Every crash/collapse brings with it an equivalent market chance if you are early informed and equipped, I've seen folks amass up to $1m amid economy crisis, and even pull it off easily in favorable conditions. Unequivocally, the collapse is getting somebody somewhere rich.
I do not disagree, there are strategies that could be put in place for solid gains regardless of economy or market condition, but such execution are usually carried out by investment experts with experience since the 08' crash.
The issue is people have the "I want to do it myself mentality" but not equipped enough for a crash, hence get burnt. Ideally, advisors are reps for investing jobs, and at first-hand encounter, my portfolio has yielded over 300% since 2020 just after the pandemic to date.
i'm blown away! mind sharing more info please? i am a young adult living in Miami where i've encountered several millionaires, and my goal is to become one as well.
NICOLE ANASTASIA PLUMLEE' is the licensed fiduciary I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment.
I graduated with a physics and math degree and just started interviewing for jr "quant" roles in banking. Literally got asked questions related to these. The actual job is just computational work but the interviewer asks tons of brain teasers with expected value questions.
@@TheMathSorcerer I was told the full work is taking the VaR and TVaR of portfolios at different weights using past performances or Monte Carlo modeling using geometric Brownian motion.
So you did a whole four years of mind bending physics just to do computational work that barely covers a fraction of all that? Wow lol...well, I guess as long as they’re paying you it’s all good.
@@_SeaH0rse physics wasn't fun anymore. It also ended up being just computational work that didn't pay as much. Hoping I get through the interviews tho
@@Nchinnam I’ve heard that from a couple of physics majors. Physics was a high school girlfriend that was just too pretty for my brain, so I envy any physics person I run into 😊. If I had a handful, and given the startup ideas I have, I don’t see why we couldn’t hit the big time (I like to think of myself as an aspiring marketing engineer).
Be careful using ANY formula for trading securities.....profitably. Investments, finance, and economics are not hard sciences where you can use strategies such that if you do X, then it will result in Y profits. Anyone who tells you differently is either a fool or a liar or both! This is especially true with "technical analysis", which uses techniques such as moving averages and so on. Also, relying on the "long-run"....we are reminded of Keynes famous quote that "markets can remain irrational longer than we can remain solvent".... Caveat emptor!
I'll add to this: for every additional variable your financial strategy has, the probability of a false positive from a backtest dramatically increases. The same holds if your dataset used in training a model doesn't account for survivorship bias, has too few data points, or the model goes beyond the optimal stopping point in selection processes
My life changed too when I started doing this and putting money in stocks. The first few years it as really great, but this year I haven't felt like my portfolio is doing well. I have lost more than $40,000 from my portfolio the past four months, and it's now very worrisome.
The year has been really rough for everybody. But I've been able to cushion the effect though. Have you thought of using an investment advisor? They can make you good money especially during uncertain times like this.
Yes, I agree. I use a financial advisor too. Same person since 2020. I don't worry about whether the economy is going up or down or sideways. I always ride through.
My CFA NICOLE ANASTASIA PLUMLEE a renowned figure in her line of work. I recommend researching her credentials further... She has many years of experience and is a valuable resource for anyone looking to navigate the financial market..
Heraclitus told us 2500 years ago that you can't step into the same river twice. There is no proof that the past valuations of a stock will resemble future ones. The factors that caused the prices in the past are "water under the bridge" and the river ahead is not seen with perfect clarity. Stock prices fluctuate for many reasons and a stock could be a good or bad investment until it isn't usually because of some new or changing condition.
It is not about what happened yesterday. It is about probability. Now we know that TSLA will move at least $5 everyday. Now imagine if you LONG or SHORT TSLA each day but you cut loss when you are down -$0.20 and take profit when you take profit when you are up $0.30. So our Stop Loss and Target Price is so small, it is bound to hit one of them and the chance is about 50%-50%. In the long run, your win rate should be around 50%. But since you make $0.30 and lose $0.20, you will make money. I have been doing this for some time and so far so good.
@@shutengloke5907 yup indeed. You should look at trading like being the casino. If you have a risk reward ratio of 1 with a 51% win rate, youcan expect to be down after 100 trades, but you know after 10000 trades you'll be profitable.
I wish it was easy as that in real life. Don't forget commissions, swaps, spreads, leverage fees , sentiment, news and the delay your indicator has. .. And many more... Now do some forward testing
You'll actually make the geometric average of -63.188% (=(1+−0.9)^0.6*(1+1.6)^0.4−1) per time period assuming that you reinvest and the gain of 160 is equivalent to a proportional gain of 160%. Look up Ole Peters' ergodicity video 'time for a change', it's fascinating. By the way, trading just loses money due to transaction costs including brokerage and time wasting. Buy and hold is the winning strategy. I'm a finance lecturer and like your videos. But I've seen many smart math, science and engineering brains waste time and $ trading, due to not understanding the principle of weak form market efficiency - prices go up and down due to good and bad news which nobody can predict, therefore past price data is useless for predicting the future. Edit: fixed incorrect calc at top, oops
The most successful hedge fund in the world based on performance is renaissance technologies, it employs high frequency trading strategies based purely on mathematical models. Please do not mislead people.
