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Questions on the Vegas documents

  • Post #1
  • Quote
  • First Post: Edited Jun 3, 2006 11:22pm Jun 2, 2006 10:13pm | Edited Jun 3, 2006 11:22pm
This from the VWB II document, page 11.
1)

Quote
It’s very clear from the data that you can make the following conclusions:

A)Excluding pre-holiday trading, the range for the day has a 90% + probability of being 100 pips, about a 70% probability of being 120 pips, and about a 50% probability of being 135 pips.

B)There is approximately a 75% probability that once the market moves farther than about 45 pips from the open, it isn’t coming back.

C)There is a 50% probability that when the market goes past 30 pips from the open it isn’t coming back.


B)There is approximately a 75% probability that once the market moves farther than about 45 pips from the open, it isn’t coming back.

C)There is a 50% probability that when the market goes past 30 pips from the open it isn’t coming back.

How can you tell from the market data recorded from the excel file? The only input data in the excel file is open, high, and low. Everything else is derived from these data inputs. Wouldn't you need the close to figure out if it "came back"?
2) From VWB II document, page 15

Quote
...happened, this stuff was toast. First, if it came back below the old high at 1.7831 quickly it was in trouble [to the downside], and second, if it violated 1.7813 it was in greater trouble [to the downside]. What I did was place the partial buys [at 1.7829] with a stop at 1.7819. The market tanked, and I basically have my initial position minus a 10 pip loss on a day-trade. Was that 10 pip loss worth more or less than the information it gave me [please refer to the 2nd to last paragraph of the Introduction]?

I don't understand why Vegas went long here, when his initial position was short.
Quoting clam61
B)There is approximately a 75% probability that once the market moves farther than about 45 pips from the open, it isn’t coming back.

C)There is a 50% probability that when the market goes past 30 pips from the open it isn’t coming back.
I've never read the Vegas Wealth Builder, but from my experience these numbers seem inaccurate. I would say if it moves 100-125 pips then there's a 75% probability that it's not coming back. Maybe even 50%. Like right now with EUR/USD... I'm thinking there's a great chance it'll come back down from it's current 1.2930ish price, even though according the the trend of VWB probability, @ 60 pips it would become nearly impossible for it to come back.

FCX
Quoting FCX Investments
I've never read the Vegas Wealth Builder, but from my experience these numbers seem inaccurate. I would say if it moves 100-125 pips then there's a 75% probability that it's not coming back. Maybe even 50%. Like right now with EUR/USD... I'm thinking there's a great chance it'll come back down from it's current 1.2930ish price, even though according the the trend of VWB probability, @ 60 pips it would become nearly impossible for it to come back.

FCX
he's talking about the GPB/USD i think
there is very little chance a 100pip gain will come back down on the same day is what Vegas was refering to.
Quoting nitman
there is very little chance a 100pip gain will come back down on the same day is what Vegas was refering to.
but how can he tell from the data that he had? thats what im asking
Quoting clam61
but how can he tell from the data that he had? thats what im asking
It might not necessarily be from that data alone. I never took that quote as such. Remember, Vegas is a highly skilled trader with 20 some odd years of experience. Over time, you start to notice things when you watch price that much.
Quoting nitman
there is very little chance a 100pip gain will come back down on the same day is what Vegas was refering to.
Gotcha! Now that I agree with
Quoting Far From Average
It might not necessarily be from that data alone. I never took that quote as such. Remember, Vegas is a highly skilled trader with 20 some odd years of experience. Over time, you start to notice things when you watch price that much.
Vegas said, "It’s very clear from the data that you can make the following conclusions:" before he stated his conclusions.

the reason i am curious is that his figures are for the GBP/USD only.

his setup is very logical and brilliant. i want to apply it to other currency pairs too, so i need to know how he came up with those conclusions
Quoting clam61
Vegas said, "It’s very clear from the data that you can make the following conclusions:" before he stated his conclusions.

the reason i am curious is that his figures are for the GBP/USD only.

his setup is very logical and brilliant. i want to apply it to other currency pairs too, so i need to know how he came up with those conclusions
I think it may be because {as a team member} he specialised in the GBP/USD and as such much of his observations where achieved by osmosis & exposure.

