my journal 3

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Old Jan 23, 2012, 1:07pm   #145
 
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Re: my journal 3

Yamato started this thread My buddies taxi drivers are still on strike for the 10th day in a row, and so I am saving money like crazy, but coming to work late. Today it took me one hour to get here, waiting for the right bus, number 30, this time in the right direction. I am spending 1 euro instead of 13, that's a pretty good deal. So I have to thank them for being on strike. At this rate, I'll be rich in a few months.

They're having their meeting a few hundred meters from where I work, at the Circo Massimo:
snap1.jpg

Thanks to their strike, I haven't withdrawn any money for 19 days already:
snap2.jpg

Also, notice how the SEPA wire transfer to IB didn't cost me anything. It's a great change, thanks to the European Union. If every month's transactions looked like this, all my financial problems would be solved. I've lived on 150 euros for one month almost.

Now I have finally learned to monitor my account's balance. I know my balance without even checking it. This recent "poverty" was very useful. If my father instead had given me the money he had offered, I would have stayed a spendthrift and wouldn't have learned to monitor my transactions and balance. This could have caused negative consequences maybe not today but 10 years from now. It isn't until you learn that money doesn't grow on trees that you can make money trading, because trading has to do with capital, and capital has to do with saving.

I understood and focused on the value of things: the value of riding cabs, the value of going to the restaurant, and I know when it's worth it and when it isn't worth it. The taxi is worth it, because it saves you one hour and the risk of being mugged. The restaurant is bull****, and treating others to the restaurant is madness. And doing it when you are still paying a debt, is twice as mad. And treating people who are never going to show their gratitude is three times as mad. And I was that mad. Not mad but irresponsible. Just a year ago, among all the dinners I paid for others, I remember paying this lunch at the Japanese restaurant for all my colleagues, thereby wasting hundreds of euros. You just blindly spend the money, and have a phobia for checking your account balance. That's how it goes. If I hadn't done this for the past few years, by now I could have quit my job.

You don't necessarily have to be rich to be a spendthrift. Actually it's rather the opposite, because being a spendthrift keeps you from ever becoming rich, as many actors show with their lifestyles. They make millions and still end up being broke.

I'll make money with trading, I won't withdraw it, and I will keep my lifestyle cheap and inexpensive. This is the only way to make capital grow (and be ready to face a drawdown). I need to focus on the objective of quitting my job, rather than the objective of having a lavish lifestyle. No more "I made money with trading, so I'll treat you all to lunch", which has been my motto for all these years.

As I said here, I inherited the inability to manage money, and I was never taught the concept of capital, saving, investing. That's right: I did not inherit money, but the inability to make money. As explained here, if your job is secure and it is in the public sector, or similar, then you have no need nor incentive to save and build up a capital. You're encouraged to spend everything you make.

In a sense... in all senses (because the hotel experience has been unprofitable for my relatives) I am the first entrepreneur in the family, and I have on my back generations of public employment, and catholic doctrine, which teach you the wrong attitude.
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Old Jan 23, 2012, 5:06pm   #146
 
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Re: my journal 3

Yamato started this thread Wow, I made it. I got home, and without getting mugged. This time it took me over an hour: some walking, visiting my buddies at Circo Massimo, some bus, some walking again. Each time I get on public transportation it's like gambling with my life. Friday when I was buying tickets at the machine, this guy came up to me and asked me to give him one of the two tickets ("do me a favor: give me one of your tickets" - yeah, he had been observing me in the process of buying the tickets), repeatedly. I felt like asking him if I was being mugged or not: if you're mugging me let me know, and I'll give you what you want. I did not give him any tickets, because I had already been coherced into being generous a few years ago, in the same exact situation, so i was prepared and I replied "I need it...". The good news is that today I didn't get mugged.

No trades open, but everything is working fine as far as automation.



[...]

While I'm at it, let's calculate the probability of getting no trades on any given day, and no trades on any given week.

4300 trades across 250 days per year on 2002 to early 2010 = 521 trades per year, but divided by... 250 times 8.25 = 2.1 trades per day. And 4300 trades per 2063 days. Now, how do I calculate the probability in a theoretical way, rather than an empirical one (simply checking the weeks and day when there were no trades)? Do I know how to do this? Can I figure it out?

Let's start simple. If I have 2 weeks, and 2 trades (from a variety of systems), what are my random chances of having those two trades in any given week, any given day, and so on?

There would be a 50% chance of having the first trade on the first week, and 50% of having it on the second week. The same would apply to the second trade. So I think I can safely say that there's 25% of having both trades on week 1 and 25% of having both on week 2. There's 50% that I'll have one trade per week (in either order).

