Current Feed Content from 4 Sep 08 08:46
Welcome
Sat, 12 Apr 2008 20:09:06 -0500
Look at the market action through cold and alien eyes that know no fear or greed -- the eyes of Forex Automaton™ .
What are the goals of the project?
Mon, 07 Apr 2008 14:44:53 -0500Our primary goal is to create a public information service providing financial markets forecasts, based on our proprietary forecasting tools: an automated trading system -- a Forex Automaton™. Our secondary goal is to quantify and monitor the very existence of sustainable opportunities for arbitrage profit-making. Or simply put, to monitor the degree to which these markets are more predictable than a "fair game" -- to a trader without access to insider information.
Back-testing a forex trading system
Sun, 25 May 2008 12:50:17 -0500While it is true that past performance does not indicate the future, the only reliable information we have is about the past. A few important things make a difference between unbiased trading-system testing and self-delusion. Here I summarize my current understanding.
Martingale
Wed, 16 Apr 2008 20:20:16 -0500
Fig.1:A martingale market synthesized from hourly returns in AUD/JPY, over time. Time axis is labeled in MM-YY format. By construction, there is no predictable trend other than the long-term trend created by the tiny positive deviation from zero of the average hourly return. Are you a chartist? Do you believe in moving averages or Elliott waves? Do you feel you could day-trade this market? This is a particular example of what we refer to as "fair game" and for all practical purposes take to represent the embodiment of the efficient market hypothesis.
To synthesize such a chart, you first obtain a distribution of returns from the real time series. Then you histogram the returns. Then you start with an arbitrary number (1 was used in this case) and generate a random number according to the distribution of returns you got (a software package such as ROOT lets you do that). Having a starting price and a return, you obtain the next price in the series. You can continue this random walk process as long as you want. It may be counterintuitive to some that a random walk looks like this (Fig.1). Indeed you see a chart where you might be tempted to identify trend lines, points where the trend changes, and possibly even lines of support and resistance. From this standpoint you can understand the source of our Olympian attitude towards all kinds of current news: the pseudo-random market in Fig.1 could generate a very rich stream of news reports and "current analysis" -- all totally content-free by construction. Chartists and reporters must admit: tools and concepts that let one distinguish between predictability and randomness are peripheral to their method of operation. However these tools and concepts are central to the Forex Automaton™ approach. Martingale is one of such concepts.
EUR/JPY and USD/JPY 2002-2008: "trivial" intermarket correlations
Wed, 03 Sep 2008 16:53:30 -0500Naturally, Euro/Japanese Yen and US Dollar/Japanse Yen are positively correlated. For the purpose of trading system building, correlations with non-zero time lags are essential. It is these correlations that are not seen in this pair of exchange rate with the hour-by-hour time scale, time-averaged analysis presented in this note.
GBP/JPY and GBP/USD 2002-2008: intermarket correlations
Tue, 02 Sep 2008 21:00:55 -0500The case of Pound Sterling/Japanese Yen and Pound Stering/US Dollar shows some marginally significant predictability in the latter rate on the basis of the former. For some reason, the signal is only seen in the European trading session. A candidate for a deeper study.
EUR/JPY and USD/CAD 2002-2008: intermarket correlations
Mon, 01 Sep 2008 19:48:11 -0500Euro/Japanese Yen and US Dollar/Canadian Dollar is hard to classify as either "signal" or "no signal" on the basis of the time-averaged data alone -- we have certainly seen more convincing signals in these series of reviews. The predictive intermarket correlation signal seen on average in 2002-2008 is marginally significant and warrants further study of its evolution with time and LIBOR rates.
EUR/JPY and GBP/USD 2002-2008: asymmetric leader-follower correlations
Wed, 27 Aug 2008 20:05:21 -0500Euro/Japanese Yen and Pound Stering/US Dollar are moderatly positively correlated exchange rates. The significant correlation, while dying with the time lag, extends in time for as long as two hours, and on average for the period is asymmetric with EUR/JPY leading the trend and GBP/USD following.EUR/JPY and GBP/JPY 2002-2008: "trivial" intermarket correlations
Tue, 26 Aug 2008 17:50:48 -0500Euro/Japanese Yen and Pound Stering/Japanese Yen are strongly positively correlated but the correlation appears so tight in time that on the time scale considered (hour) there is no evidence of signals coming from one rate with potential for predicting the other, at least on average for the period.
USD/JPY and EUR/CHF 2002-2008: leader-follower relationship
Mon, 25 Aug 2008 20:03:12 -0500The story of Euro/Swiss Franc and US Dollar/Japanese Yen exchange rates is similar to that of EUR/CHF and EUR/USD and EUR/CHF and GBP/USD: weak "instantaneous" correlations, robust predictive ones. We now have evidence for three different exchange rates that "trigger" EUR/CHF -- too bad EUR/CHF is one of the least volatile forex rates!
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