In this issue:
I. Live from the Forum
II. NeuroShell Trader tips
III. Exclusive Sale for NeuroShell Trader Users: Free add-ons
IV. Editorial Comment by Steve Ward, CEO
V. One way to stop this newsletter
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I. Live from the Forum
The following discourse from our trading forum should not only be of interest to our NeuroShell Trader users, but for our scientific and business users as well. Consensus techniques are equally applicable to general purpose modeling.
Q. From User MC
For my part I offer that I have almost always been able to improve decent but not great systems by averaging them. There is an indicator that shows the trading signal of 1 or 0 or -1. If I average these I get a signal that almost invariably is better than any of the individual parts. I do not know why this is, but it works for nets and rule systems. I always use an odd number from 3 to 11. Maybe someone can explain why this works.
A. From Steve Ward
It is easier to prove if you think of your models at any time as being either right or wrong, as say in a reversal strategy where you are either long or short. Let’s say you have three models (A, B, and C) and each one has a probability of 0.6 of being correct at any given time. In other words, the models are 60% right. To figure the probability that the average (which is the consensus) is right, think of it this way. The average is right if 2 or 3 of the 3 are right. Now,
probability of A right, B right, C wrong = 0.6 x 0.6 x 0.4 = 0.144
probability of A right, B wrong, C right = 0.6 x 0.4 x 0.6 = 0.144
probability of A wrong, B right, C right = 0.4 x 0.6 x 0.6 = 0.144
probability of A right, B right, C right = 0.6 x 0.6 x 0.6 = 0.216
The sum of the probabilities is 0.648 so the average will be right about 64.8% of the time.
If you assume the models are 55% right, the average of the 3 is 57.475% right.
You can simulate this in an Excel spreadsheet and the numbers should come out pretty close.
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II. NeuroShell Trader tips
1. How to access the active (red) bar being formed
We are often asked “How can I access the active (red) bar being formed.” The answer is that the lead indicator will access that bar, because it is really a future bar. You have to use the chart recalculate feature before the lead indicator will work, however. Also you won’t get new values as they change until you recalculate again. Right click on the chart to bring up a menu with “recalculate chart” on it.
We’re not even sure of all the uses of this new 5.0 feature yet. Here are two:
Suppose you make a daily chart which fires a signal at the end of the day, and it is based on closing price. You realize you can’t fill a trade based upon that signal until the next morning’s open. Then you wonder, “Wouldn’t my prediction work better if it used tomorrow’s open instead of today’s close?” To backtest that idea, you stick in a Lead(Open,1) into the strategy to replace Close. But when you go to trade the strategy you remember that the Lead won’t work at the open, because the red daily bar has just started to form. That is why we built Recalculate Chart, which you will see if you right click on a blank part of the chart. As soon as you recalculate, the model fires, and the Lead works on the red bar, giving your model the open value. Thus you can get your signal at the open.
There are many of you who want to fire your model at 3:55 PM EST, just before the Close. Recalculate will do that for you too – just use Lead(Close,1) instead of Close. Of course during backtesting, you’ll use Close instead of Lead(Close,1).
2. A good way to trade Eminis
Since Eminis are futures, you will usually want some kind of continuous data contract to build models with them, especially if you are using 5 minute or larger bars, but surely if you are using daily bars. However, we build Emini models ourselves with what we believe is a much better technique. We use the appropriate ETF data as a proxy for the Emini data. For example, SPY for ES, QQQQ for NQ, DIA for YM. The futures contract has more noise than the ETF, we believe, and you don’t have to worry about pasting contracts together. You get a signal on the ETF, and you place your bet on whatever Emini contract is current.
If you are dealing with daily bars, you can get free data from the Internet, using the data downloader you will find on www.ward.net. Look in the section called “NeuroShell Trader Release News, Upgrade Information and Beta Tests”. In fact, our MarketTilt models use this concept (see Steve Ward’s editorial).
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III. Exclusive Sale for NeuroShell Trader Users: Free add-ons
The subject exclusive sale is over but there have been some complaints that people didn’t get the email or were on vacation and would have participated. Therefore, we are opening it up again but only through September 30. Remember this sale is not advertised on our website because it is only for existing users. Here are the original details:
As a way of thanking our customers for their support, we’re announcing a buy two, get one free NeuroShell Trader add-on sale. That’s a $299 value. The offer includes the following add-ons developed by Ward Systems Group:
Adaptive Net Indicators – neural nets especially adapted to pattern recognition, some of which automatically include lags of inputs. Useful for building your own adaptive moving averages.