@@keithphw There are lots of quants and hedge funds that consistently make money from short-term price behavior, not just RenTech. If you believe the efficient market hypothesis, buy-and-hold investing is just not worth it given how accessible information and data is.
Don't forget to subtract the cost of each trade when calculating E(x). You pay a transaction fee when you buy the stock and again when you sell. Also, "when 5 day SMA crosses 20 day SMA" should be "when 5 day SMA drops below the 20 day SMA" (unless you're shorting).
No, it's the other way around. Why would you want to buy when the 5 day SMA (which gives greater weight to recent prices) drops below the 20 day SMA? If recent prices are strong, the 5 day SMA should be above the 20 day.
It depends on whether your strategy is trend following or mean reversal. Former works well in trending market and the latter works well in range bound market.
What could be the drawdown. Say on loses the first 6 trades. So for the winning trades he will need higher capital. And higher percentage to cover the loses and be in profit in the end.
I would add that no retail investor should use a quant system with actual money. I've been involved with them since graduating in '68, and I know that virtually all retail investors who do this lose money. The quants who make money are either high speed traders with access to low latency feeds that your viewers cannot get, or longer term hedge funds or CTAs who have backtested thousands of systems over many years. Even they have to change their systems often, as the market sniffs out statistical regularities and arbitrages them.
I think it would be fun to study financial mathematics/ financial engineering. Maybe the Math Sorcerer could do a book review for a good book on financial mathematics.
mathematically, a positive return. but we make the negative when we calculate every instrument's fee, and possible drawdown here would be huge. i hope nobody is really gonna believe after this video that so simple strategy can make them money in the long run and don't put a single cent how you advised. if that was the case, institutions would not even hire PhD's in finance, physics and maths.
Price action is king. Actual price action, not what most people call price action. The free webinar Volatility Patterns for Day Traders and Scalpers by Chris Lori will show you just the tiny tip of what actual price action is.
I have an idea: calculate a mean (preferably a low ripple, low phase method) and then center the price around this mean. Next you filter the the signal with a multi band compressor expander. What do you think about filtering centered price data like this?
Good luck with that....there a many huge corporations who would have already used various similar techniques if they worked....given the vast sums of money involved!
If you want a risk-free guaranteed return, just stop spending your money on stupid stuff, like eating out, spending $12 every morning at the cafe, alcohol, etc..
5:06 "In the long run you're guaranteed to be a winner (mathematically)" - I cannot help but to throw in the St. Petersburg Paradox at this point: Flip a coin, if heads flip again, if tails break and get payout of 2^n $ (where n is the number of coin tosses you had). Now this game has an expected value of infinite, but you are going to have to play an enormous amount of time to get this (or even just a positive, assuming you pay for playing) outcome - you are probably going to be ruined before you get the big gain....
Can you recommend resources for learning finance/stocks for someone with a passion for math? I tried to learn some on my own time but it's hard to find resources where they emphasize the maths.
You could backtest that for years and it would look likes it's working, but it would be just because of a bull market. The market could change and it would become a losing strategy.
Problem is not in the math; problem is in the trade business itself, where it is very difficult to assume anything based on what you are told by the lead players in the market. Just when you know that your assumptions about the market are good enough, some surprise proves you wrong. The stock market lacks the scientific honesty, so science is of little use to it. The biggest problem with stocks is it’s vulnerability to trading activities. More buys raises the stock value, while more sells drops it. A good stock is one that reflects real growth in the company, not mere inflated faith based on trading activities.
Our respect and appreciation for you. Every strategy that talks about past data is a big loss unless it anticipates the price with a mathematical equation that indicates knowledge of the upcoming price angles.
In The Legend of Zelda, there's a money-making game which costs 100 rupees to play. You choose one of three boxes and get either 1 rupee, 20 rupees, or 300 rupees. The expected value is (1)(0.33) + (20)(0.33)+(300)(0.33) = 107 rupees. Pretty mediocre.
The problem is that if you backtest, first you typically backtest only a part of the history and so you don't have the full probability distribution, but also often, a specific strategy like the one you did will only work in certain type of market (like this one will certainly give good result in a bull market), but not in other market
i think you can run a software with massive amounts of data (like all markets along all history) and backtest multiple strategies millions of times each to pickup just the best of them. i think it will not be perfect, but its very likely that you'll make some money in the long run. also, you can develop a portfolio distribution strategy with the same technique, that, even if your strategy didnt work on a prolonged bear market, you can rebalance it to buy low.
