Friday, October 12, 2012

2. Is it not very risky to Trade?

Investment and trading (as financial vehicle) in a) real estate, b) business, and c) capital and currency markets are like transportation a) by car in land , b) by boat in the sea, c) by airplane in the air:
Most people think that cars are less risky than boats, and boats less risky than airplanes. Actually if you ask them to build a vehicle to travel, they will build a car as the easiest, and will probably crash if they try an airplane. And so is with investments in the above areas. But if it is applied collective engineering intelligence, then the statistics show that people are killed more often in cars, less often in boats, and even less often in airplanes. So it is with the above areas of economics. When starting, real estate seems the easiest. But if after many years of experience, you can be consistently successful in the financial markets, then it is really the safer, because it allows more degrees of freedom, and it is the fastest, and frictionless way , exactly as when traveling by airplane. It is safer compared to real estate, as you are not endangered by interest rates, and inflation, and safer than traditional business, as you are not endangered, by economic crises, strikes, difficult public relations, changes in the production technology, changes in the demand for your products etc.


Probably the best instantaneous rewarding "why?", of manual trading is the joy and satisfaction in playing,  among the situations of higher or lower uncertainty of what will happen in the global economy and markets, so as to  plan and conduct a strategy that lets you know on occasions what will happen with acceptable low uncertainty.




And there are 3 contexts of laws required in trading . The appropriate LAWS OF THINKING for trading, the appropriate LAWS OF FEELINGS for trading , and the appropriate LAWS OF ACTIONS for trading. 

The Successful trading is based according to these three laws on
1) POWER OF COLLECTIVE  SCIENTIFIC THINKING: A GREAT AND SIMPLE SCIENTIFIC PERCEPTION OF THE FUNCTION OF THE ECONOMY THROUGH SOME GLOBAL STATISTICAL LAW. E.g. The law of Universal attraction in economy: that big money attracts more big money in the capital markets, and this by the balance of demand and supply makes securities indexes of the companies , that are indeed the big money, to have mainly stable ascending trend, whenever one can observe such one. Valid statistical deductions can be obtained with simple statistical hypotheses tests about the existence or not of a trend, with sample size half the period of a dominating cycle). (STABLE GREAT SCIENTIFIC THOUGHT-FORM  OR BELIEF FACTOR IN TRADING. )

2) POWER OF COLLECTIVE PSYCHOLOGY: A LINK WITH THE POSITIVE COLLECTIVE PSYCHOLOGY.(E.g. that the growth of security indexes also represent the optimism of the growth and success of real business of the involved companies. And we bet or trade only on the ascension of the index, whenever  an ascending trend is observable). (STABLE GREAT POSITIVE COLLECTIVE   EMOTIONAL OR PSYCHOLOGICAL FACTOR IN TRADING. )


3) POWER OF INDIVIDUALS SIMPLE , CONSISTENT AND EASY TO CONDUCT PRACTICE. (e.g. a trading system with about 80% success  rate that utilizes essentially only one indicator in 3 time frames, simple risk management rules of stop loss, take profit, trailing and escalation, and time spent not more than 20 minutes per day. In this way there are not many opportunities of human errors in the conduction of the trading practice. Failed trades are attributed to the randomness and are not to blame the trader). (STABLE SIMPLE AND EASY PRACTICAL  FACTOR IN TRADING)

We may make the metaphor that successful trading is the ability to have successful resonance with the  activities of top minority of those who determine the markets.

In trading there are 3 components in the feelings that must be dealt with. 1) The feeling of MONEY itself, 2) The feeling of the UTILITY of the money 3) The feeling of the RISK of the money each time. What is called usually money management in trading is essentially RISK MANAGEMENT. 



VALID STATISTICS AND PREDICTABILITY
We must make here some remarks about the robust application of statistical predictions in the capital markets.

1) The theory that the efficient markets and in particular that they follow a pure random walk is easy to refute with better statistical experiments and hypotheses tests. The random walk would fit to a market where the sizes of the economic organizations are uniformly random. But the reality is that they follow a Pareto or power distribution, therefore this is inherited in the distribution of the volumes of transactions and also in the emerging trends or drifts. 

2) The statistical models of time series  are more robust , when they apply to the entity MARKET as a whole and are better as  non-parametric , and not when they apply to single stocks and are linear or parametric. The reasons is that  a time series as a stochastic process , requires data of a sample of paths, and for a single stock is available only a single path. While for all the market the path of each stock or security is considered one path from the sample of all paths of all the stocks. 

3) The less ambitious the statistical application the more valid the result. E.g. applying a statistical hypothesis test, or analysis of variance   to test if there is an up or a down trend (drift) or none, is a more valid statistical deduction , than applying a linear model of a time series and requiring prediction of the next step price. 

4) Multivariate statistics, like factor analysis, discriminant analysis , logistic regression,  cluster analysis , goal programming etc are possible to utilize for a more detailed theory of predictability and of portfolio analysis, and sector analysis of the market and not only H. Markowitz theory. 

5) In applying of the above applications of statistics, the researcher must have at first a very good "feeling" of the data, and should verify rather with statistics the result rather than discover it. 

6) The "Pareto rule of complexity-results" also holds here. In other words with less than 20% of the complexity of the calculations is derived more than 80% of the deduction. The rest of the 20% requires more than 80% more complexity in the calculations.

