Friday, December 3, 2010

Predictors and indicators

Q: Some algorithms in user guide are referred as predictors, others – as indictors. What is the difference between these two kinds of algorithms in trading usage?

A: We offer classical indicator style algorithms intended as the analysis tool for historical data and as an auxiliary supplement in building custom strategies by the user. Indicators are very similar in their usage to the standard technical indicators common in most trading platforms.

Predictors, even though very similar in display to indicators, are much more elaborate algorithms in mathematical sense. They are designed not to simply monitor the price dynamics, but to predict future dynamics depending on existing historical prices. Predicted future price serves as the advice to trader to make immediate decision on the current positions to maximize returns. Trader may wish to perform certain actions depending on the predicted price change. For instance, trader may wish to close position, if he will see that the price is likely to move down on the next bar, according to predictor. In this way, predictors serve as precise trading advisors.

Sunday, May 2, 2010

Unraveling The Mystery Of Stock Prices

Here’s a simple method you can apply to interpret financial charts. It uses classical statistics as well as a number of simple chart indicators, which may help you better understand classical charts from the viewpoint of random processes.

Every trader is familiar with stock charts. To most traders the chart is just a common tool, like a hammer is to the carpenter. The exception is the new trader reading charts for the first time or the advanced trader who begins to question the value of the charts he or she watches.

Financial charting is specific. There are many exotic charts common to most modern trading platforms. You may begin with the classical bar charts or candlesticks and continue on to Equivolume, kagi, renko, and others. Add to that numerous technical indicators and strategy signals, and you have something packed full with useful information.

You want to concentrate as much useful information as possible into the chart so you can make timely trading decisions. To the newbie trader, this may appear to be confusing and artificial. To the seasoned professional, trying to determine what information is truly valuable for profitable trading is a vital concern.

Although financial charts can be vivid and attractive, they do tend to have contradictions with modern statistics. The charts can introduce dubious and unstable measures, which in turn become the basis of popular trading strategies. This could increase the risk of your trading operations.

In this article, I will identify the shortcomings of typical charting from a simple mathematical viewpoint and offer some easy indicators and techniques that you can apply to unravel the mystery of common charting data.

Checkout my recent paper in Stocks & Commodities, March 2010