In the stock market strategy, the expected value you use is not only unnecessary (just compute the average), but also misleading. Your expected amt is NOT approaching $10. This is because the probabilities you are using in your example are EMPIRICAL (i.e. estimates that are derived from data) not THEORETICAL
Casinos and bookies set the odds so that no matter which horse wins the the house makes money.....never lose site of that fact and you won't get caught up in a money-losing "greatest strategy in the world" scenario whereby the adherent thinks that they will break the bank at Monte Carlo!
For trading, I'd check out Inner Circle Trader's RUclips channel. I guess you could use math to trade, but it works better with other methods in my opinion.
Nice to see somebody use a pencil I think do it called algorithm prop Ai based but thank this video…. Do it redditors make parabolic how much they put aside. Profit taking after big move they seem to lose it all.. counter intuitive such risk turn strategy off.
How do you determine both the avg loss and gain per trade? Is it not simply one number, either positive or negative, indicating whether you've gained or lost money from a trade?
It is hard sticking to any strategy with 2 weeks of solid losses then taking the same trade again and again. Randomness throws this at you every so often which makes you feel like a loser so you "tweek" your tested strategy and ruin everything. Stocks are hard!
Math Sorcerer, if you see this, how do you feel about going all in on a few index funds and some bonds for young people? I've heard that modest yearly contributions can make somebody a lot of money over a couple of decades. It just takes a long time
Investment stradegy… Low cost share + monthly dividend. Buy more shares with monthly dividend payout. Spend frugal for daily living Follow monthly dollar cost averaging Put entire check into TOD account. Use this account to pay bills Do this for LIFE!!!! You will overload the TOD account so if the market crashes you still will come out ahead. Set an increasing stop loss amount as your portfolio grows.
Using average (wins) and average (losses) doesn't account for the magnitude of the win or loss. A series of big losses (or big wins) will skew the averages. Don't you need to account for standard deviations as well then? Or am I missing something?
Nice. Now do one that figures out why 40% of my income goes to eveeyone everywhere else. Your probably going to dig up Tesla and Einstein for some help first.
you have a huge mistake, and it is assumming that the amount of your budget invested don't affect the longterm result, and also that the process is ergodic and it isn't (since is multiplicative). The proper aproach is using the long term time average defined by Thorp process when looking for the Kelly Criterion.
Could be informative to those who are rank beginners, but they should also know that all systems of the type described (moving average crossover or crossunder) will lose money when adequately backtested. I have written mounds of such code and tested countless hundreds of similar systems over a number of decades, so I know. It is good to show the formula for Trade Expectancy because that does provide a clear outlook on ultimate trading results using a defined style of trading.
@maximosh You're referring to Win/Loss Ratio. The EV is in fact 10. The WL ratio or Profit Factor is 64/54 = 1.185 or in other words, for every $1 risked (lost) you stand to gain $1.185 . So 64 + 54 = 118 but that's just coincidence and and is not related to the 1.185 . 👍 Cheers
7:51 What about x=1 & y=3? These are conservative numbers when it comes to risk management for placing Stop Loss & Take Profit. How would you estimate the probability of loss & gain in this context for maximized profitability in the long run?
This is wrong. The stock market is manipulated. It's been manipulated for decades. Also, all indicators are lagging(nothing can know the future). 1. the market makers are legally allowed to naked short(counterfeit shares) which they do to steal from retail. 2. Criminals are not punished. Go look at the SEC filings and you will see that none of them that are "caught" are ever charged more than they steal or are punished with jail time. JPM, for example, has stolen billions. They literally have been caught manipulating metals just a few months ago and paid a fraction of the cost and did not have to admit guilt and no one was charged. The markets are 100% rigged. Go look at HKD, a company with 10 employee's that went up 32000% in a week and it is an NYSE listed company. There are others too like AMTD and MEGL. Spoofing, front running, quote stuffing, naked shorting, PFOF, FUD, swaps, and many other means are used to steal from you. There is ZERO way to win in a game that is rigged so you lose. Sure you might win some of the time but in the long run you WILL lose.
