Archives of “statistics” tag

rss

Practical Aspects of Trading…

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Successful traders examine the current market conditions to determine if they are bullish, bearish, or a trading range environment. After determining the current market environment traders can select the tools from the their trading tool box that perform best in the current conditions. When the market conditions change then traders need to adapt to the new market environment by selecting new tools that are most appropriate for the new market conditions.

In addition to adapting to the current market conditions by using the appropriate tools from the trading tool box there are several practical aspects of trading that traders need to master.

Never enter a position without having a plan for exiting the position. If you Do not know where to get out of a position you should not enter it in the first place. In swing trading time frames stocks often run to the next resistance or Support level and then stall. We have seen that stocks rarely remain outside the Bollinger bands for long, so when a position reaches the Bands it is often a good Place to look at profit taking, especially in trading range environments.

There is usually no need to rush in when the markets trend changes. Any trend worthTrading does not require you to be in on the first day, by definition. It is usually better to make sure the trend change is real and then react rather than assuming that the first Day of a potential change is something that is going to continue.

There are a lot of jobs where people get paid every Friday. Trading is not one of them. There will be profitable weeks and losing weeks as the normal statistics work out. Remember that if you make enough trades there is a reasonable probability of seeing…

 

 

 

 

ten losing trades at some point, even with good trading systems. This is part of trading and traders need to allow for it when they work out position sizing and money management techniques.

You do not have to trade every day or take trades just because they came upon the evening scan. Carefully consider the recent price and volume action in the market before taking positions. Look for the best trades, consider long trades that have not shown a lot of recent distribution and have ‘room to run’ before hitting the next resistance area or the upper Bollinger Band.

Make sure that your position sizing is such that if all your current positions were stopped out that the total loss is something that is still comfortable. This happens from time to time and wishing it did not will not change it. Be prepared by using sensible position sizes.

Review each of your positions every evening and determine if it is something you still want to be holding based on the recent market action and the price volume patterns of the position. Longs going up on declining volume are showing weakness and I generally close out those positions and put the money to work in something stronger. You are hiring a stock to do a job for you, if it is not doing the job fire it and hire another. (more…)

Daily Trading Plan

  
  Education
#  #  #  #  #  #  #  #  #

Risk: your loss limit in per trade and the total dollar loss per day. What you will do after x number of losses in a row. Your strategy for increasing and decreasing your trading size.

Goals: how many R’s you are trying to make today. How many trades do you plan to make. How long do you plan to hold winners and losers 

Reporting: your plan for writing a brief narrative of the day’s trading your plan to keep statistics of your trades (hold times, results, et cetera). How you will mark your trades on the same charts you use to trade. 

Contingencies: what phone number do you call to get out of trades should your system crash. Who can you contact to troubleshoot or repair your computer. Who do you call to get your Internet connection checked and fixed, if needed. 

With a well developed, clear plan you will be ahead of the majority of traders and, through this detailed planning, you can concentrate

A Review: “Two Centuries of Trend Following”

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #

The paper “Two Centuries of Trend Following” by Lemperiere, Derenble, Seager, et al of Capital Fund Management purports to show that trend following has been profitable, over a wide range of markets, consistently over 200 years. It deserves to be reviewed as it represents a case study of the statistical practices, and armchair explanations that are sometimes used to justify a system that in the most recent five year period has lost its mojo. Rocky has asked me to review it.

The amazing thing is that the authors seem to know how to compute hyperbolic tangent regressions, and compute the duration of a drawdown given a sharpe ratio, yet they seem completely unaware of the problem of multicollinearity, overlapping observations, and lack of independent observations.

In a nutshell, they compute hundreds of thousands of means, and they combine them and measure how far away from randomness they are. Recall that the average of two random observations is about 0.7 times as variable as one observations. The average of 100,000 observations is about 1/320 as variable as 1 observation. (more…)

6 Ways to Separate Lies From Statistics

  
  Education
#  #  #  #  #  #  #  #  #  #

1. Focus on how robust a finding is, meaning that different ways of looking at the evidence point to the same conclusion. Do the same patterns repeat in many data sets, in different countries, industries or eras?

2. Results that are Statistically Significant means it’s unlikely findings simply reflect chance. Don’t confuse this with something actually mattering.

3. Be wary of scholars using high-powered statistical techniques as a bludgeon to silence critics who are not specialists.

4. Don’t fall into the trap of thinking about an empirical finding as “right” or “wrong.”

5. Don’t mistake correlation for causation.

6. Always ask “so what?” The “so what” question is about moving beyond the internal validity of a finding to asking about its external usefulness.

Every 8 Years, Your Chances of Dying Double

  
Analysis, Education, Life
#  #  #  #  #  #  #  #  #  #  #

Robert Krulwich revisits the mysterious but true Gompertz Law of Human Mortality, named for the British actuary who had originally discovered this mathematical fact back in 1825.

via NPR:

Obviously, when you’re young (and past the extra-risky years of early childhood), the chances of dying in the coming year are minuscule — roughly 1 in 3,000 for 25-year-olds. (This is a group average, of course.)
But eight years later, the tables said, the odds will roughly double.  ”When I’m 33 [the chances of my dying that year] will be about 1 in 1,500.”
And eight years after that…the odds double again: “It will be about 1 in 750.”
And eight years later, there’s another doubling. Looking down the chart, you’ll see that keeps happening and happening and happening. “Your probability of dying during a given year doubles every eight years.”

