I. How to keep receiving this newsletter
It’s really simple: just tell us when your email address changes! If you like this newsletter, remember to call or email to tell us if you change your email address. Otherwise, you’ll stop hearing from us.
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II. Football betting
Ward Systems Group does not encourage anyone to gamble. Having said that, we know that many of our customers are using our software for football betting (pro in the US and soccer overseas). This is the story of one such user. His name is Paul Smith, and he has been betting on pro football for about 20 years now. What we hope impresses you about Paul Smith is that the only winning season he has had in that 20 years is the current one, during which he has used the NeuroShell Predictor to get his picks.
Paul is retired from the aviation industry, and although he likes numbers, he stresses that he is no mathematical genius and even flunked algebra in high school. He has never had a statistics course and took only business math in college.
Paul is not a total stranger to neural nets, having used NeuroShell 2 to bet on trotters and pacers a few years ago. Although he made a little money at that, he lost interest because the payoff is so low on trotters and pacers.
So when he called last year to upgrade his NeuroShell 2, we suggested he consider buying the NeuroShell Predictor as well. He did, and now he thanks us regularly for the suggestion. Halfway through the season Paul gave us this report, which we placed in the User Comments section of our website:
“I use your software to bet on pro football games. I get 74% winners on a base of 139 games using the NeuroShell Predictor. I just use 5 factors and play 5-7 games a week. I think the software is fantastic.”
The other day we heard from Paul again. He is now hitting 80% on the “under and over” games, making 4 to 5 plays per week. He is winning about two-thirds of his “parlay tickets.” One week he got 9 out of 10 correct on the parlay ticket (he only lost a “push”). We aren’t sure what all that means, but we know that Paul is very happy about it!
Paul’s inputs aren’t rocket science, but they are well thought out. He takes care to make sure that his numbers make sense. For example, he codes the variables so that they aren’t unreasonable at the beginning of the season when few games have been played, and he doesn’t bet until he has enough data. He also eliminates games which seem unreasonable in terms of winners or scoring. We told Paul that the terms “normalizing” and “eliminating outliers” are close statistical terms for what he is doing.
We were so impressed several months ago with Paul’s method of coding variables that we changed our tip called “Sports Prediction Using the NeuroShell Predictor” and “Sports Prediction Using the NeuroShell Classifier” on www.ward.net to reflect what he does. Log in with your Predictor or Classifier serial number to read it. Yes, we can always learn a thing or two from our users!
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III. Important NeuroShell Trader Rel. 3.2 changes
This release, which we said was coming soon last month, is still coming “soon”. Well, you know how software development goes. You keep finding bugs and you keep fixing them. We aren’t like some major software companies who release software on a certain date to keep face, knowing that there are hundreds of bugs in it. We try to get all of our bugs out before we release.
One of our big problems has been that we have not been able to get a stable interface to the Omega Research TradeStation 2000i Global Server for the DayTrader. There remain a few occasional unexplained crashes in the Global Server when reading intraday data. We have decided therefore, with great reluctance, to release WITHOUT the Global Server intraday interface (officially). Since many of our existing DayTrader users and beta testers are depending on this interface, we WILL make it available to you (unofficially and unsupported) with the understanding that you may have problems we have not been able to fix. However, we will not be advertising it as a feature for new users. When this release is available, information on how to access the unsupported Global Server intraday interface will be available on www.ward.net.
There is no problem with the Global Server interface for daily bars. In fact, this release eliminates the necessity of mapping TradeStation directories.
Will we keep trying to fix Global Server intraday problems? We have invested many, many programmer months into trying to make this work, but we aren’t sure we can bypass problems we feel are in the Global Server. Frankly, we believe that what needs to be fixed is beyond our control. Since Omega Research has been putting their resources towards TradeStation Pro instead of the Global Server, we are forced to do the same (see the last article in this newsletter).
Other changes include more control over the Quote.com data feed, the capability of changing chart frequency without redoing your chart, and the addition of analysis templates that allow you to apply a pre-saved analysis/chart layout to a new chart. This version also now works with Asian versions of Microsoft Windows.
The new release also contains a number of other improvements, such as allowing you to export a separate data file for each chart page in one step, and more objective functions for optimizations. Also, there is the addition of commissions, slippage, and number of shares to trade to the prediction wizard. Finally, we have added the ability to reconstruct a custom indicator back into the original indicator structure before it was saved.
Release 3.2 is for all versions of the Trader (Trader, Trader Pro, and DayTrader). When it is available, you will be able to download it free from www.ward.net. If you wish, you can order a new set of CDs for $30 plus shipping and handling, but we cannot take orders for the CDs until release 3.2 is actually shipping. When it is available, it will be announced on www.ward.net.