The only way to actually profit is to learn how they cheat and that takes year of study. They use AI that tracks their losses and gains and they get all the data while feeding you fake data. They know exactly how much money is flowing in and how much has flowed out and set the price and it's direction based on that. They don't care if you get lucky and buy the dip and the sell at a peak before they dip it because they got 100 other people buying in that they just dipped on and who will paper hand. The other way to get rich in the stock market is buy GME and BBBY. Why? Because these are the only two stocks that have investors who are not selling and who are buying and DRSing. Why? Because supply and demand does not exist in the fraud market due to counterfeiting and shorting. GME investors are buying up shares and DRSing them as to take away the shares from the manipulators and GS/RC is helping them know how many they have. Once the float is locked this means there technically can be no shares trading unless the price rises(technically we need to lock the entire outstanding but there is some wiggle room). This means if there is trading that the stock is being manipulated. There are actually many people who have experienced this such as Eagletech when one guy bought the entire outstanding and the next day still had the entire stock trading like nothing happened and the price was still tanking(how when he owns all the shares? this was due to counterfeiting). The market is a fraud. There is no mathematical strategy that can let you win. Maybe AI can figure out their schemes and learn too profit off them but all they have to do is switch them. Since they have all the info(such as when they will manipulate), are protected by the government(who is part of it), and have all the money(backed by the FEDs) they can do what they want. The stock marketed is a rigged casino and, by extension, so is the entire world economy. BBBY, about a week ago, was 5$... it hit 13$ yesterday, they tanked it today to 9. If you bought in BBBY knowing that it could not go much lower due to fundamentals and that they've been shorting it since 16$ you could have profited off it like I did. Also if you know that RC bought in at 15$ and bought calls at 80 for jan23 you would know that it is likely, if you trust RC, going to go past 80$ by jan23. There is far more going on in the fraud market than just buying low and selling high. You could invest in a good company and in a day see your investment tank 50% for absolutely no reason and if you sell you lose out... else you have to wait months and hope they don't cellar box or infiltrate the company and steal your $$$. Criminals run the fraud market. Virtually all the billionaires involved have some type of record of doing crime but are never punished. E.g., Ken Griffin who runs the market and steals trillions(he's the money man for the largest billionaires) was kicked out of China for manipulation and has been caught many times in the US but he's still allowed to process 90% of retail's orders and to do PFOF along with running hedge funds and other stuff. GME has a tone of DD(research) on what is going on if you know where to look(I can't give a link since the comment will be deleted).
If the math is coming out identical to basic averaging is the calculation wrong or is that expected? Essentially its coming out to the same number as doing the sum value of all trades divided by the number of trades.
Can you talk about the non array identity of the sma? :D I programmed a simple moving average with an array abut I was reading that you don't need the array because of algebra?
I am curious what your thoughts are on the future of the stock market, considering the exponential growth over the last 20 years in any typical market metric. You know how quickly exponentials can get out of control and if we keep setting company expectations based on the growth we have seen in the past then very soon it will be impossible to seem profitable when expected to grow exponentially forever into the future. This will continue to push companies to cut wages for workers and rely on bailouts and subsidies from the government IMO.
Every crash/collapse brings with it an equivalent market chance if you are early informed and equipped, I've seen folks amass up to $1m amid economy crisis, and even pull it off easily in favorable conditions. Unequivocally, the collapse is getting somebody somewhere rich.
I do not disagree, there are strategies that could be put in place for solid gains regardless of economy or market condition, but such execution are usually carried out by investment experts with experience since the 08' crash.
The issue is people have the "I want to do it myself mentality" but not equipped enough for a crash, hence get burnt. Ideally, advisors are reps for investing jobs, and at first-hand encounter, my portfolio has yielded over 300% since 2020 just after the pandemic to date.
i'm blown away! mind sharing more info please? i am a young adult living in Miami where i've encountered several millionaires, and my goal is to become one as well.
NICOLE ANASTASIA PLUMLEE' is the licensed fiduciary I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment.
I just curiously searched her up, and I have sent her an email. I hope she gets back to me soon. Thank you
I graduated with a physics and math degree and just started interviewing for jr "quant" roles in banking. Literally got asked questions related to these. The actual job is just computational work but the interviewer asks tons of brain teasers with expected value questions.
Oh wow how interesting!
@@TheMathSorcerer I was told the full work is taking the VaR and TVaR of portfolios at different weights using past performances or Monte Carlo modeling using geometric Brownian motion.
So you did a whole four years of mind bending physics just to do computational work that barely covers a fraction of all that? Wow lol...well, I guess as long as they’re paying you it’s all good.
@@_SeaH0rse physics wasn't fun anymore. It also ended up being just computational work that didn't pay as much. Hoping I get through the interviews tho
@@Nchinnam I’ve heard that from a couple of physics majors. Physics was a high school girlfriend that was just too pretty for my brain, so I envy any physics person I run into 😊. If I had a handful, and given the startup ideas I have, I don’t see why we couldn’t hit the big time (I like to think of myself as an aspiring marketing engineer).
Be careful using ANY formula for trading securities.....profitably.
Investments, finance, and economics are not hard sciences where you can use strategies such that if you do X, then it will result in Y profits.
Anyone who tells you differently is either a fool or a liar or both!
This is especially true with "technical analysis", which uses techniques such as moving averages and so on.
Also, relying on the "long-run"....we are reminded of Keynes famous quote that "markets can remain irrational longer than we can remain solvent"....
Caveat emptor!
👍👍👍👍👍
I'll add to this: for every additional variable your financial strategy has, the probability of a false positive from a backtest dramatically increases. The same holds if your dataset used in training a model doesn't account for survivorship bias, has too few data points, or the model goes beyond the optimal stopping point in selection processes
My life changed too when I started doing this and putting money in stocks. The first few years it as really great, but this year I haven't felt like my portfolio is doing well. I have lost more than $40,000 from my portfolio the past four months, and it's now very worrisome.
