Thursday, October 18, 2012

Formulas for gains and losses in trend contrarian strategy

Following the previous post, I now present a model that defines the size of the gain or loss arising from the use of anti-trend strategy. This strategy, the assumptions presented here, is a simple mirror image of that which follows the trend.

Model, which - as I recall here - concerns the settlement occupied a single position on a currency pair, is formulated in the form of conditional expressions. Conditions apply to being exceeded or not exceeded the limits of the appropriate exchange rate. The limits are determined by the parameter, which is the distance from the opening price on the time interval.

As usual, the letters indicate the corresponding OHLC quotes, plus superscripts determine whether it is a purchase or sale price. This is actually a sufficient description for understanding the equation. And here it is:

The equations defining the position at the end of each interval, as well as gains and losses arising from operations carried out by the investor, applying a particular strategy, allow for a quantitative assessment of the effectiveness of these strategies. Of course, the essence of the problem lies in the selection of parameters, which can be done by simulation. The first ideas for such simulations, which lead to transactional systems with a hierarchical structure, I intend to present soon.

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