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The similarity system

  • #12,901
  • Nov 20, 2014 9:32am Nov 20, 2014 9:32am
Quoting tashkent
guys, i have always had that question in my mind: WHY do you think the (dis)similarity concept works? WHAT is it that you firmly believe the REAL reason behind it? is not market a sum of all intentions and acts of its participants? do not you think there is a serious flaw with eurusdd's understanding of "the market"? and what kind of creature the market is personally for you? and a question about the TZ. the heart and soul of this concept is the Probability theory. however, it is not enough to become successful even you are best at probability....
Let me ask you a couple of questions, do you think that this Indicator made by kprsa is lying if it says that +/- 84% of the possible problem bars is cleared or resolved within H = 30? And if you think it is not lying, do you think we can do something useful with that percentage? Is that percentage maybe a reflection of how the market reacts under certain conditions?

I think we can take that percentage with us in our trading decisions and in timing of the market which is in my opinion especially useful for new traders who have that intuition not yet.

I don’t believe the indicator is lying to me. And so I can only come to the conclusion that Eurusdd’s understanding of the market is at least not completely flawed, because the indicator is probably made with the TZ concept presented here by Eurusdd in mind.
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  • #12,902
  • Edited 2:56pm Nov 20, 2014 10:10am | Edited 2:56pm
If you look at the 100% win ratio MT4 DEMO statement on the first post, the Closed Trade P/L is 10,627.29, but the Account Balance is 179.61, and Free Margin is 148.68.

Why is that?

I remember when the OP ran this DEMO Trade Explorer. He had the TE set up so Account Balance and Open Trades were locked, so the only information that was available were Closed Trades.

When a Trade Explorer is set up this way, someone can hide losses on open positions while publicly showing a 100% win ratio on closed trades.

An account Balance of 179.61 with a Closed Trade P/L of 10,627.29 would put the floating loss on open trades at 13,447.68 or almost 100%.
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  • #12,903
  • Nov 20, 2014 10:40am Nov 20, 2014 10:40am
Quoting GU-Night
{quote} Let me ask you a couple of questions, do you think that this Indicator made by kprsa is lying if it says that +/- 84% of the possible problem bars is cleared or resolved within H = 30? And if you think it is not lying, do you think we can do something useful with that percentage? Is that percentage maybe a reflection of how the market reacts under certain conditions? I think we can take that percentage with us in our trading decisions and in timing of the market which is in my opinion especially useful for new traders who have that intuition...

i think there is a misunderstanding.
i am not denying the possibility that one may make a long string of excellent trades using the similarity concept. i am questioning the REASON some people think behind that "high probable" events. that reason was explained by the TS (thread starter) as "arbitrary error" (sorry can't remember the exact wording). the question is WHY price must go back to that level? just market looked back and saw there was a "problem" in the past and went back to fix it? and we have seen some of those "problems" not fixed for pretty long time and anyone without a tight money management would receive a margin call.

the more reasonable explanation of your 84% is that from TS's own words "price is recurrent 97% of the time". most of the time price comes back to the point of reference. because the market as anything in the observable and unobservable universe seeks a BALANCE or ORDER. once sellers or buyers drive the market out of balance the opposite side will and must attempt to preserve that balance and once it is reached, the game starts all over again. this is just an example to clarify my point.
As Above, So Below
  • #12,904
  • Nov 20, 2014 11:59am Nov 20, 2014 11:59am
Quoting Neio
{quote} I agree this is positive. I must admit I have not fully understood everything you said on first read it will probably take time to digest....but I think you may have mixed up the different things presented here. Similarity concepts were taught at the start of the thread. From page 286 is when Eurusdd introduced the Markovian process and decided to work on the assumption that the market is random. My understanding is that he made this assumption based on what he feels people really believe. That the market is random. I don't think that...
just to correct this (as i many times corrected in EURUSDD's posts as well), in random market there is no predictability. you dont need to be math whiz to see this. His argument seems right when you have gamblers fallacy (i.e. if you think probability of Tail is higher after 10 Heads or as EURUSDD said, prob of one T in 7 toss higher after seeing 14 toss with all heads). In random market there can be no predictability - just think clearly and you will see why (hint: because random market means each price is independent of past moves).
Think : Trade : Live Life
  • #12,905
  • Nov 20, 2014 12:20pm Nov 20, 2014 12:20pm
In my opinion the market is less random than flipping coin
as any price still present as supply or demand ,any price will govern by buyer and seller if the market is random you can see 1.2570 and after one tick you can see 1.48 and the other tick is 1.09 so it is not a random number the buyer or the seller choose it from hidden box and throw it again inside the box ...
at any price there is a lot of trader wait it to close or reopen so influence the market to move toward it
Sorry for my Language
**************
" Close+0 =Open , Close*1 =Open what is the close and what is the 1 and 0 ? Holly Grail "
I'm not a programmer and i don't like ! , but only I try to catch my view !
  • #12,906
  • Nov 20, 2014 12:35pm Nov 20, 2014 12:35pm
Quoting stt
{quote} just to correct this (as i many times corrected in EURUSDD's posts as well), in random market there is no predictability. you dont need to be math whiz to see this. His argument seems right when you have gamblers fallacy (i.e. if you think probability of Tail is higher after 10 Heads or as EURUSDD said, prob of one T in 7 toss higher after seeing 14 toss with all heads). In random market there can be no predictability - just think clearly and you will see why (hint: because random market means each price is independent of past moves).
Your assumption is flawed.