The year has been really rough for everybody. But I've been able to cushion the effect though. Have you thought of using an investment advisor? They can make you good money especially during uncertain times like this.
Yes, I agree. I use a financial advisor too. Same person since 2020. I don't worry about whether the economy is going up or down or sideways. I always ride through.
Oh, really? I have never thought of that as an option. Can I ask who it is you've been working with? I bet I could use some help myself.
My CFA NICOLE ANASTASIA PLUMLEE a renowned figure in her line of work. I recommend researching her credentials further... She has many years of experience and is a valuable resource for anyone looking to navigate the financial market..
Thank you for the lead. I searched her up, and I have sent her an email. I hope she gets back to me soon.
The caveats are most interesting. Assume history applies forward, how far back do we look, what are the key factors driving the results. . .
👍
Interesting. We did that a lot at school but never applied it in a hypothetical trade. Brings back memories to see this !!
awesome!
Heraclitus told us 2500 years ago that you can't step into the same river twice. There is no proof that the past valuations of a stock will resemble future ones. The factors that caused the prices in the past are "water under the bridge" and the river ahead is not seen with perfect clarity. Stock prices fluctuate for many reasons and a stock could be a good or bad investment until it isn't usually because of some new or changing condition.
It is not about what happened yesterday. It is about probability.
Now we know that TSLA will move at least $5 everyday. Now imagine if you LONG or SHORT TSLA each day but you cut loss when you are down -$0.20 and take profit when you take profit when you are up $0.30. So our Stop Loss and Target Price is so small, it is bound to hit one of them and the chance is about 50%-50%. In the long run, your win rate should be around 50%. But since you make $0.30 and lose $0.20, you will make money.
I have been doing this for some time and so far so good.
@@shutengloke5907
For how long have you been using this strategy, I will try it.
@@shutengloke5907 yup indeed. You should look at trading like being the casino. If you have a risk reward ratio of 1 with a 51% win rate, youcan expect to be down after 100 trades, but you know after 10000 trades you'll be profitable.
@@shutengloke5907how did you conclude that in the long run the chances for TSLA stock are 50/50?
Also, the expectancy calculation does not account for the fact that the trade can go against you multiple times in a row, right?
I wish it was easy as that in real life. Don't forget commissions, swaps, spreads, leverage fees , sentiment, news and the delay your indicator has. .. And many more... Now do some forward testing
You'll actually make the geometric average of -63.188% (=(1+−0.9)^0.6*(1+1.6)^0.4−1) per time period assuming that you reinvest and the gain of 160 is equivalent to a proportional gain of 160%. Look up Ole Peters' ergodicity video 'time for a change', it's fascinating.
By the way, trading just loses money due to transaction costs including brokerage and time wasting. Buy and hold is the winning strategy.
I'm a finance lecturer and like your videos. But I've seen many smart math, science and engineering brains waste time and $ trading, due to not understanding the principle of weak form market efficiency - prices go up and down due to good and bad news which nobody can predict, therefore past price data is useless for predicting the future.
Edit: fixed incorrect calc at top, oops
The most successful hedge fund in the world based on performance is renaissance technologies, it employs high frequency trading strategies based purely on mathematical models. Please do not mislead people.
@@arthurmorgan2961 Read about survivorship bias
@@keithphw Read about Optiver
@@keithphw There are lots of quants and hedge funds that consistently make money from short-term price behavior, not just RenTech. If you believe the efficient market hypothesis, buy-and-hold investing is just not worth it given how accessible information and data is.
@@keithphw Also, because so many traders use technical analysis strategies when trading, it becomes a self-fulfilling prophecy.
You divide this expected value by the standard deviation and you get the resilience of your strategy over time (Sharpe Ratio)
Don't forget to subtract the cost of each trade when calculating E(x). You pay a transaction fee when you buy the stock and again when you sell. Also, "when 5 day SMA crosses 20 day SMA" should be "when 5 day SMA drops below the 20 day SMA" (unless you're shorting).
No, it's the other way around. Why would you want to buy when the 5 day SMA (which gives greater weight to recent prices) drops below the 20 day SMA? If recent prices are strong, the 5 day SMA should be above the 20 day.
@@avilash2546 this is a simple moving average so the trend would "pull" the average back up toward the 20 day.
@@NeutrinoParty Yes, that is what I said. The 5 day SMA crossing above the 20 day SMA would yield a buy signal, which is what he said in the video.
It depends on whether your strategy is trend following or mean reversal. Former works well in trending market and the latter works well in range bound market.
That’s what Jim Simon’s would say…RIP
I'd love to see more math and trading/finance videos
Look up his video titled "Mathematical Finance Wizardry".
Nice to see how Discrete Random Variables can be used in trading! Thanks Math Sorcerer...
👍
What could be the drawdown. Say on loses the first 6 trades. So for the winning trades he will need higher capital. And higher percentage to cover the loses and be in profit in the end.
