a 24 hour period than the Euro. It would be interesting to perform tests to see whether volatility (simplistically measured here as hourly range) in the Euro in any way 'leads' volatility in the ES. BlueHorseshoe

The E-Mini S&P500 (@ES) The same testing principles as before, except that this time the data is the @ES future continuous contract, and everything's calibrated to exchange (CME) time. Note the diminutive bar at 1700 hours - this is because trading ceases at 16:15 so the bar only accounts for 15 minutes of trading. I could have resolved this by factoring the entire price difference to the open of the next bar, but then this would suddenly include weekend gaps which wouldn't make much sense. Up next, a comparison of both the ES and the Euro . . . BlueHorseshoe

Hello, I see what you mean, I think, and it's worth investigating. To work out if this is the case then I think the best thing to use would be something like the Wald-Wolfowitz Runs Test to determine the typical number of consecutive days for which the hour exhibiting the largest range remains unchanged. Unfortunately the programming for this starts to get a bit fiddly because the data points that are being compared are 24 periods apart, but I'll try and work on this and post some results early next week. In the meantime, take a look at the attachment below, where you can see how quickly the data settles towards its cummulative average - about twenty periods and it becomes fairly stable. Cheers, BlueHorseshoe

Nice! I didn't get that, despite spending about thirty minutes drawing out a boolean truth table exactly as you did for the doors question. They're always so obvious once you know the answer! Thanks, BlueHorseshoe

Hi Raymond, I can program to an reasonable standard, but I doubt that I would term myself a programmer. In terms of the challenges identfied in my post, in fact, the answer was not to try and program my way out of them (though I have absolutely no doubt that this is possible for those, as SIUYA puts it, "with more PhDs than assholes"), but to elevate myself above them by trading in higher timeframes. If you're gunning for an average profit per trade of $500 then you can afford to pay the market price and, should you lose money, be sure that it has nothing to do with unfilled orders and everything to do with you trading approach. What I would say, if it's working for you 'on the ground' so to speak, is to continue but have a clear plan for what you will do if you run into difficulties. Best of luck! BlueHorseshoe

The answer to the last puzzle was, according to current mathematical convention, the smaller hospital due to the smaller sample size. If anyone wants to argue against that, then the ensuing discussion will probably be more interesting than the puzzle itself. The puzzle is taken from Taleb's "The Black Swan", and I personally disagree with the general thesis he promotes, as I think the whole issue he examines is a matter of (retrospectively) ascribing error to a model rather than to the selection of data to which it is applied. On the other hand, Taleb is a big fan of Umberto Eco, one of my favourite authors, so . . . Here's another puzzle: There are 4 shut doors in front of you. You know that each door has an animal painted on one side and a plant painted on the other side. The four doors have the following painted on the sides that you can see (one per door): a lily, a pine tree, a fox, and an eagle. You have been told that these doors satisfy the rule "if a door has a flower on its plant side, then it has a bird on its animal side". What is the smallest set of doors that you must check the hidden side of to determine conclusively whether this rule is true or false for these doors? * Just the door with the lily Just the door with the eagle Just the doors with the lily and the eagle Just the doors with the lily and the fox Just the doors with the lily, fox and eagle Just the doors with the pine tree and eagle All of the doors This puzzle is taken directly from the application form for a quantitative hedge fund. BlueHorseshoe

Hi SIUYA, You make a good point in that, were I performing this analysis to trade real money I would be far more careful than I have been with this research. It's intended to provide a starting point for people to potentially challenge their own assumptions about when markets generally behave in a fashion that would benefit them. I would beg to differ: it does indicate when the largest hourly moves (on average) occur. The movement over 5 hour periods would be shown by analysing 5hr timeframe data. I have made the assumption that most daytraders will open and close positions within an hour. If I was performing this analysis in a more rigorous manner and relying on it to trade then I would do one or more of the following: Determine the average holding period for my strategy and use this as the basis for the calculation rather than hourly data. Perform this analysis based on 'measured moves' rather than movements within a given timeframe. One way to do this would be to calculate when the largest price swings occur (given some formula for identifying the limits of these moves such as the classic three bar pattern), and perform the calculation using the time periods from which these originate. This would then capture the source of a parabolic 5hr move of the kind you describe without any "swing highs". I would add (especially in light of JPennybag's post) that I would regard something like this only as a minor "filtering" element for a strategy, and not something that I would rely on for any kind of entry or exit signal. BlueHorseshoe

Hi Dude, It's interesting how two people read the same bar chart differently! The peak is where you suggest, but I saw this as increased volatility going into the US cash session (the second highest bar is the hour of the open). On a side note, this points immediately to the type of error that can creep into analysis when one enters the process assuming that one already knows the outcome; I assumed that a forex market would be governed by the London open, and therefore used GMT - depending on Britsh Summer Time the US open can correspond to either 13:30 or 14:30 GMT. I don't have the knowledge to be able to support or contradict your assertions about activity around the key openings, but from a common sense point of view they make sense - all of Europe and the US can comfortably trade the US open. Your point about the 'handing over of books' is extremely interesting, and not something I would ever have considered. BlueHorseshoe

As you reduce the timeframe though, and the average profit along with it, your costs (spread, slippage, commission, exchange fees etc) remain pretty much fixed per contract/unit. BlueHorseshoe

