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A fundamental principle of trading system development, whether automatic or manual, is that the data sample used to test hypotheses must include a wide variety of market conditions. Systems developed on data samples that are biased in a single direction are usually non-robust and ...

Anyone who makes bets in a game of chance without having a measure of the expectation is a naïve gambler.

In this blog post it is shown that in the case of S&P 500 Index, use of the Kelly ratio has not provided protection to investors from large drawdowns and that use of Kelly leverage has led to total ruin. It turns out ...

This is a simple indicator of momentum but it can also point to extreme levels in the sense of gambler’s fallacy.

A long-only position trader in SPY must be very unlucky or must trade worse than random to lose money. This is what a randomization analysis using SPY historical data from inception shows. Long positions held for an average of 5 weeks, initiated ...

In this article we present a scheme for taking advantage of multiple CPU cores when running searches on long files with Price Action Lab. Using this scheme the search time is reduced by a factor equal to the number of running ...

Although based on the emails I receive it appears that technical traders are highly concerned about the differences that emerge from the choice of price series, i.e. whether they are adjusted for dividends and splits in the case of stocks or for ...

A randomization test indicates that a net return for 2013 close to 19% is required to rule out luck at the 95% significance level in the case of SPY trading. Below is the distribution of returns of 20,000 random SPY long/short trading systems during ...

When trading systems generated by computers are employed in actual trading chances are that their performance will be negative, or even disastrous, unless the process that generates these systems and its output are properly evaluated. This post provides an account of my experience in this area and ...

A GBPUSD position trading system was machined designed by Price Action Lab on June 5, 2012 and the results were published in this blog the following day. In this post it is shown that the system has returned 14% year-to-date so far, based ...