Discussion of article "Combinatorics and probability for trading (Part V): Curve analysis"
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New article Combinatorics and probability for trading (Part V): Curve analysis has been published:
In this article, I decided to conduct a study related to the possibility of reducing multiple states to double-state systems. The main purpose of the article is to analyze and to come to useful conclusions that may help in the further development of scalable trading algorithms based on the probability theory. Of course, this topic involves mathematics. However, given the experience of previous articles, I see that generalized information is more useful than details.
As an example, we can take a random strategy and convert it to the required equivalent. I have created one of the variants of transforming a complex multidimensional system into a simpler, two-dimensional one. I will try to provide a step-by-step description of this process. Before proceeding to description, I implemented the idea and tested the method performance. The program is attached to the article. In my program I used slightly different yet equally effective formulas. It is based on the mathematical model obtained in the previous article. Using it, we can obtain the following values:
From average steps, we can get the average time before the upper or lower border is crossed. The purpose might not be quite clear for now. It should become clearer with further explanation. To transform a multi-state strategy into a simpler one, we should first generate the relevant strategies. I have created a random number-based strategy generator. For convenience, I took five randomly generated strategies. They are as follows:
These strategies have different Expected Payoff metrics, different number of deals and parameters. Some of the curves are losing, but this is ok, as it is still a curve, though its parameters might not be quite good.
Author: Evgeniy Ilin