And then you realise your back testing didn’t include commissions
I would add that no retail investor should use a quant system with actual money. I've been involved with them since graduating in '68, and I know that virtually all retail investors who do this lose money. The quants who make money are either high speed traders with access to low latency feeds that your viewers cannot get, or longer term hedge funds or CTAs who have backtested thousands of systems over many years. Even they have to change their systems often, as the market sniffs out statistical regularities and arbitrages them.
I think it would be fun to study financial mathematics/ financial engineering. Maybe the Math Sorcerer could do a book review for a good book on financial mathematics.
👍
Look up his video titled "Mathematical Finance Wizardry".
mathematically, a positive return. but we make the negative when we calculate every instrument's fee, and possible drawdown here would be huge. i hope nobody is really gonna believe after this video that so simple strategy can make them money in the long run and don't put a single cent how you advised. if that was the case, institutions would not even hire PhD's in finance, physics and maths.
Price action is king. Actual price action, not what most people call price action. The free webinar Volatility Patterns for Day Traders and Scalpers by Chris Lori will show you just the tiny tip of what actual price action is.
I have an idea: calculate a mean (preferably a low ripple, low phase method) and then center the price around this mean. Next you filter the the signal with a multi band compressor expander.
What do you think about filtering centered price data like this?
Thank you very much for this. I wonder how optimization techniques, or Shannon entropy or information gain fit into this...
Good luck with that....there a many huge corporations who would have already used various similar techniques if they worked....given the vast sums of money involved!
If you want a risk-free guaranteed return, just stop spending your money on stupid stuff, like eating out, spending $12 every morning at the cafe, alcohol, etc..
This is a mechanical system. The stock market runs on fear and greed. It is a psychological framework. Not criticizing.
👍
Everything in life runs on fear and greed
5:06 "In the long run you're guaranteed to be a winner (mathematically)" - I cannot help but to throw in the St. Petersburg Paradox at this point: Flip a coin, if heads flip again, if tails break and get payout of 2^n $ (where n is the number of coin tosses you had).
Now this game has an expected value of infinite, but you are going to have to play an enormous amount of time to get this (or even just a positive, assuming you pay for playing) outcome - you are probably going to be ruined before you get the big gain....
Good luck if you do what you say other people should do, you mix strategy with risk management
Stock market lacks logic.. its more emotional and its manipulated
Can you recommend resources for learning finance/stocks for someone with a passion for math? I tried to learn some on my own time but it's hard to find resources where they emphasize the maths.
You could backtest that for years and it would look likes it's working, but it would be just because of a bull market. The market could change and it would become a losing strategy.
You could have a strategy like this and in a bull run and think you are genius. Try doing this in a bear market and see how good your model is.
Say, what's your thoughts on using fib's on candlesticks on stocks?
I think they can be very effective!
Really interesting. it resembles the so called Kelly criterion
I was searching gold and i found diamonds 😅
Problem is not in the math; problem is in the trade business itself, where it is very difficult to assume anything based on what you are told by the lead players in the market. Just when you know that your assumptions about the market are good enough, some surprise proves you wrong. The stock market lacks the scientific honesty, so science is of little use to it. The biggest problem with stocks is it’s vulnerability to trading activities. More buys raises the stock value, while more sells drops it. A good stock is one that reflects real growth in the company, not mere inflated faith based on trading activities.
The stock market became such a casino, it’s ridiculous. It has always been like that but since 2020, my god.
Our respect and appreciation for you. Every strategy that talks about past data is a big loss unless it anticipates the price with a mathematical equation that indicates knowledge of the upcoming price angles.
There is no way to guarantee win/loss percentages. So none of these types of things work, except by chance.
in a roundabout you can guess that it will during a 10 year period go more up than it goes down
In The Legend of Zelda, there's a money-making game which costs 100 rupees to play. You choose one of three boxes and get either 1 rupee, 20 rupees, or 300 rupees.
The expected value is (1)(0.33) + (20)(0.33)+(300)(0.33) = 107 rupees. Pretty mediocre.
Ahh Zelda!!❤️
The problem is that if you backtest, first you typically backtest only a part of the history and so you don't have the full probability distribution, but also often, a specific strategy like the one you did will only work in certain type of market (like this one will certainly give good result in a bull market), but not in other market
👍
i think you can run a software with massive amounts of data (like all markets along all history) and backtest multiple strategies millions of times each to pickup just the best of them. i think it will not be perfect, but its very likely that you'll make some money in the long run.
also, you can develop a portfolio distribution strategy with the same technique, that, even if your strategy didnt work on a prolonged bear market, you can rebalance it to buy low.
@@maxpower677where is this software?
You can just limit your trading to when that one specific market condition materializes.
In the stock market strategy, the expected value you use is not only unnecessary (just compute the average), but also misleading. Your expected amt is NOT approaching $10. This is because the probabilities you are using in your example are EMPIRICAL (i.e. estimates that are derived from data) not THEORETICAL
Remember, always buy low and sell high. In the long run - to the moon! Trading made easy, simplified. 😄
Aww I just learnt it in my actuarial science class:)
Oh wow awesome
What module was this under?
