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Forex Pairs Trading System Without Parametric Statistical Crap

Discussion in 'Forex Forum' started by Tardigrade, Jan 1, 2016.

  1. Tardigrade

    Tardigrade Guest

    Why?

    After reading countless threads on pairs trading/statistical arbitrage/spread trading (well not that many, one can count how many pairs trading related posts with 2 hands in the FF universe), and various books, (still not that many, less than 10 in the entire Amazon universe, and most of them was written 10+ years ago), I've decided I should give it a go on the subject matter.

    Why Not?

    Critical thinking applies to all facets of life; by believing a certain doctrine you have to assume that the underlying premise is correct, make sure you check it first.

    Why not Cointegration---market price is not linear, a linear combination of price won't make its non-linearity more true; even market beta would've been a better model than trying to benchmark market price with a theoretical straight line

    Why not Standard Deviation---market price is not normally distributed, 3 or above sigma events are common

    Why not Price Normalization/Log Normal---Again, price is not normally distributed

    Why not parametric statistics-the underlying premise of parametric statistics is that it assumes underlying data follows probability distribution, in 99.9% of the case, normal distribution; when normal distribution is not found in financial market, applying this kind of analysis is lunacy.

    Purpose

    An attempt to
    1. identify the knowledge vacuum the public knows about pairs trading
    2. present a rudimentary trading solution to the existing yet lucrative trading space
    3. further fine-tuning the strategy presented by gathering inputs from talented FF members, forming an interest group if possible

    Target Audience

    For folks who found conventional trend trading unprofitable & too competitive
    *This is not a trend trading approach but of a mean reversion & range-bound one*


    Acknowledgement
    FXEZ 7bit Gvc ninety47

    Prerequisite Concepts/Knowledge Base
    Knows what a range bound looks like ↓↓↓↓↓↓
    Attachment 1821012
    Rules
    Debates on use of statistics, trading models are fine; coarse language without evidences/proof to back up your "belief" is not.

    Trading Process
    Post 2

    Attached Images
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    Source.
     

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