Distribution of price increments - page 2
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Here is a concrete example from my calculations.
For the currency pair EURJPY the distribution of price increments is a non-standardized Student's t-distribution with 2 degrees of freedom and the coefficient of scale (sigma) = 1.43 points (excuse me for being too mathematically meticulous). 95% of price increments are in the tolerance range of +-6.19 sigma. Does it mean that a trade can be executed for a certain sample if the price exceeds this range? Does the accuracy of my calculations down to thousandths of a percent make sense?
The first answer is no, it does not mean you can trade. The average is a moving average because the series is not stationary, so it turns out that the distance from the current moment to the average is miserable compared to the previous price swing, ie, the risks are not comparable. And as a matter of fact yes, garceivers have been doing all this nonsense for many years now without success :)
I'm embarrassed to ask, who's the tolerant one for? It's like you usually take 3 sigmas...
Humour understood and appreciated :)
A tolerance interval is like a confidence interval, but applied to a sample of values rather than a expectation estimate. I.e. for normal distribution almost all values are within +-3 sigma, but for t-distribution with 2 degrees of freedom the picture is a bit different...
A tolerance interval is like a confidence interval, but applied to a sample of values, not to the expectation estimate. That is, for a normal distribution, almost all values lie within +-3 sigma, but for a t-distribution with 2 degrees of freedom, the picture is slightly different...
Well, one graph of the distribution is enough to make sense of what was said. Usually, it is shown as an argument :-)
The first answer is no, it doesn't mean you can make a trade. The average is a moving average because the series is not stationary, so the distance from the current moment to the average will be negligible compared to the previous price range, i.e. the risks will not be comparable. And as a matter of fact, the GARCH engineers have been dealing with this nonsense for many years :)
I have to read about this GARCH-model. Of course Forex is an interesting thing even from the mathematical point of view - but I'm not investing my money without being sure of the result.
Well, one graph of the distribution is enough to make sense of what was said. Usually, it is shown as an argument :-)
I'll attach it tomorrow! at this stage i just want to understand the link between the distribution of price increments, and the actual price distribution. After all, there has to be one!
You have to understand that entries and exits are different for everyone, for example those who enter up to 10 lots in a position and those who enter first eat out the glass for 10000 lots and more. There are corporate rules/algorithms on how to exit a position of 10000 lots and more. Sometimes this happens "from one button with all the permissions", or the zeros are wrong or the permissions are not limited by the new manager, the result is like the "Suddenly" meme. Or if it is interesting to look at the charts, look for a signal where many millions of dollars are signed and look at the time of transactions as the price reacted to this position - you saw it, it means that someone with intellectual and computing resources saw it. If you look at the chart for a long time, sometimes it seems that the money buttons are pressed by em and stochastics or just pressed, and all the rest is mental masturbation.
Global turnover, reporting periods(fiscal year is different for everyone), taxes, securities allocation, dividend payments force money to change. For example, the yen can be approached from the aluminum, the depth of recycling, the financial structure of intelligent companies in Japan, and the African dollar should not be approached at all.
In order to change money without problems (with less losses), i.e. to have liquidity, a retail market of low-qualified investors/traders was created. Since the mass of retail traders (aggregate position) becomes significant for the price, but not logical in comparison to the economic situation, there are abrupt price movements to correct the situation. Between reporting periods, taxes, etc. you can chase retail traders/investors, capital imbalance occurs to the side of speculative actions to the detriment of conservative accumulation of some currency - by the commitment period there is a "sell everything before lunch" moment.
If we look at the time of USD flotation, we can see that the price was not allowed to rise, i.e. the only distribution that worked at the moment - to take the expensive money, and then to give the cheap, i.e. if the flotation was for example at the rate of 1.25, then the investor will give at the rate of 1.5 or 2.0. It is the same principle - you invest cheap money and get a return in expensive money. All these moments are calculated by the really smart groups of people with the substantial computing resources, which are studying under the microscope every new factor or change of existing factors in the world economy.
In between all of this are retail traders/investors, as long as their positions are not substantial they take a bite out of the market for themselves - the market is willing to pay for liquidity in this way, otherwise they are shaken out. If someone thinks that with the power of one netbook + his intellect he has found some distribution (and others in this world don't even have netbooks), with which he will beat everyone - it's a personal opinion, which has a right to life and limits of applicability (in the morning, on Mondays, at the beginning/end of month), when no one else is interested and no more.
Success in finding distribution consists in admitting one's complete nothingness intellectually/computationally as a trader, finding one's own convenient nothingness of working with the market and working personally without co-companions with that nothingness of nothingness of nothingness for the market.
I need to read up on this GARCH model. Forex is of course interesting even from a mathematical point of view - but I won't invest my money without being sure of the result yet.
https://cyberleninka.ru/search?q=garch
In fact, my calculations yielded a so-called non-standardised Student's t-distribution with number of degrees of freedom = 2. The coefficient of scale does not equal the standard deviation and is calculated separately for each currency pair.
For which case have your calculations been carried out (what data, source, and quotation digit capacity)? Allow them to comment on these two pictures, just obtained from real quotes from two forex companies:
Good day!
So, as promised, I am posting the distribution of price increments for the EURJPY pair.
The data was obtained from a randomly selected broker from a demo NDD account. The sample is over a million ticks of data.
Let me repeat that you are looking at a non-standardized t-distribution with exactly 2 degrees of freedom. The only difference between this pair and the others is the scale factor. For this one it is 1.43.
I can tell the skeptics that I do not consider myself a genius (even by virtue of my age), who is going to open all secrets of Forex single-handedly. Moreover. I think that everything that I'm writing about is already known, just that organizations do not share such information. I managed to work with this distribution in my spare time and I'm just sharing this information with people.
If it were a Cauchy distribution, I would say it would be impossible to do anything. But there's a lot to think about... In fact, the distribution of price increments is the basis for the distribution of the price itself in a dynamical series.
There are a lot of forex brokers in the market at the moment and there is a lot of competition between them for clients. They offer different trading conditions, and to understand all their features can be difficult even for experienced traders, not to mention beginners. Besides, you should always be aware of price changes https://brokers.ru/foreks-kotirovki, otherwise you won't be able to trade successfully.