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IV. Live from the forum
If you have been participating in our Trader Discussion Forum on www.ward.net recently, you have seen traders like you discussing:
a. what e-minis are and how to get them from Quote.com
b. trading UK Markets or other non US/Canadian Markets
c. automated trading using the DataX Add-on
d. when a model is good enough to trade
e. what led one user to profitable systems
f. user experience with the Cluster Indicators
These and other threads are still on the Trader Forum if you are interested. The Forum becomes more and more useful as more of you participate. Please note that everyone can participate in SOME way, and you don’t have to use your real name unless you want to. Although a registered user of any of our products can “lurk” there, you do have to be a registered Trader user to add comments to the Trader Forum. Because of this, you can be assured that you are communicating with a limited, select community, an assurance you don’t have in other forums or chat rooms on the web, where you could be talking to anybody!
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V. Trader tips.
The following was published in the December issue of Technical Analysis of Stocks and Commodities magazine:
Simulating Human Pattern Recognition WITHOUT Neural Networks
Many expert technical traders make position decisions based upon trend lines placed through recent segments of the price curve. For many experienced traders, these trend lines don’t even need to be drawn; the human brain is capable of superimposing imaginary trend lines through price curves, and then subconsciously comparing these trend lines to trend lines from previous situations.
Those of us who are not expert technical traders lack the years of experience watching price movements. Our brains are not capable of placing these trend lines in the proper positions of the price curve, and our brains have a limited database of previous trend line patterns with which to compare. However, some simple regression indicators combined with a powerful genetic algorithm optimizer can do the job for us.
The NeuroShell DayTrader contains several types of linear regression indicators. They are capable of placing imaginary line segments through various parts of a price curve, and then reporting the slopes (angles) of these lines. A particular set of angles forms a pattern which can then be compared to future patterns to make trading decisions.
But where should trend lines be placed and how long should they be? Genetic algorithms are great for figuring that out because of their ability to simultaneously optimize many variables. In our pattern recognition task, we’d like to find the optimal:
1. number of trend lines to place on recent data,
2. lengths of the trend lines in bars,
3. time in bars back from the current bar at which each trend line begins, and
4. the angles of the trend lines
all based upon maximizing profit or any one of a number of other objective functions.
In the NeuroShell DayTrader we loaded a DELL chart using 30-minute bars. We then inserted a trading strategy with a number of long entry rules which, in plain English, were:
“Buy long when the slope of a line of length x, placed y bars back, exceeds angle z”
The genetic algorithm was instructed to find the proper number of these rules which should be true before a long order is placed, as well as the optimal settings for x, y, and z of each rule. Note that it is possible and even desirable that trend lines overlap.
The genetic algorithm was also given a set of short entry rules, which were optimized with the long entry rules to create a total “reversal” trading strategy that was optimal for an issue over a given period of time. The short rules looked for slopes below a particular angle.
Appropriately, the NeuroShell DayTrader is set up to optimize over an earlier “in-sample” period and then back-test over a later “out-of-sample” period. We compared both the in sample optimization period results and the out-of-sample back-test period results with the results from a “buy and hold” strategy.
Interestingly, the pattern recognition strategy correctly anticipated the sudden earnings related drop in DELL stock between October 4th and 5th and went short October 4th.
In this trading strategy, we utilized only traditional indicator threshold rules. We did NOT use a neural network, although we often do feed similar optimized regression slopes into neural networks in the NeuroShell DayTrader in order to make trading strategies from neural predictions. We always make use of the NeuroShell DayTrader’s ability to do “walk forward” out-of-sample testing, giving us a reasonable indication that the model can generalize into the future.
For more variety, we might have also added some under threshold rules to the long entry rule set, and some over threshold rules to the short entry rule set. Another interesting variation on the use of regression slopes is insisting that slope angles not only be over or under thresholds, but between thresholds as well.
NeuroShell DayTrader users may download the chart in which we built and optimized this strategy from our Advanced User’s Technical Support website www.ward.net. Users of the NeuroShell Trader Professional may build similar strategies using daily bars.
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VI. Support Plans for TradeStation Pro
We plan to support the new TradeStation Pro (TS Pro) as fully as we can in the NeuroShell Trader series (NST). At this point, TradeStation Group, Inc. (a.k.a. Omega Research) has not released to us the developer’s details on interfacing with their internet data feed. However, our current end of day interface with TradeStation 2000, which moves data streams from TS charts to NST chart and back, still works with TS Pro. As soon as we learn how to access TS Pro’s data feed, we’ll try to implement that access into NST also. Hopefully, access will include intraday as well as end-of-day data for you DayTrader users.
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VII. Dr. Martin Luther King Holiday
Dr. Martin Luther King’s birthday Monday, January 15 is a national holiday in the USA. Ward Systems Group, Inc. will be closed that day, and emails received after noon today will not be answered until Tuesday, January 16.
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