Markets are fairly unpredictable, yes. But, to a certain extent, they are predictable as well. So it's a little bit of both. Markets are moved by humans and humans are predictable, so it's only logical that markets can be both predictable at times and unpredictable at times. There is an underlying structure behind each price move, and studying/understanding the structure is much above the average retailers head. However, if you do learn it, it can lead to great trades.

I'll give you an example from the US trading session today which is relevant to this. I posted this in another thread called "Technical Analysis Fallacy". Original post here: http://www.forexfactory.com/showthread.php?p=7887497#post7887497

I traded for only an hour and a half and made almost 50 pips. The last trade was only closed out at a tiny loss because I stop trading at 11AM EST most of the time, but even that would of made money looking at the charts. Look at how I caught most of those tops and bottoms so perfectly on the 1M TF. If markets were unpredictable, how could I do that? Most people probably think it's noisy trading 1M, however most people are also losers. What I see is opportunities. Granted, my spread is much more tighter than the average retailer. But even with higher spreads I could come out with good profits.

I don't know anything about your trading style or profitability and nor am I trying to call you out, however I have to disagree that markets are just random and unpredictable. If they were, there would be no room for profits.

Good luck
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  • #12,907
  • Nov 20, 2014 1:21pm Nov 20, 2014 1:21pm
Quoting tashkent
guys, i have always had that question in my mind: WHY do you think the (dis)similarity concept works? WHAT is it that you firmly believe the REAL reason behind it? is not market a sum of all intentions and acts of its participants? do not you think there is a serious flaw with eurusdd's understanding of "the market"? and what kind of creature the market is personally for you? and a question about the TZ. the heart and soul of this concept is the Probability theory. however, it is not enough to become successful even you are best at probability....
I see Similarity Theory from an order flow perspective. If you've got 2 price related functions that are almost always similar, when they are dis-similar it means there's a big FIGHT between bulls and bears going on behind the scenes causing the mis-readings at those contentious price levels; once a consensus is reached as regards future price direction (i.e. one side loses) then your functions should go back to being 'well behaved'/Similar. A beautiful description of S&R.

Thanks for opening my eyes to this EURUSDD.
  • #12,908
  • Edited 1:45pm Nov 20, 2014 1:31pm | Edited 1:45pm
Quoting FXMasterSK
{quote} Your assumption is flawed. Markets are fairly unpredictable, yes. But, to a certain extent, they are predictable as well. So it's a little bit of both. Markets are moved by humans and humans are predictable, so it's only logical that markets can be both predictable at times and unpredictable at times. There is an underlying structure behind each price move, and studying/understanding the structure is much above the average retailers head. However, if you do learn it, it can lead to great trades. I'll give you an example from the US trading...

I agree that under certain conditions, current real markets can be predictable (otherwise all working in professional trading world are just wasting their time including myself). my trading style is totally quantitative (heavily based on stats and math, zero on GUI indicators - this is my job btw). And I understand many ways quant funds trades and make money.