8. Is the market going up or down? The law of relativity.


There are 3 contexts of laws required in trading . The appropriate LAWS OF THINKING for trading, the appropriate LAWS OF FEELINGS for trading , and the appropriate LAWS OF ACTIONS for trading. 
The Successful trading is based according to these three laws on
1) POWER OF COLLECTIVE  SCIENTIFIC THINKING: A GREAT AND SIMPLE SCIENTIFIC PERCEPTION OF THE FUNCTION OF THE ECONOMY THROUGH SOME GLOBAL STATISTICAL LAW. E.g. The law of Universal attraction in economy: that big money attracts more big money in the capital markets, and this by the balance of demand and supply makes securities indexes of the companies , that are indeed the big money, to have mainly stable ascending trend, whenever one can observe such one. Valid statistical deductions can be obtained with simple statistical hypotheses tests about the existence or not of a trend, with sample size half the period of a dominating cycle). (STABLE GREAT SCIENTIFIC THOUGHT-FORM  OR BELIEF FACTOR IN TRADING. )

2) POWER OF COLLECTIVE PSYCHOLOGY: A LINK WITH THE POSITIVE COLLECTIVE PSYCHOLOGY.(E.g. that the growth of security indexes also represent the optimism of the growth and success of real business of the involved companies. And we bet or trade only on the ascension of the index, whenever  an ascending trend is observable). (STABLE GREAT POSITIVE COLLECTIVE   EMOTIONAL OR PSYCHOLOGICAL FACTOR IN TRADING. )


3) POWER OF INDIVIDUALS SIMPLE , CONSISTENT AND EASY TO CONDUCT PRACTICE. (e.g. a trading system with about 80% success  rate that utilizes essentially only one indicator in 3 time frames, simple risk management rules of stop loss, take profit, trailing and escalation, and time spent not more than 20 minutes per day. In this way there are not many opportunities of human errors in the conduction of the trading practice. Failed trades are attributed to the randomness and are not to blame the trader). (STABLE SIMPLE AND EASY PRACTICAL  FACTOR IN TRADING)

We may make the metaphor that successful trading is the ability to have successful resonance with the  activities of top minority of those who determine the markets.

In trading there are 3 components in the feelings that must be dealt with. 1) The feeling of MONEY itself, 2) The feeling of the UTILITY of the money 3) The feeling of the RISK of the money each time. What is called usually money management in trading is essentially RISK MANAGEMENT. 



VALID STATISTICS AND PREDICTABILITY
We must make here some remarks about the robust application of statistical predictions in the capital markets.

1) The theory that the efficient markets and in particular that they follow a pure random walk is easy to refute with better statistical experiments and hypotheses tests. The random walk would fit to a market where the sizes of the economic organizations are uniformly random. But the reality is that they follow a Pareto or power distribution, therefore this is inherited in the distribution of the volumes of transactions and also in the emerging trends or drifts. 

2)
The statistical models of time series  are more robust , when they apply to the entity MARKET as a whole and are better as  non-parametric , and not when they apply to single stocks and are linear or parametric. The reasons is that  a time series as a stochastic process , requires data of a sample of paths, and for a single stock is available only a single path. While for all the market the path of each stock or security is considered one path from the sample of all paths of all the stocks. Linear time series models or derived like ARMA, ARIMA, SARIMA etc are destined to fail for particular patterns like those described in the post 32, because the true equations are non-linear and in addition with random, time varying coefficients that derive the random emergence of the 4 basic observable patterns (see post 32 ). In addition the standard application of the time series by the researchers,  focuses  on stationary time series after they extract  a stable exponential trend, while in the reality the main concern should be the random path of the average value of the prices that shapes the patterns and is neither constant exponential trend neither zero ! The "statistical momentum conservation" might then be nothing else than an hypothesis that the random and time varying 1st order in time steps , partial correlation of the prices , is always positive. This can be easily tested statistically. E.g. in the cross exchange rate EURUSD but also in the indexes, the partial correlation of the current to the previous time step bar is measured indeed positive, in almost all time frames, except at the daily time frame, where the cyclic behavior prevails. In the daily time frame the partial correlation is negative , which means if one day is up the next day it is more probable that it is down. In addition, the cyclic behavior is even stronger in pairs of two days with negative partial correlation (two days up two days down etc). In searching for random cycles or periodicity, of say a single index or even instrument , the valid statistical practice requires the creation of a sample of paths over a time interval of  a whole period, by collecting  the pieces of the path at different periods as the market move as far as the searched periodicity is concerned may be considered as moving independently at independent periods. 

3) The less ambitious the statistical application the more valid the result. E.g. applying a statistical hypothesis test, or analysis of variance   to test if there is an up or a down trend (drift) or none, is a more valid statistical deduction , than applying a linear model of a time series and requiring prediction of the next step price. 

4) Multivariate statistics, like factor analysis, discriminant analysis , logistic regression,  cluster analysis , goal programming e.t.c.,  are possible to utilize for a more detailed theory of predictability and of portfolio analysis, and sector analysis of the market and not only H. Markowitz theory. 

5) In applying of the above applications of statistics, the researcher must have at first a very good "feeling" of the data, and should verify rather with statistics the result rather than discover it. 

6) The "Pareto rule of complexity-results" also holds here. In other words with less than 20% of the complexity of the calculations is derived more than 80% of the deduction. The rest of the 20% requires more than 80% more complexity in the calculations.

8.1 When years ago I was working in a stock broker, I was asked very often by customers or colleagues in the work: "What do you see, will the market go up or down?" It is a widespread assumption that there is a universal consensus about if a market goes up or down at a particular time moment, or if it is overbought or oversold. But this in reality is another common fallacy! There is no such consensus or even objective market state. And the reason is quite simple: If the questioning does not define also a particular forward time horizon the question is meaningless. Even If I follow a particular prediction system, in my trading that forecasts that the market will go up or down, it is always on a particular timeframe. E.g. I may have a prediction for the next bar. Nevertheless the same prediction system, if applied to different time frames, say monthly bars, weekly bars, daily, bars, hourly bars etc, it will give different results. For example it may forecasts that in the next monthly bar the market will go up, in the next weekly bar down, in the next daily bar down, in the next hourly bar up etc. So at the same time the market goes up and it goes down simultaneously at different time frames.
That is why the question is meaningless, and in most cases it shows that the investor or trader, that asks is fatally vague about the expected horizon of his trade. This may be called the "Law of Relativity"
8.2 Nevertheless this applies to the technical analysis of trading. I do not claim that e.g. a buy-and-hold investor in stocks cannot define in an exact way if his stock is overbought or oversold, by comparing the accounting value of the assets of the company with the stock exchange price of the stock (This would be fundamental analysis). Yes he could define overbought and oversold as an objective state. Still this would be of little value for making trading decisions, as Warren Buffett remarked, because such calculations were giving almost all stocks overbought and for many decades!