A helpful, if horrifying, chart:

death chart

The Seven Pillars of Statistical Wisdom- Book Review

  
  Education
#  #  #  #  #  #  #

The Seven Pillars of Statistical Wisdom by Steve Stigler provides an illuminating and entertaining foundation for statistical activity. The seven pillars are Aggregation, Information, Likelihood, Intercomparison, Regression, [Experiment] Design, and Residuals. Every page of the book contains something fascinating and instructive.

It is at once an adventure story, a history lesson, a textbook on the foundations of statistics, and a tour de force with ingenious extensions of the works of the great in each field in Stigler’s own inimitable hand — a persona that reminds one of Stigler’s heroes, Galton himself.

The level of the book is such that the layman and the expert will both gain from it. I found every page insightful and it uplifts one to be part of a field with so many ingenious founders, and to know that there are such pillars that hold the edifice up.

I recommend the book highly. It is a masterpiece classic that will live forever.

Friedman, Fortune Tellers (Book Review )

  
  Education
#  #  #  #  #  #  #  #  #  #  #

I just finished reading Walter A. Friedman’s Fortune Tellers: The Story of America’s First Economic Forecasters (Princeton University Press, 2014), which I highly recommend. Readers will probably be familiar with some of the main characters, but in a depersonalized form—for instance, Babson action/reaction lines and Moody’s Investors Service. Other characters, such as Herbert Hoover and Irving Fisher, are rescued from the one-sided simplifications of history—failed president during the Great Depression, false prophet who claimed just prior to the 1929 crash that the stock market had reached “a permanently high plateau.”

Friedman accomplishes two main tasks in this book. First, he brings his characters to life, recounting their personal, intellectual, and entrepreneurial successes and travails, their pet social and political ideas (more…)

Big Mistake Done By Traders

  
  Education
#  #  #  #  #  #  #

The big mistake traders make is labeling challenges as problems.  A challenge is a function of growth, pushing one’s boundaries, becoming more than you presently are.  A problem is a shortcoming, a deficit, something to move past.
If you are never anxious, you are never pushing your boundaries.  Growth requires movement outside our comfort zones.  That brings uncertainty, nervousness, and doubt.  
The big mistake traders make is trying to eradicate uncertainty, nervousness, and doubt.  They want to trade with confidence and conviction.  They want to fearlessly pull the trigger.  So they stay in their comfort zones and they never grow and they never adapt to changing market conditions.
The trader who wants to develop embraces uncertainty, doubt, and fear.  Growth comes from mastering those, not erasing them.
The big mistake traders make is justifying stasis by calling it “sticking to a process”, “controlling emotions”, and “staying disciplined”.  Every uncertainty is a challenge.  Every challenge is an opportunity for growth.  Mastering challenges means we continually evolve our processes and make growth our discipline.  
If you want to overcome a “problem”, find the developmental challenge it brings to you.  Your problem is a gift.  Unwrap it.  Figure out how it will make you better.  Then tackle one small piece of the challenge and set yourself up for success.  Once you’ve gotten that under your belt, tackle the next piece, then the next.  Bryan was right: confidence comes from doing the things we fear, not from living a static life free of uncertainty.  

Trading Slogans

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #

Statistic makes the money.
I just control the risk.
————————————
I control my risk.
The market controls my win.
I just go with the market.
——————————
THINK – Control your risk !!!
—————————–
MAKE MONEY
1. Setups
2. Statistic
3. Risk managment
4. Disciplin
5. Setup Training
6. Learn Rulebook, every day
WORK HARD !!! DAY for DAY !!!
———————————-
LAZY TRADERS LOSE !!!
THEY JUST LOSE !!!
I HATE LAZY PEOPLE !!!
I AM A WORKAHOLIC AND I LOVE IT !!!
BECAUSE ITS ME WHO MAKES MILLIONS, EASY !!!
———————————-
SETUP TRAINING,
makes my money !!!
Do it every day !!!
——————————— (more…)

Preparation-Purpose-Protection For Traders

  
  Education
#  #  #  #  #  #  #
  • Preparation:  If you put yourself in the best possible position and you lose money at least you spent that money wisely.  Good things happen to those that are prepared because 90% of people do not know how to do it or are unwilling.  
  • Purpose: Acting with purpose.  You prepared, you knew the risks, you executed the way you wanted to execute.  In cold blooded evaluation you would do it the same with the information you had at the time.
  • Protection:  Losing the invisible money is how I have seen many people blow up.  Invisible money is not locking in profits or losing more than your plan allowed.  If you lose what you intended to risk you own the trade, if you lose more the trade owns you.

Your goal as a trader is to always reduce the time it takes to analyze, react, and recover.  The best traders do this effortlessly after much thought, experiment, and practice.  I lacked confidence because I thought about the wrong things or not at all and I was doing random things all of which made it too costly, emotionally and financially, to practice.

Go to top