But I was answering Neio's post where he says even in random market (not real mkt), there can be predictability. In true random market where next price move is independent of all past moves, there can be no predictability. (bit offtopic, This is the model used in option pricing theory for price process (cox binomial option pricing model, BSM etc). Practitioners add vol skew to correct the flaws of this assumption in the theoretical options prices).
Think : Trade : Live Life
  • #12,909
  • Nov 20, 2014 1:41pm Nov 20, 2014 1:41pm
Quoting FXMasterSK
Most people probably think it's noisy trading 1M, however most people are also losers.
Even if you fall on your face, you're still moving forward.
  • #12,910
  • Nov 20, 2014 2:03pm Nov 20, 2014 2:03pm
Quoting tashkent
{quote} i think there is a misunderstanding. i am not denying the possibility that one may make a long string of excellent trades using the similarity concept. i am questioning the REASON some people think behind that "high probable" events. that reason was explained by the TS (thread starter) as "arbitrary error" (sorry can't remember the exact wording). the question is WHY price must go back to that level? just market looked back and saw there was a "problem" in the past and went back to fix it? and we have seen some of those "problems" not fixed...
Clear and agreed.

I was actually reacting on this: “do not you think there is a serious flaw with eurusdd's understanding of "the market"?

I don’t think there is a flaw with Eurusdd’s understanding with HOW the market moves. But opinions can be different why the market has to go to a certain level, or what the market moves.

Your explanation is a plausible one in my opinion.
  • #12,911
  • Nov 20, 2014 3:36pm Nov 20, 2014 3:36pm
Quoting Sasco_me
In my opinion the market is less random than flipping coin as any price still present as supply or demand ,any price will govern by buyer and seller if the market is random you can see 1.2570 and after one tick you can see 1.48 and the other tick is 1.09 so it is not a random number the buyer or the seller choose it from hidden box and throw it again inside the box ... at any price there is a lot of trader wait it to close or reopen so influence the market to move toward it Sorry for my Language ************** " Close+0[/highlight]...
What do you mean in this statement ???
DON'T GIVE UP
  • #12,912
  • Nov 20, 2014 4:02pm Nov 20, 2014 4:02pm
There is a big obvious flaw in similarity/dissimilarity for charts with the same broker. You can not get more information out of identical information (ticks). So you cannot get dissimilarity from charts plotting the same information, it looks dissimilar because for instance a EMA plots 5 times on a 1min chart and once on a 5min chart, so if the charts are set up to look the same with the same indicator, it only looks different because of the plotting difference. There is no extra information if they do not look the same - it comes from identical data.

Regards
  • #12,913
  • Nov 20, 2014 4:03pm Nov 20, 2014 4:03pm
Quoting kprsa
{quote} Markov property is an approximation, Eurusdd was very clear on this point, and I have discussed it in some detail (notably when the approximation fails). Google "Markov (http://www.forexfactory.com/search.php?searchid=12752003&page=3)" instead of "Markovian" in this thread and you will see that you are wrong on this claim. k

Hi Kprsa, hi Neio,


thank you for pointing me to the postings.

Strangely, there are no mentions of Markov prior to that dates. When I came along the various threads EURUSDD created, I put some notices down. In one of those early notices I wrote down, that he thinks that the similarity thing is a Markovian process, and I wondered why he would think this. Later, this year in August, the Markov chain was again there, as we can see in the links you presented.

I do not know now, what he may have wrote earlier to this theme. Maybe he said something which made me believe, that he thought about it to be a Markovian process.

I am digging further.......
  • #12,914
  • Nov 20, 2014 4:20pm Nov 20, 2014 4:20pm
Quoting tashkent
guys, i have always had that question in my mind: WHY do you think the (dis)similarity concept works? WHAT is it that you firmly believe the REAL reason behind it? is not market a sum of all intentions and acts of its participants? do not you think there is a serious flaw with eurusdd's understanding of "the market"? and what kind of creature the market is personally for you? and a question about the TZ. the heart and soul of this concept is the Probability theory. however, it is not enough to become successful even you are best at probability....

Hi Tashkent,

very valid question. When we dig through the literature of finance-mathematics, we will find so many different views and thesis, and we find, that people can hardly agree on anything.