11. Assets evolution of the enterprises and the Pareto and power distribution of volumes and slope and duration of the trends in the markets. The statistical link between fundamental and technical analysis.

It has been prove by simulation  (see the book by Bernardo Huberman @The laws of the web@ pages 28-29 chapter 3     http://www.amazon.com/Laws-Web-Patterns-Ecology-Information/dp/0262582252/ref=sr_1_1?s=books&ie=UTF8&qid=1396516209&sr=1-1&keywords=The+laws+of+the+web )
that , if a number of organizations grow multiplicative (in other words exponentially or as logistic growth) , and all have the same growth rate, and start at the same time, then at any time moment, their statistical distribution of sizes, is lognormal. BUT if they start at different times, and/or have different growth rates, then , the resulting distribution, at any time will be a power, or Pareto distribution. 
This explains that the enterprises and financial organizations have as statistical distribution of their asset sizes, a power or pareto distribution (in other words that involves a monomial ax^b of probability density, as a function of the size x.) This means also that if we plot the statistical distribution in logarithmic scale both on the x-axis and the statistical density axis y, it will appear as straight line). 
This statistical law is inherited to the volumes of transactions, and therefore it creates the momentum conservation, or law of trend, that we have analyzed in other posts. 

This inheritance of a power distribution law from the size of the assets, to the volumes of transactions, is the basic mathematical-statistical relation between the fundamental analysis and the technical analysis

If all the organizations would have the same size, then, the markets would behave as random walk (neutral fluctuations up or down) . This is also a proof why the markets do not behave , as random walk , because, of the law of Pareto of economic inequality. And this is also a proof, that the standard models of Black-Scholes of the Options fair pricing are biased in a  systematic way, as their fluctuations are assumed as exponential  random walk.
Of course it could not be otherwise! Would the financial status quo elite give a nobel prize, to a model that would allow , smaller or middle players to gain systematically over the large players? Not probable! The model should be so that all players gain zero in the average, and if we consider the transaction costs, would lose systematically. 


There are 3 contexts of laws required in trading . The appropriate LAWS OF THINKING for trading, the appropriate LAWS OF FEELINGS for trading , and the appropriate LAWS OF ACTIONS for trading. 

The Successful trading is based according to these three laws on
1) POWER OF COLLECTIVE  SCIENTIFIC THINKING: A GREAT AND SIMPLE SCIENTIFIC PERCEPTION OF THE FUNCTION OF THE ECONOMY THROUGH SOME GLOBAL STATISTICAL LAW. E.g. The law of Universal attraction in economy: that big money attracts more big money in the capital markets, and this by the balance of demand and supply makes securities indexes of the companies , that are indeed the big money, to have mainly stable ascending trend, whenever one can observe such one. Valid statistical deductions can be obtained with simple statistical hypotheses tests about the existence or not of a trend, with sample size half the period of a dominating cycle). (STABLE GREAT SCIENTIFIC THOUGHT-FORM  OR BELIEF FACTOR IN TRADING. )

2) POWER OF COLLECTIVE PSYCHOLOGY: A LINK WITH THE POSITIVE COLLECTIVE PSYCHOLOGY.(E.g. that the growth of security indexes also represent the optimism of the growth and success of real business of the involved companies. And we bet or trade only on the ascension of the index, whenever  an ascending trend is observable). (STABLE GREAT POSITIVE COLLECTIVE   EMOTIONAL OR PSYCHOLOGICAL FACTOR IN TRADING. )


3) POWER OF INDIVIDUALS SIMPLE , CONSISTENT AND EASY TO CONDUCT PRACTICE. (e.g. a trading system with about 80% success  rate that utilizes essentially only one indicator in 3 time frames, simple risk management rules of stop loss, take profit, trailing and escalation, and time spent not more than 20 minutes per day. In this way there are not many opportunities of human errors in the conduction of the trading practice. Failed trades are attributed to the randomness and are not to blame the trader). (STABLE SIMPLE AND EASY PRACTICAL  FACTOR IN TRADING)

We may make the metaphor that successful trading is the ability to have successful resonance with the  activities of top minority of those who determine the markets.

In trading there are 3 components in the feelings that must be dealt with. 1) The feeling of MONEY itself, 2) The feeling of the UTILITY of the money 3) The feeling of the RISK of the money each time. What is called usually money management in trading is essentially RISK MANAGEMENT. 



VALID STATISTICS AND PREDICTABILITY
We must make here some remarks about the robust application of statistical predictions in the capital markets.

1) The theory that the efficient markets and in particular that they follow a pure random walk is easy to refute with better statistical experiments and hypotheses tests. The random walk would fit to a market where the sizes of the economic organizations are uniformly random. But the reality is that they follow a Pareto or power distribution, therefore this is inherited in the distribution of the volumes of transactions and also in the emerging trends or drifts. 

2) The statistical models of time series  are more robust , when they apply to the entity MARKET as a whole and are better as  non-parametric , and not when they apply to single stocks and are linear or parametric. The reasons is that  a time series as a stochastic process , requires data of a sample of paths, and for a single stock is available only a single path. While for all the market the path of each stock or security is considered one path from the sample of all paths of all the stocks. 

3) The less ambitious the statistical application the more valid the result. E.g. applying a statistical hypothesis test, or analysis of variance   to test if there is an up or a down trend (drift) or none, is a more valid statistical deduction , than applying a linear model of a time series and requiring prediction of the next step price. 

