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- Product code: 15330
- ISBN: 0934380848,
ISBN13: 9780934380843,
164 pages, paperback
Published by Traders Press on 2002
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Description of Taming Complexity in Trading |
This book differs from the usual technical analysis text because it brings a new and simple perspective to short-term trade stock selection. As you'll see, this book is based on the central idea that short-term trade stock selection procedures can be based on the same set of statistical methods now used routinely in business, engineering, medical research, and even in today's ubiquitous opinion poll analysis. In fact, it is just in aligning our technical analysis methods with these common statistical procedures that we tame the complexity of our technical analysis statistical tools, and thus our trading.
By reading this book, you'll learn about a small set of basic statistical tools that can be combined to form a simplified, yet profitable, short-term trading system. These are the statistical tools that I selected while designing, backtesting, and actively trading my own short-term trading system. I call this trading system MIDOS, which stands for Mechanical-In, and Discretionary-Out System. In addition to a clear explanation of the MIDOS statistical tools, you'll find the conceptual framework of MIDOS fully explained in this book.
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Contents of Taming Complexity in Trading |
1. MIDOS DESIGN FRAMEWORK
1.1 Introduction
1.1.1 Objective
1.1.2 Outline
1.2 WATCHLIST STOCK SELECTION
1.2.1 Introduction to Stock Selection
1.2.2 High Cap Stocks
1.2.3 High Liquidity Stocks
1.2.4 High Trading Volume
1.2.5 Short-Term Volatility
1.2.6 Diversified Across Industry Groups
1.3 MIDOS TRADING RULES
1.3.1 Introduction to MIDOS Trading Rules
1.3.2 Trading One Stock at a Time
1.3.3 Trading Your Entire Trading Capital on Every Trade
1.3.4 Trading Online Using Market Orders
1.3.5 Low Commissions
1.3.6 Trade Entry, Making Trade Stock Selections
1.3.7 The Trade Exit
1.3.8 Being Trade Prone
1.4 THE BENEFITS OF MIDOS SHORT-TERM TRADING
1.4.1 Introduction to MIDOS Benefits
1.4.2 Rapid Trading Experience
1.4.3 Less Risk
1.4.4 Backtesting is More Relevant
1.4.5 MIDOS Mismatch to the Market
1.5 Daily MIDOS Computer Process
1.5.1 The Four Phases of the Daily MIDOS Computer Process
2. ESTIMATING THE MOVING MEAN
2.1 Introduction
2.1.1 Objectives
2.1.2 Outline
2.2 SINGLE EXPONENTIAL SMOOTHING
2.2.1 Introduction to Single Exponential Smoothing
2.2.2 The Recursion Formula for the Single Exponential
Smoothing Moving Mean Estimator
2.2.3 A Numeric Example of Single Exponential Smoothing
2.2.4 Single Exponential Smoothing for Actual Stock
Price Time Series
2.2.5 Initializing the Single Exponential smoothing Function
2.3 DOUBLE EXPONENTIAL SMOOTHING
2.3.1 Introduction to Double Exponential Smoothing
2.3.2 Double Exponential Smoothing Equations
2.3.3 Double Exponential Smoothing Example Graphs
2.3.4 The Transient Response of Single and Double Exponential Smoothing
3. ESTIMATING THE MOVING STANDARD DEVIATION
3.1 Introduction
3.1.1 Chapter Objectives
3.1.2 Chapter Outline
3.2 A TUTORIAL ON THE MEAN ABSOLUTE DEVIATION
3.2.1 Introduction to the Mean Absolute Deviation
3.2.2 Definition of the Deviation and the Absolute Deviation
3.2.3 The Definition of the Mean Absolute Deviation
3.2.4 Calculating the Standard Deviation from the MAD
3.3 THE MOVING MAD AND THE MOVING STANDARD DEVIATION
3.3.1 Introduction to the Moving MAD
3.3.2 The Moving Deviation and the Moving
Absolute Deviation
3.3.3 The Moving MAD and the Moving Standard Deviation
3.4 ACCURACY TESTS OF THE MOVING MEAN AND
THE MOVING STANDARD DEVIATION ESTIMATORS
3.4.1 Introduction to Estimator Accuracy Tests
3.4.2 Accuracy of the Moving Mean and the Moving Standard
Deviation Estimators in a Stationary Market
3.4.3 Accuracy of the Moving Mean and Moving Standard
Deviation Estimators in a Trending Market
4. GETTING A NORMAL START
4.1 Introduction
4.1.1 Chapter Objectives
4.1.2 Chapter Outline
4.2 THE SKEW OF STOCK RAW CLOSING PRICES
4.2.1 Introduction to the Skew of Stock Closing Prices
4.2.2 MCD, An Example of a Low-Skew Stock
4.2.3 PG and MMM, Examples of High-Skew Stocks
4.2.4 The Range of Skew Present in our Watchlist Stocks
4.2.5 Why Stock Closing Prices are Nearly Normal
4.3 A SIMPLE NORMALIZING TRANSFORMATION
BASED ON THE MOVING DEVIATION
4.3.1 Introduction to the Moving Deviation Transformation
4.3.2 Evaluating the Histograms for the Moving Deviation
Transformation of MCD, PG, and MMM
4.3.3 A Preliminary Note on the use of the Moving Deviation