Hi JPennybags, It's not my project as such - it's intended for anyone who might find it useful, so I'm very open to suggestions Given that your answer to the hospital births puzzle is correct, then it's an interesting question . . . I wouldn't expect that a smaller sample size would produce runs of like behaviour (in fact I would guess that the 'optimum' from a small sample size would most likely change in a seemingly random fashion), but I could of course be completely wrong. The information above is only intended to represent very generalised behaviour, and finding a way to make use of it as part of a specific strategy would be a whole different challenge. It would be interesting to see how closely volatility on any given day corresponds to the release of economic data, and also how more gradual drifts in the optimal volatility period relate to shifts in the major fundamental focus. BlueHorseshoe

"3rd World"? You can't call it that any more! And TPLAC ("Tin Pot Little African Country" - thanks, 'Yes, Minister!') is out as well. Does anyone know what the current politically correct term is? When I was at school it was "Economically Less Developed Country", but that's bound to have changed . . . In Achebe's novels they don't bother killing babies - they place them in a large clay vessel and leave them in the jungle. The closest I have come to the "third world" is Ghana, and there were certainly plenty of women there BlueHorseshoe

Lots of daytraders who rely on volatility tend to focus on trading around a particular time of day when they believe that a market is more likely to move signficantly. I have been testing this concept. EUR/USD The graph below shows the average range of the EUR/USD currency pair for each hour in the day, calculated over the past 260 trading days (roughly one year). All times are GMT - remember that the time shown on the x-axis is the end time for the one hour measurement, so the bar labelled '9' represents the average trading range between the hours of 8am-9-am. Suprisingly, the greatest ranges actually appear to be found around the time of the New York open rather than the London open (even though the latter is where the greater trading volumes usually occur). I'll work my way through a number of markets popular with daytraders with these studies, and eventually compile them into a table - if you have any particular requests then let me know. BlueHorseshoe

I agree with what you're saying about the institutional/retail dichotomy. In fact, as far as HFT is concerned, even being 'institutional' is far from sufficient - the HFT firms basically make money by milking the liquidity provided by other institutions. However, Buffet may be almost uniquely imitable amongst investors . . . All institutions are required by the SEC to report long equity positions within 45 days of the end of each quarter using the 13F form. So shortly after Buffet/Berkshire buys shares in a company you can do the same. This wouldn't work for tracking a fund with shorter holding periods - they might already have closed out the position before the end of the reporting window. But Buffet's holding periods are famously "forever". You can retrieve any fund's holdings by visiting the EDGAR database here: Filings & Forms BlueHorseshoe

Assuming there is some sensible postion sizing going on, then the mind really boggles when you consider the size of the portfolio they must hold! BlueHorseshoe

I thought that I would post a series of coffee-break puzzles, partly because they're fun, but also because they can lead to a better understanding of the statistical processes that underlie the assumptions we often make when evaluating trading approaches . . . A city has a large hospital and a small hospital. Each has a maternity ward. Yesterday, 60% of the births at one of these hospitals were boys. Which hospital is this more likely to be? BlueHorseshoe

Ditto onemove - although if you can ignore the spot fx limitations of the contest and explain how you'd select the most appropriate instrument to daytrade at any given time from a whole range of possibilities, then that would be enormously helpful (ie why eur/jpy rather than the es, live cattle, gold, or orange juice etc). Thanks! BlueHorseshoe

Optiontimer's thread is excellent, especially if you're able to abstract from the specifics to the general concepts (rather than getting bogged down in nonsense like indicator settings etc). BlueHorseshoe

Hi Raymond, If you use market orders you pay the spread each time, and any sim will show this, so your results should be fairly accurate provided the market is liquid. If the market is illiquid then the sim will struggle to show where you would have been filled. Try trading the futures contract J7 with a volume subpane to get a feel for what I mean - your sim will fill you at prices where only a single contract (someone else's, not yours!) traded. In reality you'd have suffered massive slippage. The ES is sufficiently liquid, even outside of RTH, that I doubt this will be an issue. If you use limit orders the sim will do one of the following, depending on how you have set it up: 1. Fills when price trades at the limit 2. Fill when price trades through the limit 3. Fills when a certain volume of orders have traded at the limit Which of these is good? None of them. The first two are those typically used; the first will give you a far better performance than you'd actually get, while the second will give you a significantly worse (by an amount that will suprise you) result than you'd actually achieve. Most platforms default to the first, as it gives you the illusion that you can trade better than you can, which means you'll make more for your broker when you move from sim to live trading. I know that the Infinity Futures / TransACT platform definitely defaults to the second approach. I am sure NinjaTrader support will be able to tell advise you regarding their platform. To get an accurate representation of what would happen in real trading you need: 1. A method of estimating your position in the queue of limit orders resting on the exchanges books. 2. An automated method of executing orders in sim according to this estimation (this does not mean that your strategy needs to be automated - you can still trade on a discretionary basis - the automation will just control what happens after you've placed your order). The first of these is not easy to arrive at. BlueHorseshoe BlueHorseshoe

Does your strategy use limit orders in sim? Do you understand how limit orders get filled in sim? BlueHorseshoe

Are moderators allowed to be sarcastic? See the proviso at the end of my original post: "How easy it would be for the average investor to implement these measures I don't know" . . . BlueHorseshoe

Thanks for the Aldridge tip - most of the better trading books that I've read have been those recommended to me on TL. BlueHorseshoe

The 'No Sale' Sale - Businessweek BlueHorseshoe

Hi Dude, My understanding was that the likes of Warren Buffet avoid taxation through a variety of measures, such as purchasing puts to lock in profit on a position rather than selling to close - with the profits insured in this way they then borrow against the stock they hold - and there's no tax on borrowed money (even though you can still buy mansions and yachts with it). How easy it would be for the average investor to implement these measures I don't know. BlueHorseshoe ps. I continue to be mystified by the reported earnings of HFT firms in CME markets - they're FIFO - just how the hell do they do it!?!?