If I had 3 trades, it would be 0.5*0.5*0.5=12.5% of having all of them on any given week... I am already getting lost. I am trying to apply what I studied to a practical purpose, and maybe even to find a practical purpose for what I've studied.

First I should find out the possible outcomes and then I'll worry about the probability.

I don't really need this, but I am trying to use what I studied... it could be useful, a little bit.

Here's something:
Permutations - Free Math Video by Brightstorm

Ok, let's say that each of the 4300 trades could happen in any of the 2063 days (simplified hypothesis, because it is impossible that a system trades twice on the same day).

Oh, ok, it is getting clearer. The chance of a given trade happening on a given day is 1 in 2063. The chance of all trades happening on the same day is 1 in 2063^4300.

The chance of "at least".

With 2 trades in 2 weeks, the chance of at least one trade on a given week is 25% of first trade only, 25% of second trade only, and 25% of both trades. So, at least one trade is 75% and probability can be summed.

And at least one trade on a given day? 10% of first trade only, 10% of second trade only... wait, it's called the fundamental counting principle:
Fundamental Counting Principal - Free Math Video by Brightstorm

This is how I find the number of different combinations. I have 2 trades that can fall in either of 2 weeks, so it's 2 times 2. So, if I have 3 trades that can happen in 2 weeks, the combinations... should be 3 times 2 = 6? Let's check with the tree diagram.

Wrong. The combinations are 8. And the good ones, with at least 1 trade are 7/8. So in this case it's 2*2*2=8. So I get the number of possible combinations/outcomes by raising the possibilities for each trade to the power of... number of trades. So, if each of 4300 trades can fall in any one of 2063 days, the possible outcomes are 2063^4300. This is a crazy number. But I need to focus on how likely it is to get no trades on a given day and week (i can derive that from the first one), from a theoretical point of view and not an empirical one.

Ok, to get the likelihood of getting no trades on a week, with a total of 3 trades in 2 weeks, I raise the probability of getting no trades to the power of the number of trades:

snap1.jpg

And I get 12.5% probability of getting no trades. I sense that I could derive this number I want from using just a weekly average rather than the total number, but I'll verify later if it's the same thing.

So, what is the probability of not getting trade #1 on a given day? 2062/2063. So if I calculate (2062^4300)/(2063^4300), I should get the probability of not getting any trades on a given day.

Ok, excel goes crazy with these exponents. So I am going to verify if using a weekly average is just as good.

First I'll test it where I can test it to be true.

Ok, let's say I have 21 days and 42 trades (which is also close to being a simplified ratio of my numbers).

There's 20 chances out of 21 that each of the 42 trades will not happen on a given day. That's like 95%... oh ok... how stupid... got it. I don't have to raise to the exponent before doing the division, but I can do it afterwards. This simplifies things a whole lot.

0.95^42=0.13 so my probability of not getting trades on a given day is 13%, with that situation.

Now let's use the previous numbers, and divide the 2062 chances of not getting a trade by the 2063 outcomes. The result is 99.95%. Raise that to 4300. I get 12% probability of getting no trades on a given day.

Let me check this with different numbers to see if it makes sense.

Ok, it works. But now let's see if I could have come up with this in a different way.

Ok, I had the back-tested trades and I had the calendar days of the back-tested period.

I could have come up with an average trade per day, which is 4300/2063 = roughly 2 trades per day. But hey, this doesn't tell me in any way the probability of not getting any trades.

How about 4 trades in 2 days? Could I calculate it in the same way? Now, each of the 4 trades would have a 50% chance of happening on a given day (of the two days). That would mean 0.5 of not happening on a given day, so 0.5^4=0.0625 is the probability of no trades, but this doesn't match my result above, so it would mean that with a shorter sample, I get different results?

I got tired. I wish I didn't have to work all day long. I can't figure it out right now, but I am confident that the 12% is correct.

Let's keep going with that value.

So, if I have a 12% probability of no trades on a given day, what is the probability on a given week? It should be that value raised to the fifth power, which is... 0.002%.

Mmh... let me see if I got any weeks without trades from backtesting. I should have none (except during holidays like christmas). There's almost 500 weeks, so there should be no weeks traded, according to the odds. Let me see...

Perfect: except for christmas/new year (occasionally), there's no weeks without trades. Ok, let's check for days without trades, and keep comparing what statistics say with probability theory predictions.