4) Multivariate statistics, like factor analysis, discriminant analysis , logistic regression,  cluster analysis , goal programming etc are possible to utilize for a more detailed theory of predictability and of portfolio analysis, and sector analysis of the market and not only H. Markowitz theory. 

5) In applying of the above applications of statistics, the researcher must have at first a very good "feeling" of the data, and should verify rather with statistics the result rather than discover it. 

6) The "Pareto rule of complexity-results" also holds here. In other words with less than 20% of the complexity of the calculations is derived more than 80% of the deduction. The rest of the 20% requires more than 80% more complexity in the calculations.


18. The final stage: The growth of the new sovereign self as social benevolent being of not-only-household wealth

1.Aspiration to a higher self and power
2. Charity
3. Benevolent compassion.
4. Courage
5. Dedication
6. Faith
7. Forgiveness
8. Generosity
9. Grace
10. Honesty
11. Hope
12. Joy
13. Kindness
14. Leadership
15. Non-interference
16.Patience
17. Praise
18.Responsibility
19. Self-love
20. Gratitude
21. Unconditional love


Here are some beliefs that create the reality of the experience of personal and social life for many people in the current civilization.  Blessed are those that hold the truth in them that all of them are wrong!

1) In order to have the right to be alive, anyone in any age, and have access to the resources of the ecological planetary biosphere, or the inherited inventions and achievements of many past generations in the civilization, you must earn the necessary amount of money. Other wise you are not entitle to the above rights. 

2)That the economic inequalities are not less   than 20% a reflection of the meritocracy of the have ones versus the non-haves ones, and more than 80% a result of the law of activities "money attracts more money", in other words one of the basic property of money and the game of private property. On the contrary they are more than 80% the result of meritocracy,  are therefore fair, and that there is no statistically certain fact that a percentage of the population will be lead in to a miserable non-livable life and it is therefore  not a responsibility of the economic system. Economic inequalities do not apply automatically a deadly negative , massive scale destructive will in the population. 

3) The current economic system of inequalities of private property and money(  e.g. as described by the Pareto rules of 80%-20%) is the natural and best mode of evolution of the societies. It is always better to have a minority with high standards of life, even if it is only  an ideal for the poorer masses.

4) Every form of success and self-realization and creation of personal competence and value in life, is also the creation of personal financial  wealth.  The more the personal value, the more the economic difference from the average person's wealth. In short money and personal wealth  more or less count also for personal value.

5) Only the state, is the appropriate power to take responsibility and solve all problems of life and society, and I just wait to take advantage of the benevolent solutions. 

6) The right and exclusive privilege of the private industry of the banking system, to issue ("print") money  and circulate it exclusively through debt, does no create in a periodic way massive financial destruction in the societies. 

7) The right of the capital, to buy whole companies, and their human resources power, or the human working time, it is not a form of partial and indirect slavery. Survival of the individual with making a living by selling the working-time will always be the mode of social life of the individual.

8) The jungle-law of the powerful animal, as the one that by definition  applies and creates suffering to the weak animals , is also a universal law in the human civilization.

9) Love is a state of weakness. Most often it leads to loss of freedom of loss of personal or social power and unhappiness. 

10) It is not true that in the very existence of any single human being, there is the ability of miracles. Only the God, or God's invocation could make miracles. 

11) In order for some one to have a successful and happy life, he/she must start by acquiring money and creating sufficient wealth. All else, more or less, will come sooner or later. 

12) The emotions are the most important aspect of the human consciousness and must have the last word in the human decisions. 

13) The only motives of people, so as to do what they do in their lives are survival, (including  sex and  procreation) or money (the economic security, or the desire of becoming rich). 

14) The only true value in human life is to fall in love, then to make a family and have children.

15) The natural state of a human being is suffering and unhappiness. Happiness is a rare  intermittent state. 

16) Most things in life are not determined by a human being. They simply happen to him. Few only are determined by him and for few only things he/she is responsible in his/her  fate. Therefore the external conditions determine much more the life than the internal conditions of his/her existence. 

17) Each individual is mainly his/her worst failures , weaknesses , fears and problems.

18) You abilities and worth, are only what you can prove from what you have done (e.g. by a CV).

19) What you are, is mainly what others believe or assess  about you, and not so much what you believe and know for yourself. 

20) Truth , and reality is mainly almost entirely the negative, undesired or ugly  realizations of thinking. And conversely the negative, undesired or ugly  realizations of thinking, are bound to be the truth and reality.



21) There is no other deeper physical material  reality, than everything that is made from protons neutrons, and electrons. Beyond these and in smaller space scale there is nothing but vacuum and empty space. (this belief is relevant to our current oil energy model and the CO2 emissions in the air, that deplete oxygen).

22) The universe was created by a Big Bang 13-14 billion years ago. It does not hold that the world is in  swirl motion of galaxies and stars that increases and decreases the world entropy  periodically , and that the universes age is 21 trillion years

23) The carnivorous habits (meat eating) are the natural nutrition model of food that by biological design is the appropriate for the human body. Animal slavery , livestock and breeding animals for human beings food is a standard civilization behavior that will never be abandoned. (This is relevant to the agriculture , livestock and cattle breeding planetary scale model of food resources)

24) Making children , is always good and moral, in spite of any adversities or poor economic conditions of the parents and  society. (This belief is relevant to the emergence of overpopulation).

25) The human being is always with narrow selfishness oriented to personal private property and will never take responsibility of the global sustainability of the biosphere of the planet. (this is relevant to our destruction of the physical environment)

26) There is no other intelligent civilization in the billions of planets of our galaxies, galaxies around and in the world in general except the earthly civilization. (this is relevant to our claim that anything about aliens is a collective fantasy)

27) The earthly civilization will never unite in a global democratic and fair political system, with as little power inequalities as possible and where no single nation or race  will dominate all others.

