The measure is the Probability of Backtest Overfitting (PBO) of Bailey, Borwein, López de Prado and Zhu (2015), computed through their Combinatorially Symmetric Cross-Validation (CSCV) procedure. You get one number, and above 5% you reject the optimization procedure and do not trade the strategy it selected. That 5% is the customary cut-off the authors suggest, by analogy with the usual 5% significance level, so it is a convention rather than something the method derives. more...
Renko charts have an important property: the size of each bar is fixed and equal to brick_size. This means that when forecasting the next bar, the target is effectively discrete. It takes three values: +log(1 + brick_size/close) when moving up by one brick; -log(1 - brick_size/close) when moving down; and a rare zero value at reversal points, when the close of the current bar coincides with the boundary. It would seem that this is an ideal task for classification. more...
The Kalman Filter, developed by Rudolf Kalman in 1960 and famously used for spacecraft navigation on the Apollo program, approaches this differently. Rather than a fixed weighting scheme, it maintains an explicit estimate of its own uncertainty at every step, and uses that uncertainty to calculate, mathematically, exactly how much weight a new observation deserves. When the filter is confident in its current estimate, it leans on that. When a new observation is more informative than what ...
The previous article ended with an honest admission: a system consisting of several analysts is a good start, but it is not the end of the conversation. The council demonstrated that several voices are better than one, but even fifteen voices working together on a single pair still amount to a small room. more...
Testing this hypothesis on the quotes of financial instruments can provide valuable information to analysts who develop trading systems based on detecting statistically significant deviations from the efficient market hypothesis. This article examines how to test the randomness hypothesis using the chi-square method. This is a versatile and well-studied method that can be used to test various statistical hypotheses; it is based on comparing the observed and expected frequencies of events. ...
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