Saturday, February 19, 2011

Simplistic explanation

Here I write down what I'm calling "Simplistic": a simplistic machine is intent of generate linear chaotic buy signals. Linear, to be easy and fast to compute, and chaotic to try to recreate market behaviour (oohhh, I would like to say to avoid Platonic market assumptions...).

Ok, let's go to the formulae:

Evaluation of simplistic trying to predict a market short term trend:

If the result is greater than zero, we should buy. If not, we should not. So simple.
In the formula, x is a set of values (prices, indicators...) in the moment t.

Simplistic is trained with positive and negative cases (thus when should buy or when should not). The previous evaluation is made for a training set, maximizing the sum of positive cases restricted to f(x)<0 for negative cases.

I'm very lazy, so I use a stupid Simplex to look for solutions.

What in hell is the x? In my first approach, I use only prices for one Forex (EURCHF) trade.
But, as I'm pretend I'm a trader, and I know that risks must be reduced diversifying investments, and blah blah blah, I'm currently evaluating several values for several FX:
  • High, Low, Open and close prices for each minute
  • Volumes
  • RSI
  • and I'm inverting positions to get a chain (I don't know why, but it looks pretty) : EURCHF > 1/USDCHF > USDJPY > 1/GBPJPY > GBPUSD > 1/EURUSD

My dream is: if I'm able to find when the previous chain is not zero-sum (that is, if a move my money from EUR to EUR going through the chain of changes, I should have to get the same money -ignoring commissions, spreads pips an so), I would be ready to predict that, in a very short future the chain will return to zero-sum status.

The way I'm composing the x vector is:
being h,l,o,c,vol,rsi the values previously described, and T the timeframe for the machine.

As Simplistic is too nervous. Should be limited by RSI and Bollinger Bands controls.
And techniques to abandon a failed position.

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