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someone "codebreaker" wrote this and it's pertinent

By jaguar1637 3165 days ago Comments (1)


Basic synoptical for a trading system

 


#1 : Select a financial instrument.
#2 : Determine the "integration order" differentiating the time serie at the given timeframe several times until the "Dickey-Fuller Test" cannot reject the hypothesis of an unit root.
#3 : Find the best timeframe (can be "fractional") using the Shannon's "mutual information" method.
#4 : Design a "derivative filter" that match the integration order and compute two differents versions of the filter, one smoother than the other.
#5 : Use the "Radar Clutter Filter" like a "Trend Strength" indicator to disallow the trading in ranging markets and prevent from whipsaws.
#6 : The filters crossover determines the trading signals which the "trading range indicator" must approves.
#7 : Run the system in realtime for a time length (or a number of trades per day) defined by the "Chi-Squared Distribution" to check the reliability before playing with real money.

Comments

  • JohnLast 3162 days ago

    Differentioning is used in Digital Signal Processing for processing signals.

    Have a look at this webpage for examples of the practicle use of differentiationg.

    The whole construct falls subsequently as a pile of cards when you know that the market is not a signal. That does not mean that DSP methods are useless but. 

    The key of the methodology here is at the point 2 about the use of "Dickey-Fuller Test".

    If the data might have an unit root then you can consider to predict the differences or growth rate (link).

    However what I do not like in the approach is that it a prone to data mininf bias: 

    "Determine the "integration order" differentiating the time serie at the given timeframe several times until the "Dickey-Fuller Test" cannot reject the hypothesis of an unit root"

    This is scary, you shake the data until it shows what you want to see.