It is mainly because, out of my view, that one tries to frame market, which is basically driven by social mood, greed, fear, emotions, into a mathemathical formula.

Every one who follows quant trader will notice, that their models work for some time and then stop producing the desired gains. What is the reason?



We can go back only a few pages to find a posting from our valued member Hanover, who questioned basically the same question and gave the answer.

It can be found here:

http://www.forexfactory.com/showthread.php?p=7875299#post7875299
  • #12,915
  • Nov 20, 2014 4:34pm Nov 20, 2014 4:34pm
@Kprsa

How could this happen ?! There's a 10 pips TZ and your indicator says that 100% of TZ are < 2*k = 6 pips !
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  • #12,916
  • Nov 20, 2014 4:36pm Nov 20, 2014 4:36pm
Quoting FranklinHood
@Kprsa How could this happen ?! There's a 10 pips TZ and your indicator says that 100% of TZ are < 2*k = 6 pips ! {image}

those stats apply to the Potential TZ forming. not ones in the past if i am not mistaken.
Life's Good & Why Wouldn't It Be? Im a Pirate After All!
  • #12,917
  • Nov 20, 2014 4:40pm Nov 20, 2014 4:40pm
Quoting kprsa
{quote} Hi there, what occasionally fails are not the probabilities, it is the Markov property. Market does have a memory, and this shows itself in strong trends. This is why you can have several transient zones in succession. You would be wise not to trade against strong trends. There are ways to either completely avoid doing that or to even use it to your advantage. It is an interesting idea to try to use range bars. k

Haha, nice!!!

I have questioned several times here, what the limitations of the system are. I questioned several times, why EURUSDD was not able to trade his findings successfully. I asked, in which situations we can gain money easily, and in which not.

No one answered. That spoke for itself, I thought.

Well, at least Kprsa noticed the problem in the past........



But I do not fully agree:

it is not only the Markov property that fails (e.g. there seems to be market memory), it is also the probability rate which is way to high (regardless of underlying process - have never seen such high probability rates, never. When they occur, mostly was the sample size way too small).

When you do not define/describe the process you are looking for, how will you be able to calculate the right probabilities?


Question:


Will you bet a good part of the farm, when the probability is 97%?

Will you bet the same, when the probability is "only" 80%?
  • #12,918
  • Nov 20, 2014 4:43pm Nov 20, 2014 4:43pm
Quoting stt
{quote} I agree that under certain conditions, current real markets can be predictable (otherwise all working in professional trading world are just wasting their time including myself). my trading style is totally quantitative (heavily based on stats and math, zero on GUI indicators - this is my job btw). And I understand many ways quant funds trades and make money. But I was answering Neio's post where he says even in random market (not real mkt), there can be predictability. In true random market where next price move is independent of all past...
I'll admit I must of taken what you said out of context as I only replied to what you said and didn't look at what you were replying to. That is my mistake.

I do understand the basis you are coming from as I myself have been deeply studying quantitative analysis and statistical methods in FX so I know a thing or two. I have pretty much mastered the structure of markets and it's participants, especially the foreign exchange market. Even though this is all I need money, my learning never ceases to stop and HFT/algorithmic trading is definitely the future of where the money will be so it's something I am really into learning. That and if I gain the coding skills of Ralome, I'll definitely become a market wizard.

Does your team handle the math stuff for the traders at your fund? Or do engage in trading as well?
  • #12,919
  • Edited 6:05pm Nov 20, 2014 4:46pm | Edited 6:05pm
Quoting Neio
{quote} I think this is a significant point. The original assumption is that the market has no memory.

Here you can see the result of EURUSDD's approximation with the Markov chain model.

At this point, I think, even Neio thought, that EURUSDD's similarity thing uses a Markovian process, without market memory.


But at this time it should have been clear, that he thought otherwise.


As I said earlier, it was stupid and needless to come up with Markovian, when in fact you are thinking that Market is not random and inherits market memory.



What a mess, isn't it?
  • #12,920
  • Nov 20, 2014 4:55pm Nov 20, 2014 4:55pm
Quoting PiratePip
{quote} those stats apply to the Potential TZ forming. not ones in the past if i am not mistaken.
If so then in this case, the 3 probabilities should be 100% because the width of the PTZ forming is 0.7 pips.
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