28) Travelling with human passengers to other solar systems , is out of our technological reach for the next 2-3 of centuries.

29) The interior of the earth is full of magma and high temperature matter. It does not hold that till the 2/3 of the radius of earth it is hollow with inner atmosphere  neither that it has a sun-like gaseous fiery ball at the center.

30) Money will always be used inside the societies of the earthly civilization. There is no advanced social life without money. Money do not make people wicked. 

31) The mode of communication of human being from close distance will always be through speaking verbally with a voice transmitted as sound through the air. Human beings will never become fully telepathic through evolution in a natural way. Neither any universal-planetary inner-visual 3-dimensional pictures language will unite collective all people in the planet. This can be done only though technology like the internet.

32) Private property will always be the mode of individual power and the base of the economy.  The human soul will always be attending and receiving, as its main and strongest interest , perceptions from the material physical objects.  And as long there is private property, there must be money too. Money is not the means of applying power from human to humans , but it is  neutral and the means of transactions. 

33) The Homo Sapiens is an evolutionary development of primates and monkeys of earth, since 6 million years ago.  It is not the descendant of the population of Atlantis and Lemuria  that were destroyed 27 and 31 thousand years B.C. and founded 57 and 72 thousand years B.C. respectively. Or if they are, Lemuria and Atlantis, were not collective colonies of intelligent civilizations from Lyra,  who already new inter-galactic travelling and had come 50 million years ago in Lyra  from another galaxy. 



We could regroup , the (spiritual) principles or beliefs, in to 

1) Those referring to , the physical reality, and cosmology.

2) Those referring to the history and creation of life, and civilizations, among the galaxies, and and also history and creation of life on earth, and earthly civilizations.

3) Those referring to the how a society and civilization must or can function, beliefs about money, power, fame, and human rights.

4) These referring to the human existence, its evolution , values and abilities 



And after these 4 categories a system of spiritual beliefs and principles closer to truth, and appropriate evolution of the human existence would be the next.

1) Those referring to , the physical reality, and cosmology.

1.1) The universe was not created by a Big Bang 13-14 billion years ago. It is by far more reasonable and probable that there is a  swirl motion of galaxies and stars that increases and decreases the world entropy  periodically , and that it may not be improbable that the universes age is about 21 trillion years, as many galactic civilization 3-4 thousand years more advanced that us, believe. 
For the periodic motion see e.g. http://www.youtube.com/watch?v=EKtevjrZOGs


1.2) The physical reality is not exhausted by the matter that we know , which is  made from protons neutrons and electrons (the only permanent and  free particles, anti-matter not included). On the contrary there are many more similar layers of matter , made from such triads of smaller free and permanent particles. Each such  layer having a frequency. Therefore although  the layer of matter that we know (made from protons neutron electrons, and which is only one frequency of material reality) may have an age of 21 billion years (as as many galactic civilization 3-4 thousand years, more advanced than us believe) the universe as a whole, having more such frequencies-layers, should be older. The advanced civilizations in the galaxy report at least 10 such material physical frequencies-layers. The last one the 10th created recently during the 90s. The next (second) frequency-layer material reality after the one that we know, has sometimes being called aether in the history of the human civilization. The term frequency, in the matter we know, refers to the average frequency of the spin of protons, neutrons, and electrons. 
(For the numbering of the frequencies of physical material realities see post 12) 

1.3) The interior of the earth is not full completely from magma and high temperature matter. It does hold that from the center and till the 2/3 of the radius of earth it is hollow with inner atmosphere  and it has a sun-like gaseous fiery ball at the center. In order to understand this we should have more advanced scientific theory of gravitation than the one we have. This fact of hollow planet, holds for almost all planets and stars in the galaxies.

 Here is an 3D animation video, which gives the above assumed concept (in the video the width of the shell is shown half of what mentioned here)

http://www.youtube.com/watch?v=ubKFmIDBMjU


2) Those referring to the history and creation of life, and civilizations, among the galaxies, and and also history and creation of life on earth, and earthly civilizations.


2.1)  Life and civilizations exist  elsewhere too, on planets of other solar systems of  the galaxies, as they exists on earth on the known material reality (and frequency) . But they exist also in higher frequencies or layers of material realities, both in our solar system (e.g. higher 3rd frequency invisible satellites of planet Jupiter) as well as in other solar systems.  Each living planet can hold as tonal frequency,  one only frequency. 

2.2) The intelligent civilizations in the local area of  galaxies make alliances and groups according to their common values, power, DNA lineage etc. 

2.3) Our earthly human mammal civilization (called by us Homo-Sapiens) is not a pure indigenous earthly specie of humanoids, but it started coming  on earth  as colonizers or refugees from other solar systems in the galaxy. This may have happened even up to 50 millions of years ago, but as easily proven fact reported from other galactic civilizations give, at least  700 thousand years ago. 

2.4 ) It is not the first time (as DNA lineage) that we evolve at our current civilization level. We were more advanced  in the past on this planet.  E.g. the stories of Lemuria and Atlantis till 31 and 27 thousand years B.C respectively. 

2.5) Coinciding with the creation of the new 10th frequency cosmic physical material layer during the 90s, it became widely known among the civilizations of the galaxies, that all life and planetary civilizations at the known 1st frequency material layers (like earth) will eventually "jump" in frequency or migrate to the 2nd or higher frequency material layers, as whole planetary worlds. The 1st frequency physical material layer all over the world   will no longer serve as a layer to host consciousness anymore throughout  out the galaxies.  Therefore as this also will me the way our planetary world will evolve, it is imperative to know more about life and civilizations in higher frequencies. E.g. it is reported that the human beings in 3rd frequency living planetary worlds, no longer need to feed themselves with other life-forms, but take their energy from the sun. And it is also reported that already the planet Jupiter, that we know it as planet in the 1st frequency material reality, it is a blue sun, in the 3rd frequency material reality. 


