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In this issue:
I. We still need your vote!
II. Holiday schedule
III. Complete your holiday shopping
V. Editorial comments from Steve Ward, CEO
VI. One way to stop this newsletter
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I. We still need your vote!
You still have a little time left to vote. We still need you to vote for us in the Technical Analysis of Stocks and Commodities magazine election. As Steve mentioned last month prospective buyers use these ratings to make their decisions. Our ability to keep bringing you great technical support and updates depends upon us continuing to make sales, so please vote now before you forget. Once more, here’s how:
Get your copy of Stocks & Commodities magazine and visit www.Traders.com. Look in the upper left hand corner of the web site for the 2005 Readers’ Choice Awards and click on the Vote Now! link.
On the page that is displayed enter your subscriber ID from your magazine address label (look at their example to see which numbers on the label are the subscriber ID). After you are logged in, look for the Artificial Intelligence Software (Expert, Neural) category on page 3. Be sure to mark you ballot for NeuroShell Trader Professional (Ward Systems Group Inc.). While you are there you can also vote for our GeneHunter product as your second choice (after all GeneHunter is the optimizer in NeuroShell Trader Pro.)
Now please go to page 2 and look for the Standalone Analytical Software, $500 and more category. Look for NeuroShell Trader there and vote.
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II. Holiday schedule
Ward Systems Group will be closed for holiday observances Friday December 24, and Friday, December 31. Please get all your software buying and questions answered before those long weekends.
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III. Complete your holiday shopping
Be sure to check out www.neuroshell.com and www.wardsystems.com until December 21 for the 12 Days of Christmas sale. Bargains range from discounts, free NeuroShell Trader add-ons, free Run-Time Servers for NeuroShell Predictor and Classifier, and a free GeneHunter. Like a light dusting of snow, the sales are only good for a single day so you need to check out the web sites daily.
We want to thank all of you for your business during 2004 and look forward to some exciting new developments in 2005!
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IV. NeuroShell Trader tip – Statistical estimation with selective indicators
Suppose you feel that some combination of events might result in a move up or down most of the time. The most obvious way to test such a theory is to crank up a trading strategy, enter the rules describing the events, and backtest. But some among you will feel more comfortable with knowing the mean and standard deviation of expected movements following such events. You’ll gain confidence knowing that 68% of the samples fell within plus or minus 1 standard deviation from the mean of such movements, and that 95% fell within plus and minus 2 standard deviations (assuming standard normal distributions, large enough sample size, etc.)
Fortunately there are two built-in indicators that can do those things for you if you have such a statistical bent. They are in the category called Selective Calculation, and they are named Selective Simple Moving Average, and Selective Standard Deviation. Here is how they work:
Example 1. You’d like to know if the S&P 500 goes up on Fridays if it went up the day before. You load up SPY and you insert the AND2 indicator from the Boolean category. Operand1 of the AND2 will be the Friday indicator. Operand2 will be the A>B indicator, where A is the one day lag of the spread between close and open – LAG(SPREAD(CLOSE,OPEN),1). B will be zero. This plots true (1.0) on all the Fridays where the day before saw a rise in price, and false (0) on all other days.
Now we are ready to insert the two selective indicators mentioned above. Both indicators will have exactly the same parameters. The Time Series parameter will be the spread between the Close and the Open. That is what we are taking the average and standard deviation of on the appropriate Fridays. The Condition parameter is just the AND2 that we built. The Periods parameter is the number of previous appropriate Fridays that we are sampling. At least 50 is probably reasonable.
Plotting the selective indicators as of November 19, 2004, we see that the mean of Friday movements as -.07, an average loss. The standard deviation, however, is .73, from which you might draw the conclusion that 68% of the past 50 movements were between 0.66 and -0.80. Maybe not the best risk!
Example 2. Your brother in law told you that you can you will get rich quick if you follow his simple plan. His plan is to take a long position for three days if SPY closes higher than yesterday, or the three day change in SPY volume is positive (rising volume). You can’t believe your brother in law could be so astute, so you decide to test his plan and prove statistically that he doesn’t know what he is talking about.
For the Condition parameter of the selective indicators, you will need an OR2 (Boolean again). Both operands of the OR2 are A>B, where B is 0 in both cases. For operand1, A is the 1 day momentum of the Close. For operand2, A is the 3 day momentum of the Volume.
The Time Series parameter of the Selective indicators needs to be the 3 day Lead of the 3 day change in Close. So you are measuring how much the SPY rises in 3 days. You discover that the average (using a sample size of 50) is about 0.28, and even higher throughout November 2004. Could your brother-in-law actually be right? The Standard deviation is 1.25, so surely he will have drawdown, but on average over time he makes some money. In fact, looking back, you see that the selective average was as high as 1.00 in 2003 and early 2004, while the standard deviation was as low as 1.00. Although he didn’t do well last summer, it looks like he made money for a year before that, and may be making money now again. Ok, so maybe he’s not so dumb after all.
Charts for Examples 1 and 2 may be found in the Tips and Techniques section of ward.net.
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V. Editorial comments from Steve Ward, CEO
A long time ago as we were designing the first version of NeuroShell Trader, one of our trader-advisors at the time suggested that we not make up any custom language for people to use to build indicators. In reference to what other popular trading software did, he said, “Why make the user learn a new, non-standard language? If we have to learn a trading language, I’d rather it be something useful elsewhere, like Basic or C or Pascal.” The obvious reference was to TradeStation’s trademarked Easy Language.
Of course, our standard “language” is not a language at all, but a point and click methodology that makes it possible for almost anybody to build fairly complex indicators, once they get used to the system. On the other hand, to make really complex indicators using iteration, multiple condition testing, variable or flag setting, etc., then you do indeed need to resort to programming. The flag indicators in Advanced Indicator Set 2 help a lot, but there are still those power users that need more.
So over 8 years later, I am still wondering how good that “use a standard language” advice was. On the pro side of making our own language, I have noticed through the years that Easy Language users do not think they have become programmers at all by learning Easy Language. Furthermore, most of our users just flatly state that don’t program and don’t intend to learn (in spite of the fact that many had some elementary course in Basic in high school or college). On top of that they are unwilling to purchase a compiler and learn it. Would we have been better off to build our own langauge so that people didn’t think they were actually programming, and be more willing to try their hand at making more complex indicators themselves?
On the con side of the issue, we could not have just copied TradeStation’s venerable language, so there would be no continuation of knowledge for previous users of that software. There would indeed be a new learning curve on our language.
Probably what we really need is Basic built-in, so the issue of building DLLs doesn’t scare people off (as it shouldn’t, because they are easier than GUI programs).
In the mean time, enter IBasic (www.pyxia.com). Some users turned me on to it, and I found it easy to use and inexpensive. You can purchase a compiler for $30 to learn with, although the $70 professional version is the one needed to interface with NeuroShell (via those scary DLLs). In fact, you can download demos of both versions and try them. We have put up an example for you on www.ward.net in the section called New and Updated Examples. Perhaps IBasic will be the vehicle that gets some of you going with respect to writing your own complicated indicators!
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VI. One way to stop this newsletter
Just change you email address and don’t tell us!
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