Adaptive Turboprop 2 – like the neural nets in the Prediction Wizard, but they operate like an indicator and automatically retrain themselves. You can optimize training set size, walkforward interval, number of hidden neurons, and even the lookahead period.
Neural Indicators – classification neural nets that give you the probability that the current situation is a buy or sell opportunity. These nets don’t predict any price, they give you a direct signal probability. Some of them are “recurrent nets” that automatically look back in time.
Advanced Indicator Set 1 – a set of indicators that users requested including chaos indicators, an indicator that gives the phase of the moon, and curvefitting trendline indicators.
Advanced Indicator Set 2 – our second set of users requested indicators including indicators by Marc Chaikin and J. Welles Wilder, Redundant Haar Wavelets, Flag Indicators, Bar/Condition Count Indicators, and other Miscellaneous Indicators
Cluster Indicators – like the neural indicators, these give a buy or sell signal (the probability that your issue is a buy or sell opportunity), but they work by clustering instead of using a neural net.
Fuzzy Pattern Recognizer – Lets you describe patterns in which you are interested, and then tells you when these patterns appear. Uses fuzzy logic to find the patterns, so it can tell you when a pattern is “like” the one you are seeking.
Turning Points – a set of indicators based on the concept of finding local peaks and valleys in a price series.
Fuzzy Sets – With Fuzzy Sets the user can instruct NeuroShell with functions equivalent to fuzzy statements like: “Buy when the Stochastic %K indicator is very high, and the Commodity Channel Index is high, and the spread between two moving averages is low.”
Pattern Matcher – a set of indicators based on the concept of finding patterns, past or present, in a time series, and the subsequent activity that occurred after it.
If you’re a Ward Systems Group VIP customer, the deal is even sweeter: buy two of the above at FULL price, get two Ward Systems Group add-ons free. How do you know if you’re a VIP? If you’ve spent more than $4000 on our software, you’ve made it as a VIP. If you’re not sure, give us a call at 301 662 7950.
For those who have purchased one or more of the above add-ons at FULL price on or after September 1, 2006, we will even let you in on the deal. If you purchased one at FULL price, then just purchase one more and get one FREE. If you purchased two at FULL price, then we will send you a FREE add-on. If you purchased one with a discounted price, pay back the discount and purchase one more at FULL price to get another one FREE.
For our business, scientific and academic users (and Trader users who want to experiment with our other products), we are offering a sweet deal of 25% off of the list prices of the following FULL version purchases:
– AI Trilogy
– GeneHunter
– NeuroShell 2
– NeuroShell Classifier
– NeuroShell Predictor
– NeuroShell Run-time Server
Offers may not be combined with any other offer and may not be applied to previous purchases except those outlined above. Offer only includes products specifically mentioned. Discounts apply only to the list price of the product and do not apply to shipping/handling. Dealers and resellers are not eligible for these offers. Sale prices will not be shown on ordering forms. Discount will be applied prior to processing your method of payment.
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IV. Editorial Comment by Steve Ward, CEO
One night I couldn’t sleep so I turned on TV as I often do if sleep eludes me. Of course there were the usual “Girls gone wild” and “You can make millions on real estate” commercials, but as I flipped the channels I came across a very convincing commercial on how anyone can make money trading Forex. It was simple, they said, just watch our signal and buy when the green line crosses above the red line, and sell when the opposite occurs. My goodness, could they really be selling a moving average crossover system? Checking the website the next day it was unclear what this thing costs, because they want you to come to a seminar, where it is easy to get talked into buying. Somehow I remember I figured out that the purchase price was over $3600. Maybe we’re in the wrong business?
It reminded me that there are some people selling systems that they call “neural” which suspiciously look like moving average crossover systems. Not that you can’t make money with them when markets are trending. But the huge amount these things go for, and with no 30 day return policy, makes me realize why so many prospects we talk to are suspicious of software. At least it makes our NeuroShell Trader Professional look very inexpensive at $1495 with a 30 day return and our extremely liberal tech support. If you don’t want to spend the time making your own custom models, subscribe to our MarketTilt(TM) turnkey model service that new users can experience. We’ll give you a free 15 day trial.
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V. One way to stop this newsletter from coming
It is really easy. Just change your email address and don’t tell us.
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