A friend dropped out of school is a self made millionaire. Math is only one of the several tools out there.
Thanks sir
I was just thinking about this while learning ode for the first time
👍
Very cool!!!
That's pretty slick!
I first came across the concept of expectation value in the context of Quantum and Statistical Mechanics.
awesome!
this is gold , bro wtf , I dident expect that but I'll keep this shit frfr
One interesting way the Casino stacks the deck is by limiting bet size. . .
Yes!!
Casinos and bookies set the odds so that no matter which horse wins the the house makes money.....never lose site of that fact and you won't get caught up in a money-losing "greatest strategy in the world" scenario whereby the adherent thinks that they will break the bank at Monte Carlo!
Is there a course or book on this? applying to the real world of course
For trading, I'd check out Inner Circle Trader's RUclips channel. I guess you could use math to trade, but it works better with other methods in my opinion.
thank u bro
Nice to see somebody use a pencil I think do it called algorithm prop Ai based but thank this video…. Do it redditors make parabolic how much they put aside. Profit taking after big move they seem to lose it all.. counter intuitive such risk turn strategy off.
How do you determine both the avg loss and gain per trade? Is it not simply one number, either positive or negative, indicating whether you've gained or lost money from a trade?
You will have to backtest the strategy on years of historical data. I personally code it to be backtested to get these numbers.
Indicators on Tradingview use math. By default.
we need more of mathematics in stocks.
Nice... but I have no clue what the strategy means.
Well could you guess covid or putins mind before you invested. Such irrational is stock market
It is hard sticking to any strategy with 2 weeks of solid losses then taking the same trade again and again. Randomness throws this at you every so often which makes you feel like a loser so you "tweek" your tested strategy and ruin everything.
Stocks are hard!
You can use this in value betting on sports. There it will work. But in the stock market I would not recommend it.
Careful Mr. Simons
Just DCA and sit on it for a few decades.
👍
The market is a 180 iq behemoth that the layman will never one up
👍👍
Well no kidding, you need more positive than negative to turn out a profit.
All of the casino games except Poker.
Math Sorcerer, if you see this,
how do you feel about going all in on a few index funds and some bonds for young people? I've heard that modest yearly contributions can make somebody a lot of money over a couple of decades. It just takes a long time
Definitely a good idea IMO.
@@TheMathSorcerer thanks for this!
Bonds are very dumb these days in the macroeconomic environment.
Stocks should go up in the long run though.
Start learning about bitcoin.
Bro make video how to trade forex using mathematics
So this is the average of x amount of wins per loss 👍🏾
Is as simple as gain more than you lose.
Good starting point but this doesn't tell you how much to bet on the trade as a % of your bankroll to maximize profits and minimize Risk of Ruin.
feels like a throwback to AP Stats
Investment stradegy…
Low cost share + monthly dividend.
Buy more shares with monthly dividend payout.
Spend frugal for daily living
Follow monthly dollar cost averaging
Put entire check into TOD account. Use this account to pay bills
Do this for LIFE!!!!
You will overload the TOD account so if the market crashes you still will come out ahead.
Set an increasing stop loss amount as your portfolio grows.
I am here because I read math wrong😂😂
Great… I learned differential equations for basic algebra and stats
Math Sorcerer, conjure us some money
Ngl, hes probably a quant
the stock market like the casino is just math.
Using average (wins) and average (losses) doesn't account for the magnitude of the win or loss. A series of big losses (or big wins) will skew the averages. Don't you need to account for standard deviations as well then? Or am I missing something?
Nice. Now do one that figures out why 40% of my income goes to eveeyone everywhere else. Your probably going to dig up Tesla and Einstein for some help first.
you have a huge mistake, and it is assumming that the amount of your budget invested don't affect the longterm result, and also that the process is ergodic and it isn't (since is multiplicative). The proper aproach is using the long term time average defined by Thorp process when looking for the Kelly Criterion.
How many trades would you recommend actually doing before applying this formula?
Only if we were taught math like this in school. Great explanation.
This is what I have been doing. So far so good. I now tell my friends that I own a casino.
Define long run .
Just random numbers used
Could be informative to those who are rank beginners, but they should also know that all systems of the type described (moving average crossover or crossunder) will lose money when adequately backtested. I have written mounds of such code and tested countless hundreds of similar systems over a number of decades, so I know. It is good to show the formula for Trade Expectancy because that does provide a clear outlook on ultimate trading results using a defined style of trading.
Math alone is not enough. I use economic news and math to apply trades.
What type of trades you do forex or futures?
Math geniuses
This is quite useless
E(x) actually sums to 118.5 which is a profit factor of 1.185 or theoretically 18.5% better than breakeven, without any brokerage costs considered.