For more on these see e.g.http://galacticlife.blogspot.gr/2012/01/1-our-galactic-origin.html


3) Those referring to the how a society and civilization must or can function, beliefs about money, power, fame, and human rights.

3.1) The more advanced is a civilization the less the inequalities of technology, living standards and political power of humans in the same frequency physical reality. Nevertheless a civilization can exist inn 3 or 4 consecutive frequency physical realities not only in one (as we know it on earth).  The more advanced a civilization the faster it evolves, and shifts from frequency to higher frequency. 

3.2) The current economic inequalities are  less   than 20% a reflection of the meritocracy of the have ones versus the non-haves ones, and more than 80% a result of the law of activities "money attracts more money". In other words it is one of the basic properties of money and the game of private property.  Economic inequalities do apply automatically a deadly negative , massive scale destructive will in the population, unless there is an effort to reduce and eliminate them.

3.3) Therefore a new basic human right is needed that of minimum guaranteed standards of living ,either if he/she works or not , and at all ages, which includes health, food, cloths, house, transportation.

3.4) Eventually a planetary civilization will not function by utilizing money and private property. But as long as it does in its early stages of evolution, the currency should be issued only the the public state, and should circulate in the society mainly without debt. (In other words eventually without a banking system). In addition the right of the capital, to buy whole companies, and their human resources power, or the human working time, it is  a form of partial and indirect slavery and it will abandoned as the civilization advances. Survival of the individual by making a living by selling the working-time will have to be abandoned  as the mode of social life of the individual, as the civilization becomes more evolved. 

3.5) As a civilization advances, it abandons the carnivorous habits and turns in to vegetarian habits. 

3.6) The social and personal success of a human being is more about realizing the intent of the soul and less about acquiring by itself, material possessions, or social power etc. 

3.7) When a civilization is sufficiently advanced, all the communication between the individuals is through voiceless telepathic spiritual ability, of projecting 3-dimensional inner holographic pictures between each other, in a intuitive way.  Therefore our internet is a gross technological external early reflection of this future collective spiritual ability. This spiritual ability increases equality among people, and creates a non-hierarchical, in the political will, society.



4) These referring to the human existence, its evolution , values and abilities 

4.1) It is  true that in the very existence of any single human being, there is the ability of miracles. It is not only that the God, or God's invocation that could make miracles. But this ability of miracles , as creative power, of the human beings in this planet and civilizations has being blocked by a collective system of beliefs relevant to the history of the particular civilization.

4.2) The human beings as souls, are magnificent and glorious immortal existences and perceivers. Souls are incarnated and reincarnated in mortal physical (of various level frequencies) human bodies. Most earthly humans have been before incarnated in the past in other civilizations in other solar systems, some more times repeatedly in this planet, and some in higher frequencies material realities of other solar systems. The more advanced a civilization the  happier and healthier are its members, and the higher the frequency of their physical bodies. The higher the frequency in their bodies the more love and joy  is felt , expressed , practiced and experienced, and also the more the human existence takes responsibility of its fate and way of existence , and also the more the freedom and the higher the creative powers. In addition the higher the frequency, the longer the life of the human beings. 



38. RE-POSITIONING THE PORTFOLIO. Optimal adjustments of tradable funds and non-tradable cash.

As I mentioned in the post 3, about the "speculators" they apply an optimal adjustment back-office method that multiplies their profits reduces the risk, and does not need a forecasting of the market. Warren Buffett and many other succesful investors apply this technique as a paramount and basic neccesity in investing and trading.
During 1998 while studying in the University of Portsmouth, I discovered a theorem in the book "Stochastic Differential equations" by B. K.Oksendal (Springer editions) page 223, example 11.5 where he proves through the ITO stochstic calculus that such an adjustment as above is optimal during a constanttrend  against just buy-and-hold , and maximizes the probability to have positive profit 
We may apply optimal adjustments of tradable funds. This means that we divide the funds in to tradable (e.g. 66%) and non-tradable (33%). Al trading is based only on the tradable funds, which in their turn are divided in to usable for margin, and risked e.g. by stop-loss in a trade or excursions, and those reserved for next trades. Then at the start of the trading we mark the equity level E0. For every dE increase from this E0 level or previous level during trading  (e.g. dE=5% over all funds) we adjust by in increasing by 2.5% the non-tradable, and decreasing by 2.5% the tradable, and for every dE decrease from E0 or previous level during trading, we adjust by in decreasing by 2.5% the non-tradable, and increasing by 2.5% the tradable so that the ratio 33% of non-tradable funds to all funds, remains approximately constant. 

Monday, August 27, 2012

53. An example of a good automated system based on the turtle trading: Turtle Breakout


There are two mathematical principles on which systematic long run successful trading is based:


1) There are hidden almost periodicities on the volumes and volatility of the prices. The most characteristic are , the daily cycle , the monthly cycles and the annual (or quarter) cycle.
2) The duration of the trends is usually a multiple of the characteristic half-periods  as above, and they also follow approximately the distribution of the capitalization sizes of enterprises, in other words a Pareto or a Power distribution. 
3) The demand-supply  functions under the three coupling modes a) Domination b) Competition c) Cooperation, and as result of this the 3 basic price patterns of spiketrend, and flat channel, emerge. 

If a uniform randomness would rule the markets (efficient markets assumption) , the probability of long duration trends would be much less that what it is observed, and their distribution would be a geometric or exponential, and not Pareto or power. Thus the law of "universal attraction" in enterprise formation makes also the markets non-efficient and more predictable that the academic world believes.