I remember at least once in all that reading that he said he wouldn't speak to the CHF as that was the domain of another team member.
If I remember correctly, Vegas said he has a secretary to update his spreadsheet on multiple pairs...not just the cable
Quoting Bemac
I think it may be because {as a team member} he specialised in the GBP/USD and as such much of his observations where achieved by osmosis & exposure.

I remember at least once in all that reading that he said he wouldn't speak to the CHF as that was the domain of another team member.
hm..but if we included close data...might that allow us to achieve inclusions based purely on data?
Quoting clam61
hm..but if we included close data...might that allow us to achieve inclusions based purely on data?
vegas replied to an email of mine and simply said that he uses standard deviation.

i still dont understand how the probability for "coming back" could have been calculated w/o close data

anyone else?
  • Post #14
  • Quote
  • Edited at 1:10pm Jun 5, 2006 3:56am | Edited at 1:10pm
I'll give this a try since I remember spending days staring at that spreadsheet in VWBII trying to figure it all out myself. Also I think it will do me good to be thinking over this again - thanks! Lets see.. and this is all just my understanding of VWB II.. but here we go:

Its all about the distance from the Open to the NEAREST END of the bar (either the High or the Low) for the day. This distance is found in the spreadsheet in Column I for each day and is calculated as a median in Column K, Row 103.

So, the median given for this distance from the Open to the Nearest End of each bar is 30 pips. 50% of the time, the Nearest End was within 30 pips of the Open. This by itself means that there is approximately a *50%* probability that once the market goes BEYOND 30 pips from the open, that it is going to continue to move in that direction in order to put in the average range for the day (last calculated at 135 pips as a 20 day moving median in Column E).

Vegas goes further to calculate the median of the distances from the Open to the Nearest End on those dates that it is greater than 30 pips. This data for each date is reported in Column L, and Row 103 has the median for all dates which is 47.

So Half the time the Nearest End is within 30 pips. The OTHER half of the time the Nearest End is between 31 and 47 pips. This means that on 25% of all dates the Nearest End is between 31 and 47 pips from the open. And we already know that on 50% of all dates it is within 30 pips from the open. Thus we can say that 75% of the time, the Nearest End will be closer than 47 pips to the Open.

Finally, we can now say that 75% of the time, once price has moved more than 47 pips from the open, it will continue to move in that direction in order to put in the average range, calculated here to be approximately 135 pips.

An important point to add which may answer your question: Price MAY "come back." In fact I believe you are right, none of the data here supports the idea that price did not or would not "come back." However, FIRST it is going to put in its range (75% chance) and THEN it might return. And when/if it returns, the probabilities say it only has a 25% chance of going more than 46 pips from the open in the opposite direction.


EXAMPLE!
(Totally Made Up Numbers)

--------------------------------------------
AAA/BBB (fake pair)

Median Range = 100 pips
Median Open to Nearest End = 20 pips
Median Open to Nearest End of Those > 20 pips = 30 pips

75% of the time, when price hits 31 pips past the open it keeps going to finish its range.*(see below)

Day Opens @ 1.5050
Price moves 10 pips down to 1.5040.
Price moves 41 pips up to 1.5081. (31 pips up from open!)
***75% chance price is continuing up***

Remember the range, 100 pips.

So far we have price from 1.5040 to 1.5081, a 41 pip range. There are 59 pips to go to get our average range.

*BUT REMEMBER - It is within the probabilities for price to fall as much as 30 pips below open. The low is already 10 pips below the open at 1.5040 but it could fall to 1.5020 and still meet our 75% probability of being within 30 pips.

Calculate the most probable high to be hit by adding the range to the lowest most probable low.
1.5020 + 100 pips = 1.5120

Currently price is at 1.5081, so we can expect (~75%) for it to continue upwards for at least 39 more pips to 1.5120 before**EDIT**(see below) the worst case scenario of a reversal back down to 1.5020.
--------------------------------------------------------

**************Edit***************
Above I said price would go up before it might go back down. Thats not really accurate - price could immediately drop to as low as 1.5020.. but there would still be a 75% chance for it to go higher than 1.5120 so a drop might actually constitute a more profitable buying opportunity. The point is there's no way to predict exactly when price is going to go where. You can however calculate the probability of price falling in a given range at some point during the trading day.
********************************

I think this is what Vegas was talking about when he said the spreadsheet was the basis for a daytrading model.