@maximosh You're referring to Win/Loss Ratio. The EV is in fact 10. The WL ratio or Profit Factor is 64/54 = 1.185 or in other words, for every $1 risked (lost) you stand to gain $1.185 .
So 64 + 54 = 118 but that's just coincidence and and is not related to the 1.185 . 👍
Cheers
7:51 What about x=1 & y=3?
These are conservative numbers when it comes to risk management for placing Stop Loss & Take Profit.
How would you estimate the probability of loss & gain in this context for maximized profitability in the long run?
This is so cool
Can you make a video on stochastic calculus and geometric Brownian motion to model stocks?
Glad to see I am not the only one who has my crappy writing style.
Thank you! Very cool 😊
This is wrong. The stock market is manipulated. It's been manipulated for decades. Also, all indicators are lagging(nothing can know the future). 1. the market makers are legally allowed to naked short(counterfeit shares) which they do to steal from retail. 2. Criminals are not punished. Go look at the SEC filings and you will see that none of them that are "caught" are ever charged more than they steal or are punished with jail time. JPM, for example, has stolen billions. They literally have been caught manipulating metals just a few months ago and paid a fraction of the cost and did not have to admit guilt and no one was charged.
The markets are 100% rigged. Go look at HKD, a company with 10 employee's that went up 32000% in a week and it is an NYSE listed company. There are others too like AMTD and MEGL. Spoofing, front running, quote stuffing, naked shorting, PFOF, FUD, swaps, and many other means are used to steal from you.
There is ZERO way to win in a game that is rigged so you lose. Sure you might win some of the time but in the long run you WILL lose.
The only way to actually profit is to learn how they cheat and that takes year of study. They use AI that tracks their losses and gains and they get all the data while feeding you fake data. They know exactly how much money is flowing in and how much has flowed out and set the price and it's direction based on that. They don't care if you get lucky and buy the dip and the sell at a peak before they dip it because they got 100 other people buying in that they just dipped on and who will paper hand.
The other way to get rich in the stock market is buy GME and BBBY. Why? Because these are the only two stocks that have investors who are not selling and who are buying and DRSing. Why? Because supply and demand does not exist in the fraud market due to counterfeiting and shorting. GME investors are buying up shares and DRSing them as to take away the shares from the manipulators and GS/RC is helping them know how many they have. Once the float is locked this means there technically can be no shares trading unless the price rises(technically we need to lock the entire outstanding but there is some wiggle room). This means if there is trading that the stock is being manipulated.
There are actually many people who have experienced this such as Eagletech when one guy bought the entire outstanding and the next day still had the entire stock trading like nothing happened and the price was still tanking(how when he owns all the shares? this was due to counterfeiting).
The market is a fraud. There is no mathematical strategy that can let you win. Maybe AI can figure out their schemes and learn too profit off them but all they have to do is switch them. Since they have all the info(such as when they will manipulate), are protected by the government(who is part of it), and have all the money(backed by the FEDs) they can do what they want.
The stock marketed is a rigged casino and, by extension, so is the entire world economy.
BBBY, about a week ago, was 5$... it hit 13$ yesterday, they tanked it today to 9. If you bought in BBBY knowing that it could not go much lower due to fundamentals and that they've been shorting it since 16$ you could have profited off it like I did. Also if you know that RC bought in at 15$ and bought calls at 80 for jan23 you would know that it is likely, if you trust RC, going to go past 80$ by jan23.
There is far more going on in the fraud market than just buying low and selling high. You could invest in a good company and in a day see your investment tank 50% for absolutely no reason and if you sell you lose out... else you have to wait months and hope they don't cellar box or infiltrate the company and steal your $$$.
Criminals run the fraud market. Virtually all the billionaires involved have some type of record of doing crime but are never punished. E.g., Ken Griffin who runs the market and steals trillions(he's the money man for the largest billionaires) was kicked out of China for manipulation and has been caught many times in the US but he's still allowed to process 90% of retail's orders and to do PFOF along with running hedge funds and other stuff.
GME has a tone of DD(research) on what is going on if you know where to look(I can't give a link since the comment will be deleted).
If the math is coming out identical to basic averaging is the calculation wrong or is that expected? Essentially its coming out to the same number as doing the sum value of all trades divided by the number of trades.
3:33 Which books do you recommend to learn this?
Is it only Statistics & Probabilities?
Can you talk about the non array identity of the sma? :D I programmed a simple moving average with an array abut I was reading that you don't need the array because of algebra?
Nah. the Stock market is rigged. Ask Nanci.
I am curious what your thoughts are on the future of the stock market, considering the exponential growth over the last 20 years in any typical market metric. You know how quickly exponentials can get out of control and if we keep setting company expectations based on the growth we have seen in the past then very soon it will be impossible to seem profitable when expected to grow exponentially forever into the future. This will continue to push companies to cut wages for workers and rely on bailouts and subsidies from the government IMO.
How about liquidity ?