The legendary Turtle trading system of the 80's
(See also the book by M. W. Covel "The Complete TurtleTrader")
At the decade of the 80's it was a legend the systematic profits in the markets and even in the commodities of the turtle trading system. Actually there are the fast or monthly  and the slow or seasonal turtle trading systems. The fast turtle trading system opens positions at the break out of the 20 days Dochian channel (in other words at breakouts of the maxima or minima of 20 days bars) when the previous trade was not a win. Notice that the turtle trading system misses a significant entry at the highs of the bars of the  spike down waves of the 20 days Dochian channel as B. Williams suggest with his alligator indicator and even A. Elder suggest with his 2-days force index.This spike may appear as spike in th weekly or nomthly charts although only as a move with high slope in the daily charts. Definition of the start of seasonal trend within a constant tidal-trend by a spike makes the hysteresis of the measurement of a seasonal trend zero!  It pyramids or escalates at N/2 price volatility intervals ,(see post 44 for the definition of N by the 20 days ATR, and with position size so that N price change corresponds to 1% change of the funds of  the account). As an optimization we may prefer the psychological levels of decimal system , that is by intervals of 100 or 50 points. E.g. in the index NASDAQ and Dow-Jones the 50 points are closest to the N/2 changes while in the index SnP500 10 points are closest to the N/2 changes From this point of view the turtle-trading is a Grid-trading A grid-trading like a sieve creates a portfolio of a large number of positions that handles the randomness of the path of prices in the best way.  The idea of escalation is of course to build gradually the position with densest reasonable grid, so as to risk always not more than an optimal little , here the 1% and then eliminate this risk with a break-even and proceed escalating as much as the margin and risked stop-loss allows in the funds , while remaining at a quite early position of the total trend-move.  Notice that the turtle trading is missing here again that the escalation is done also with less risk at the   down waves of the Dochian channel e.g. by the 2-days force index as A. Elder suggests!  The initial stop loss but not subsequent trailing is at 2N (thus 2% of the funds)  price interval. When  a new position is opened , the next day and in general the first next day that it is possible we to move the initial stop loss to a break evenIn order to keep total position risk at a minimum, if additional units were added, the stops for earlier units were raised by 1⁄2 N (trailing). This generally meant that all the stops for the entire position would be placed at 2 N from the most recently added unit. However, in cases where later units were placed at larger spacing either because of fast markets causing skid, or because of opening gaps, there would be differences in the stops.  The System has an alternate stop strategy that resulted in better profitability, but that was harder to execute because it incurred many more losses, which resulted in a lower win/loss ratio. This strategy was called the Whipsaw.   Instead of taking a 2% risk on each trade, the stops were placed at 1⁄2 N for 1⁄2% account risk. If a given Unit was stopped out, the Unit would be re-entered if the market reached the original entry price. If the position does not close by stoploss , an exit rule is that it is closed if prices hit the opposite side of a 10 days Dochian channel. This fast system obviously is tracking and utilizes the monthly cycles. The slow turtle trading system is the same as the fast except as entry rule is used the 6 weeks or 55 days Dochian channel with exit by 20 days Dochian channel.. This system system utilizes seasonal cycles of 55-60 days. The turtle system was utilized mainly in the commodities markets. For the forex market it needs simulation backtest and optimization of the above parameters, from which the next automated system was created.
E.g. There is also the faster "Parker-spiral"  variation of the monthly turtle trading system where it is  utilize the 10 days dochian channel with exit by the 5 days Dochian channel.
We may notice that the Bill Williams system is approximately as the seasonal turtle trading, except that the initial entry (of long positions) is only at a (down) terminal spike so as to have less risk at the initial stop loss which may be way less than N/2, and  that the escalation is decreasing and not of constant rate, while it is avoided as the seasonal trend while still with positive first derivative it acquires nevertheless negative second derivative. Also the trailing-out is not by the 20 days Dochian channel but by the 5 days Dochian channel. 
Alternative better exits can be timely rather than pricely, based on the timing of the half-period moves of the the 5D, 10D and  30D or 6 weeks (See also post  68) for the seasonal turtle trade, or 10 days for the monthly turtle trade, and 5  days for the "Parker-Spiral" turtle trade. We may also combine timely exits with an at least  80% trailing of the floating profits at each position.Notice that in general an exit-trailing rule based on percentage of floating profits for each position e.g. 66%, 80% etc (individual position not group of positions profits) will create a portfolio of different speed of trailing-outs which like a portfolio of time-scales of turtle trading, thus more robust to the risk! Older positions stay more in fluctuations while new positions may close and reopened more often.
Portfolios approach to handle more risk.: The best way to handle the uncertainty that a single index may exhibit, is to implement a portfolio of 33% allocation of the funds for all the three different cycles and time-scales of  the turtle trading, namely Parker-Spiral cycles, Monthly cycles, and Seasonal cycles. The fact that all these turtle systems use charts of the daily bars and same parameters of initial stop-loss , and escalation, based on N, helps even better for the portfolio of trading systems.

Also a portfolio on the 3 indexes Dow-Jones, SnP500, and NASDAQ by 29%, 31% and 40% respectively is  a better practice that trading just one index of them, e.g. only NASDAQ. 

As the above system of turtle trading (with the extensions based on the A. Elder system, B. Williams system, break-even,  decimal price levels of escalation, and cycle based timely exits) is quite solid-complete and deterministic in conduction, probably the only discretion is 1)  the percentages of allocation of the above two portfolios of 3 indexes and 3 time scales and 2) the adding or not based on the strength of the first derivative of the seasonal trend, and sign of the second derivative or the percentage of the half-period of the relevant cycle (5D, 10D, 30D)
For the profitability of  manual such conduction on daily bars, we may notice that for strong seasonal trends, there may occur a more than doubling of the funds within a season (that is about 25% per month) if the utilized margin-leverage by CFD's is 200 or more while with ordinary margin-leverage of 20 of futures contracts is at least 10 times less, that is about 2.5% per month, as recorded by many turtle-traders since 1980. For non-leveraged trading it is hardly worth the time and effort compared to buy-and-hold investment.  \When the constant trend-tide is absent and the market is in a seasonal stationary-continuation pattern, practically the profit for one or more seasons may be zero.