Oh... what a moron. There is no need for probability based on trades and traded days, because by doing this comparison i was reminded that there's another way to find out... no no, it's different. I just thought that if you see the traded days vs the total number of days, you find out the probability of there being no traded days, but this is empirical, and therefore even more reliable (because the trades are not randomly distributed, in their frequency). Mine was more theoretical... but it did have some empirical data... something like that.

Ok, so if the chance is 12% of having a day without trades, I should find a 12% of days without trades, should I not? It will be interesting to check.

There it is and with this I am done: 1821 traded days on 2063 days. The non-traded days are 242/2063=12%. 12% of estimated probability and 12% of actual statistics. It's unbelievable (not the same exact number, so it's just two similar numbers that I got through different methods). So this proves that you can guess the final statistics from probability theory and viceversa.


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Old Jan 23, 2012, 8:41pm   #147
 
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Re: my journal 3

Yamato started this thread The last episode came out:
Watch Mob Wives online (TV Show) - download MobWives - on 1Channel | LetMeWatchThis

I hate their accents, but this show is very interesting otherwise.

Mob Wives - Wikipedia, the free encyclopedia
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Old Jan 24, 2012, 7:51am   #148
 
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Re: my journal 3

Yamato started this thread Ok, so today according to what I was saying yesterday, I will have, again, a probability of 12% that there will be no trades. But if I had betted on two days in a row yesterday, then it would have been 12% raised to the second power, which is about 1.5%. So this means that there are, every year, about two instances of 2 consecutive non-traded days. Then just now I have realized that it makes a great difference what day of the week it is, because of how my systems work, and for a Monday, the probability of no trades is much higher than 12%. But it was just an exercise in probability. Now I have to get going because the taxis are on strike today as well. No, I just checked. Probably starting today the strike will end.

I am being persecuted by this guy who's afraid of being cheated on by his wife and he keeps on asking me for a "report" on the situation and I know nothing about cell phones and how to spy them, but, since he considers me his technological guy, he keeps on asking me to do this and that, and has been doing so for the past 14 years. Web searches, financial information, job searches... what a pain in the ass. I'll never make friends with another illiterate friend. No wonder people always look for friends who are better than them: not because of discriminating, but because of the mere desire to save energies. It's not personal, buddy: you just make me work too much. I can't afford to be your friend anymore, or just stop asking me to work for you. For example, why don't I make friends with a homeless guy? I have no problem with being his friend, but if I do that, then, inevitably, I'm going to be asked for this and that, and it's also going to be hard to refuse, because you definitely have more than him. So, it's a decision that is going to decide your life and how much you're going to work for free.

So, I guess it's hard for the homeless guy to not take it personally, when he sees that i don't want to make friends with him, but he has to understand that it's not out of discrimination, but out of laziness (not intended in a negative sense, but as "limited resources"). In the same way, he wants to make friends with me because he wants help. Yeah, that sucks. I keep being reminded of this, and i keep forgetting it. It works the same way with every single person in the world, including girlfriends, and friends. They all reason like this, whether they are not friends yet and even when they are already friends. The only exception is relatives, but even relatives are not immune from this type of thinking. Maybe you can only rely on your parents, and I am not sure if you can say the opposite is true that they can rely on you, because after my mom asks me to fix her computer once a day, I tell her that I am tired. So if I had the option, I might choose a mom who's not computer-illiterate.



[...]

Just quickly before going to work. There's a trade open and it's losing 60 dollars. Pretty good loss. It would be great if all losses were this small.

In another state of mind, if i were trading discretionary, even a 60 dollars loss would be enough to send me into a trading rampage, trying to make it back. I wouldn't close it to begin with, incapable of accepting a loss. A small trade like that could end my account. Instead it's automated, and I just let it happen as if it were beyond my control. I've gotten used to that part of automated trading. Revenge trading makes you forget probability trading, in case you knew it to begin with, because once you've come to understand probabilities and therefore back-testing, you shouldn't be as affected by revenge trading. It's interesting. You really can be a complete automated trader (which I am not), when you do not see anything in charts anymore. You don't see it as likely to go up or down: you just say "how am I supposed to know? I don't know the statistics". Cluelessness without backtested data would be the ideal state of mind. But there's a problem: you can't create trading systems unless you have some theories, and you don't have theories, unless when you look at a chart you see things, and hear voices.
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Old Jan 24, 2012, 9:44am   #149
 
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Re: my journal 3

Yamato started this thread Back to the office. The taxi driver tried to rip me off and had the meter at 6.20 already. I guess he was trying to make up for his losses from being on strike for over a week. I told him "6.20? I can't...". I mean, I would like to, but I can't afford to be ripped off. Then he reset his meter, which here means resetting it to 2.80. At the end of the ride he said "9 euros", but I gave him twelve, because otherwise I'd have been ripping him off. Usually when it gets to my house it's at 4 euros, plus I leave a tip, so i figured 3 extra euros would be fair.