Transformation to form Trading Bands
4.3.4 Time Series Plots for the Moving Deviation
Transformation Output
4.4 THE PERCENT TRANSFORMATION
4.4.1 Introduction to the Percent Transformation
4.4.2 How to Calculate the Percent Transformation Output
4.4.3 Performance of the percent Transformation
4.4.4 Stationarity of the percent Transformation Output
4.5 AN OUTLINE OF THE PERCENT EQUATION DERIVATION
4.5.1 Introduction to the Derivation of percent
4.5.2 The Major Steps in the percent Transformation
5. PROBABILITY: BASIC CONCEPTS
5.1 Introduction
5.1.1 Objectives
5.1.2 Outline
5.2 PROBABILITY DEFINITIONS AND ASSUMPTIONS
5.2.1 The Relative Frequency Definition of Probability
5.2.2 The Primary Assumption in the Application of the Relative
Frequency Definition of Probability
5.2.3 Definition of Trading Under the Same Essential Conditions
5.2.4 Definition of the Odds in Favor of a Winning Trade
5.2.5 The Trading Profit Ratio
5.2.6 The Trading System Figure-of-Merit
5.2.7 How to View Uncertainty on the Very Next Trade
5.3 The Stationary Probability Interval
5.3.1 Introduction to the Probability Interval
5.3.2 Definition of the Probability Level of a Probability Interval
5.3.3 How the Probability Interval End Points A and B are
Calculated Based on the Probability Level
5.4 THE MOVING PROBABILITY INTERVAL CENTERED
ON THE MOVING MEAN
5.4.1 Definition of the Moving Probability Interval
5.4.2 The Trading Band Equations
5.4.3 Example Graphs of Trading bands
6. INTRODUCTION TO STATISTICAL CONFIDENCE METHODS
6.1 Introduction
6.1.1 Chapter Objectives
6.1.2 Chapter Outline
6.2 THE CONFIDENCE STATEMENT
6.2.1 Introduction to the Confidence Statement
6.2.2 The Survey Confidence Statement
6.2.3 The Sample Mean on Line 1 of the Confidence Statement
6.2.4 The Sample Standard Deviation on Line 2 of the
Confidence Statement
6.2.5 The Standard Error of the Mean on Line 4 of the
Confidence Statement
6.2.6 The Margin of Error on Line 5 of the Confidence Statement
6.2.7 The Confidence Interval End Points shown on Lines
and 8 of the Confidence Statement
6.2.8 The Conceptual Interpretation of the Confidence Interval and Confidence Level in Table 6.1
6.3 STATISTICAL CONFIDENCE FUNCTIONS FOR TRADE-STOCK SELECTION
6.3.1 The Definition of an Upper Confidence Bound
6.3.2 A Preassigned Upper Confidence Bound and the
Definition of the Imputed Confidence Level
6.3.3 The Definition of the MIDOS Sentiment Indicator
7. MIDOS MODELS FOR TRADE-STOCK SELECTION
7.1 Introduction
7.1.1 Chapter Objectives
7.1.2 Chapter Outline
7.2 INTRODUCTION TO MIDOS MODELS
7.2.1 The General Model Concept
7.2.2 The Two Types of Models Used in MIDOS
7.3 A SCENARIO OF THE MIDOS CONTRARIAN MARKET MODEL
7.3.1 How a Short-term Contrarian Situation May Start
7.3.2 How a Single-Stock, Short-Term, Contrarian Situation Ends 116 7.3.3 The Three Phases of a Single-stock, Short-Term, Contrarian Situation
7.3.4 The Fundamental Characteristics of the MCM
7.4 THE MIDOS SENTIMENT INDICATOR MATH MODEL
EQUATIONS
7.4.1 Introduction to the Sentiment Indicator Math Model
7.4.2 The Moving Mean and Moving Standard Deviation of percent
7.4.3 The MIDOS Sentiment Indicator Math Model
7.4.3.1 Introduction to the MIDOS Sentiment Indicator Math Model
7.4.3.2 The MIDOS Sentiment Indicator Equations
7.5 The 100 Intra-day trading sample
8. TRADE-STOCK SELECTION REPORT
8.1 Introduction
8.1.1 Chapter Objective
8.1.2 Chapter Outline
8.2 HOW TO USE THE MIDOS TRADE-STOCK SELECTION REPORT
8.2.1 An Example of the Trade-Stock Selection Report
8.2.2 How a Trade-Entry Stock is Selected from the Trade-Stock
Selection Report
8.2.3 A few Summary Statistics on the Trade-Stock
Selection Report
8.3 STOCK-SELECTION RETRACEMENT RATE
8.3.1 The Retracement Rate for Stocks on the Stock-Selection Report First Line
8.3.2 Retracement Rates When the Trade-Stock is Selected From the First Line of the Trade-Stock Selection Report
9. MIDOS PROFIT PERFORMANCE
9.1 Introduction
9.1.1 Objectives of this Chapter
9.1.2 Chapter Outline
9.2 MIDOS BACKTESTING
9.2.1 Introduction to Backtesting
9.2.2 The Single-Trade Profit Calculations for Table 9.1
9.2.3 The Sample Mean, Sample Standard Deviation, and the
Standard Error of the Mean
9.3 HYPOTHESIS TESTING METHODS APPLIED TO MIDOS TRADING PROFIT
9.3.1 Introduction to the Hypothesis Test Concept
9.3.2 The MIDOS Trading Profit Hypothesis Test Procedure
9.3.2.1 Introduction to the Hypothesis Test Procedure
9.3.2.2 Defining the Null Hypothesis
9.3.2.3 Defining the Alternative Hypothesis
9.3.2.4 Defining the Test Statistic
9.3.2.5 The Mechanics of the Null Hypothesis Test
Appendix A. Reference reading List
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