Here we summarize an enhancement and improvement of the turtle trading, based on the above remarks from the systems of A. Elder and B. Williams and my discoveries of random celestial cycles in the markets. We may call it the 3-cycles turtle-grid  portfolio  system, or in short THE CELESTIAL SIEVE.
The perception and conduction of the system is 4-fold, and it is applied on daily bars.
1) (TIDE) At first we have identified in monthly and weekly charts the perpetual constant trend or tide (usually lasting at least 2 years , principle 1 above in post 68 ) on the 3 indexes Dow-Jones, SnP500, and NASDAQ. For the sake of simplicity in writing we assume it here that it has been identified as upward, good for long positions.
2) (WAVE) Within that, occur seasonal moves with trend, that start after a seasonal continuation flat channel pattern or  by a down spike in the weekly or monthly chart so no momentum measurement hysteresis is necessary in detection (B. Williams) Such moves end timely (principle 2 above in post 68 ) (5D, 10D, 30D) or by going to zero of the 1st statistical derivative with earlier sign negative 2nd statistical derivative or by a u terminal spike or by a down spike. 
3) (ENTRY, STOP-LOSS , ESCALATION)
We open positions up at the starting spike (B. Williams) or backwards ripples signals by the 2D force indicator (A. Elder) or forwards break-outs of the decimal based N/2 grid (Turtle trading, and fractals by B. Williams) with initial stop loss between 2N, N, or N/2 , when N by the appropriate position size is 1% of the available funds (principle 3 above in post 68) . We do not open positions by the Grid if the 2nd statistical derivative is negative or the 1st statistical derivative close to zero, or timely (principle 2 above in post 68 ) we are more than 80% of the duration of a half-period that is 5D, 10D, 30D etc.
4) (EXIT, TRAIL-OUT). We trail-out either timely (Turtle, B. Williams) e.g. 5D, 10D, 30D or pricely (A. Elder) by X% of the floating profits (which is better as it creates a portfolio of time scales and positions) e.g. 50%, 66%, 80%, 90%  which may be changing and increasing as the seasonal trend reaches its maturity etc
or we close timely (principle 2 above post 68) by expiration or maturity of half-periods e.g. 5D, 10D, 30D etc



Turtle Breakout

Turtle Breakout is a fully automated strategy. It is based on the celebrated and half-century old turtle trading system, with which millions have been gained. It is a combination of the classical turrtle trading system with grid-trading and other group-take profit techniques.
It is simmilar to the Spike Hunter, in to that it open trades on spikes. But here the spikes are not sessional as in the Spike hunter but  rather seasonal. It detects also the spikes not in a dynamic way by ATR, as in the spike Hunter, but in static way through maxima-minima and support-resistance levels (as in turtle trading).Trailing and pyramiding and group of open positions  take profit, are utilized. Essentially of course it is arather volatility-long tarding system, which means that  there is the psychological and risk management advantage that we should not fear sudden crisis, unpredictable news based crisis etc. In all such crises it locks profits.
Both Spike Hunter and Turtle Breakouts are focusing and are giving priority to that pattern from all the 4 price patterns (see post 32) with the highest rate of return: Spikes and Spike Breakouts. That is why it is optimal as type of trading. 
Unlike Spike Hunter, Venus and Carpe Diem, that apply only to the pair EURUSD,  the Turtle Breakout is a ubiquitous system, in the sence that it applies to all pairs, all stocks, commodities, rates , bonds and in general all instruments. The reason for this is that it is based on the turtle trading system which is ubiquitous.
For more on the classical turtle trading see the books
http://www.amazon.com/Complete-TurtleTrader-Investors-Overnight-Millionaires/dp/0061241717/ref=sr_1_1?s=books&ie=UTF8&qid=1346240104&sr=1-1&keywords=turtle+trading


Historically, the turtle-trading has stop loss at 2N , pyramiding at N/2 and trailing at about N. or more exactly at lows either of 10 days or 20 days. But in the present Turtle-Breakouts, we optimized the trailing. The quantity N is defined by the ATR (average true range) indicator of 10 days , and corresponds to about 80% of the daily standard deviation of the prices.  

Turtle Breakout makes on average 0.4  trades per day but when it opens positions usually it is more than one in the same day. There are weeks that no position is opened.
 Approximately 94% of the trades are winning, and with a maximum annual draw down less than 10% it has an annual rate of return of about 20%. While at 33% maximum annual draw down  about 4,3% monthly rate of return.  If the profits are reinvested, and the positions size proportionally increased to the balance, the annual rate of return is even higher. About 80% of the months are profitable.
The income from forex automated trading is on the side of counter-balancing the over-debt that the privatised banking-monetary system creates in society.

The next table is by a backtest since 2006 till summer of 2012. It was run on 15 minutes bars. The expertadvaisor is set to run only at the opens of the 15 minutes bars.

For this type of expert-advisors, the maximum floating drawdown (during the open positions) is calculated by the code and does not exceed the published Maximum Drawdown which is at the closing or opening of the trades.





Notice that 2% monthly profit means that the annual is (1.02)^12= 1.268 thus about 26%. 



We see that the Kelly optimal (see posts 13, 32 ) for a 10K account is at the monimum lot size of 0.16 lots (The system has two leves of lot sizes while running the larger three times more than the minimum lot size)

For a detailed analysis of a backtest since 2008 by MT4i see the link
http://www.mt4i.com/users/turtle_breakout/stats

We may compare these results with the trading results of Larry Williams, which are close to 0.47MDS here
http://en.wikipedia.org/wiki/Larry_Williams_(a_publisher_and_promoter_of_trading_ideas)

Or with the trading results of Chuck Hughes that also about 0.4MDS
here  http://www.chuckhughesonline.com/

Or with the trading results of Dan Zanger that are about 0.42MDS here 

http://en.wikipedia.org/wiki/Dan_Zanger