TRADING SYSTEMS
anyone who could give me answers as to why such and such an indicator worked
or how
their algorithm functioned.
You can get a great many explanations as to the theories of indicators – and
wax lyrical about the
some even esoterics of
combining such stalwarts (like MACD with Ichymoku) – but for every s u pp or t i v e statement for the theory when
it works
there always seems to be an equally detailed statement
as why it does not.
Te indicators and maths weave their way into algorithmic offerings which naturally their producers are very secretive about. If you ask how and why any given robot works – you are most likely to be directed at the 100% and 1000% successful results of the programme and this fills you with enough confidence to part with money for the subscription and you forget about needing responses to the very searching questions you had devised originally.
market works and no single approach, algorithm or mathematical projection holds up under all circumstances. Tis ripples through from the individual retail
trader right through to the
billion dollar asset management and hedge funds.
I set about trying to work out the concrete reasons behind the moves in the market and it took me on a very revealing journey. What is the journey? In this case it is the journey to profit using trading as the vehicle. Te
We have a choice here. To define the rules do we take a mathematical approach or a heuristic quantifiable approach? Using maths – we could take a Bayesian distribution approach using averaging of prices
(TWAP
or VWAP?). It is a very popular approach taken by algo traders in the cash equity firms.
FX TRADER MAGAZINE April - June 2016 75 to
One truth seems to surface repeatedly – nobody really knows how the
FX
trade sets off, meets a series of turning points and this gives birth to a series of questions. Te driver of the trade needs rules to get to the profit, so how are the rules defined?
We look to historical data and price charts for
evidence of
Nobody really knows how the market works and no single approach, algorithm or mathematical projection holds up under all circumstances
the prospective routes to follow. It is rapidly apparent that the price charts are not maps. Tere are no fixed roads on the charts. It is best
to consider
the charts as a record of paths invented by
the
market at specific points.
Mathematical vs quantifiable approach
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