I was 1 minute late, getting here at 9.31, and my colleague, who's always talking about his sense of duty (he tells me "we share a strong sense of duty and integrity" and similar things), is not even here and won't be here for another half an hour.

It's nice to be back riding cabs. I really couldn't take it anymore. You can't ask me to ride a bus or the subway and go through one hour of stress to just save 11 euros.

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Old Jan 24, 2012, 6:15pm   #150
 
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Re: my journal 3

Yamato started this thread Good application for understanding Standard Deviation:
Exploring standard deviation 1 | Khan Academy
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Old Jan 24, 2012, 6:27pm   #151
 
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Re: my journal 3

Yamato started this thread This is good:
Watch A Very British Gangster online - on 1Channel | LetMeWatchThis

Dominic Noonan - Wikipedia, the free encyclopedia

I understand only 50% of what they say, but even just watching this beautiful cinematography and these faces makes it worth watching. This is a very interesting subject and a well-made documentary. Meaningful dialogues, but even more meaningful images.

I can't help feeling sorry for these people, just as I do for mob wives. In fact I feel sorry for humanity. But this is one amazing documentary, great at showing humanity.

This is as good as Hell and Back, which I discussed here:
http://www.trade2win.com/boards/trad...ml#post1771506

Let's see what they say on rotten tomatoes... 67%:
A Very British Gangster - Rotten Tomatoes

This is excellent work, a work of art. It doesn't judge, but just presents the facts. It makes you want to watch it, just because it is so real, and it is telling you so much about the world.
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Old Jan 24, 2012, 6:44pm   #152
 
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mean absolute deviation vs. standard deviation

Yamato started this thread Standard Deviation and its overcomplex formula has always bugged me. Here's a nice concise essay I found on this problem:
Revisiting a 90-year-old debate: the advantages of the mean deviation
Quote:
[...]
These figures now represent the distance between each observation and the mean, regardless of the direction of the difference. Their sum is 16, and the average of these (dividing by the number of measurements) is 1.6. This is the mean deviation, and it is easier for new researchers to understand than SD, being simply the average of the deviations � the amount by which, on average, any figure differs from the overall mean3. It has a clear meaning, which the standard deviation of 2 does not4. Why, then, is the standard deviation in common use and the mean deviation largely ignored?
[...]
You know what? I am not going to read the whole paper right now, but he has convinced me already. These two measures of spread are pretty much identical. But average absolute deviation is clearer, simpler to calculate and it means something. The other one is abstract crap, it pisses me off, and the only reason we use it today is that it is fashionable in the scientific community. Just like Americans are still using miles and gallons and pounds and inches and more crap. **** them all.

Click the image to open in full size.

All right, let's quote the conclusion:

Quote:
Conclusion

One of the first things taught on any statistics course, the standard deviation, is more complex than it need be, and is considered here as an example of how convenience for mathematical manipulation often over-rides pragmatism in research methods. In those rare situations in which we obtain full response from a random sample with no measurement error and wish to estimate, using the dispersion in our sample, the dispersion in a perfect Gaussian population, then the standard deviation has been shown to be a more stable indicator of its equivalent in the population than the mean deviation has. Note that we can only calculate this via simulation, since in real-life research we would not know the actual population figure, else we would not be trying to estimate it via a sample. In essence, the claim made for the standard deviation is that we can compute a number (SD) from our observations that has a relatively consistent relationship with a number computed in the same way from the population figures. This claim, in itself, is of no great value. Reliability alone does not make that number of any valid use. For example, if the computation led to a constant whatever figures were used then there would be a perfectly consistent relationship between the parameters for the sample and population. But to what end? Surely the key issue is not how stable the statistic is but whether it encapsulates what we want it to. Similarly, we should not use an inappropriate statistic simply because it makes complex algebra easier. Of course, much of the rest of traditional statistics is now based on the standard deviation, but it is important to realise that it need not be. In fact, we seem to have placed our �reliance in practice on isolated pieces of mathematical theory proved under unwarranted assumptions, [rather] than on empirical facts and observations� (Hampel 1997, p.9). One result has been the creation since 1920 of methods for descriptive statistics that are more complex and less democratic than they need be. The lack of quantitative work and skill in social science is usually portrayed via a deficit model, and more researchers are exhorted to enhance their capacity to conduct such work. One of the key barriers, however, could be deficits created by the unnecessary complexity of the methods themselves rather than their potential users.
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