Anyway I am exhausted, so I hope that all makes sense b/c I am wrapping it up right here! Entirely possible that I am misunderstanding things, so as always feel free to correct .

nate


Quoting clam61
vegas replied to an email of mine and simply said that he uses standard deviation.

i still dont understand how the probability for "coming back" could have been calculated w/o close data

anyone else?
thanks for the explanation nate, i appreciate it.

in your example, i dont see how the data says that it is less likely to be probable that the price drop from 1.5081 to 1.4981 and staying there for the day. This satisfies the range.


btw, in an email to me vegas said that it would be too long to explain and that he uses standard deviation to figure this out.

to better understand his model, i hope i can understand how he can arrive at these conclusions based on his data.

perhaps we need to take into account columns J and N which we, nor he, has discussed much
Hey clam np, this is probably helping me as much as it is you.. and I definitely understand what vegas meant when he said it would be too long to explain! But I'm trying anyway, lol. Now I want to break this down b/c I think otherwise it might just be too much information to maintain clarity.

Referring to the example of AAA/BBB in my post above:

The data given in my example says that there is a 75% chance that either the high or the low (whichever is the "Nearest End") of the daily bar is going to be within 30 pips from the open. Agree on this point?

nate

Quoting clam61
thanks for the explanation nate, i appreciate it.

in your example, i dont see how the data says that it is less likely to be probable that the price drop from 1.5081 to 1.4981 and staying there for the day. This satisfies the range.


btw, in an email to me vegas said that it would be too long to explain and that he uses standard deviation to figure this out.

to better understand his model, i hope i can understand how he can arrive at these conclusions based on his data.

perhaps we need to take into account columns J and N which we, nor he, has discussed much
Assuming we agree on my last statement,

I think I can now safely comment on this - while dropping from 1.5081 to 1.4981 would satisfy the range, this would result in the Nearest End to the Open being 31 pips away. While this is certainly possible, there would only be a 25% chance that it would happen.

nd

Quoting clam61
in your example, i dont see how the data says that it is less likely to be probable that the price drop from 1.5081 to 1.4981 and staying there for the day. This satisfies the range.
  • Post #18
  • Quote
  • Edited at 8:09pm Jun 5, 2006 7:58pm | Edited at 8:09pm
Columns J and N also provide useful information, but I don't think they are necessarily required to make the claims, to re-quote Vegas:
It’s very clear from the data that you can make the following conclusions:


 

  1. Excluding pre-holiday trading, the range for the day has a 90% + probability of being 100 pips, about a 70% probability of being 120 pips, and about a 50% probability of being 135 pips.
  2. There is approximately a 75% probability that once the market moves farther than about 45 pips from the open, it isn’t coming back.
  3. There is a 50% probability that when the market goes past 30 pips from the open it isn’t coming back.

Column J is used to calculate how often the range falls within the 20-day moving median - his numbers come to 59%.

Column N calculates how many pips the range misses by when it doesn't hit. It gives the median at the bottom, here calculated as 29 pips.

So nearly 60% of the time price hits the 20 day moving median range, and 80% of the time price either hits or falls within 29 pips of that moving range.

If you were to actually use such a spreadsheet as a daytrading model, this information would become extremely important in trying to determine how many pips could be squeezed out of the probabilities. In reality it would certainly play a role in the example I gave if you were trying to build a trading system around it. But for the purposes described in VWBII, I don't believe such analysis is required.

**EDIT** I take this back, such analysis IS required to conclude vegas' first point:

 

  1. Excluding pre-holiday trading, the range for the day has a 90% + probability of being 100 pips, about a 70% probability of being 120 pips, and about a 50% probability of being 135 pips.

but i think thats essentially how you do it



just my pips
nate

Quoting natediggity
The data given in my example says that there is a 75% chance that either the high or the low (whichever is the "Nearest End") of the daily bar is going to be within 30 pips from the open. Agree on this point?
i thougth 30 pips is 50%
Quoting natediggity
Assuming we agree on my last statement,

I think I can now safely comment on this - while dropping from 1.5081 to 1.4981 would satisfy the range, this would result in the Nearest End to the Open being 31 pips away. While this is certainly possible, there would only be a 25% chance that it would happen.

nd
wouldn't that be a 50% chance?
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