Discussing the article: "Developing a Replay System — Market simulation (Part 15): Birth of the SIMULATOR (V) - RANDOM WALK"
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Check out the new article: Developing a Replay System — Market simulation (Part 15): Birth of the SIMULATOR (V) - RANDOM WALK.
In this article we will complete the development of a simulator for our system. The main goal here will be to configure the algorithm discussed in the previous article. This algorithm aims to create a RANDOM WALK movement. Therefore, to understand today's material, it is necessary to understand the content of previous articles. If you have not followed the development of the simulator, I advise you to read this sequence from the very beginning. Otherwise, you may get confused about what will be explained here.
Here we will correct the flaw from the article "Developing a Replay System — Market simulation (Part 14): Birth of the SIMULATOR (IV)". Although we have generated the operating RANDOM WALK principle, it is not entirely adequate when working with values from a predefined file or database. Our case is special: the database will always indicate metrics that must be used and followed. Although the RANDOM WALK system that we previously considered and developed can generate movements very similar to those observed in a real market, it is not suitable for use in a movement simulator. This is because it cannot fully cover the range that must be covered in all cases. In very rare cases we will have complete coverage of the entire range, starting from the opening price to the high or low, completely changing direction when reaching one of the limits and going to the other extreme. In the end, almost by magic, it will find and stop at exactly the price that was determined to be the the closing of the bar.
It may seem impossible, but sometimes it happens. But we cannot rely on chance. We need it at the same time to be as random as possible and be within the allowed limits. It also should fulfill its function - complete and comprehensive coverage of all the points of the bar. By thinking this way and analyzing some abstract mathematical concepts, we can generate a relatively attractive form of supervised RANDOM WALK. At least regarding the fact that all points of interest and certain points will be reached.
Author: Daniel Jose