Hi,
Trading Risk is basically calculating the standard deviation of historical returns or
its avg.return of my module(maybe MACD).This module or TA is a derivative of Price / data.
No quantitative or qualitative analysis of the scrip but Pure price.( MACD is only a Trend
following Momentum Indicator.)Here at this stage i am flooded with options,whether RSI or
Bollinger Band or MACD etc etc.All derivative of Price / Data.To minimize Filter Risk,
(the moment say i discard RSI for MACD i am running a filter risk)we recourse to backtesting.
Again another Risk factors Autoregressive risk (the assumption past performance may be
replicated in future)creeps in.This is now becoming difficult to Percieve the TOTALITY.
1st let us fix the ROOT.My EOD data ,repeats the occurence in fixed interval.(This realization
Hit me ,when Souyma_b,installed an utility in my computer to extract intraday data to Metastock
from PIB,and i found all my Good indicators are giving below par results barring few,i have
deliberately deleted that utility).Now my Time frame is fixed.
whenever i say datas occurence is in fixed time interval,there is a fallacy.An example :=
In Horse racing tract ,a term "Photo Finish" is used to determine the winner in a neck to neck
contest,a stationary camera at finishing line takes a picture,the horse which is most ahead
at that moment is declared winner.Visualize galloping horses in breck neck speed ,side by side.
A Photograph of that non-stationary objects is captured ,where the basic Physics of "Camera"
says "IT HAS TO BE STATIONARY",yes it was stationary in say 1/200 th of a Sec.
So my EOD data IS STATIONARY in that context.
Next quality of this Data.Any data service,giving me the
O,H,L,C,Vol,OI,accurately with Reference(NSE declared EOD figs ,in my case)is absolutely OK.
There is a Myth promoted by "Paid Data Service",until it is Paid ,it is bad quality.Tell me
other than the authenticity & pre adjustments( dividend / bonus) of data ,can there be any
Quality aspect of data.
1st Root is seeded here.
a) Data is Stationary.
b) Data is Quality Data.
Data Mining is used in all fields to identify a Pattern on a large data bank.Any pre filtering
of data before apllying a Price Derivative brews "Bias".We always do that,maybe for Liquidity
etc.or with other objective ,so this is the LOOP part after seeding.
After yesterday night's CV's post HIT me a serious review once again strenghtened my self belief.
Any tinkering of Data is Data Mining or TA which it self is the process for Signal generation.
