Trading carries a high level of risk, and may not be suitable for all investors. You should never invest money that you cannot afford to lose.
Monday, 3 June 2019
Wednesday, 13 March 2019
Contrasting Models of Finance
Contrasting Models of Finance: Efficient Market Hypothesis vs. Socionomic Theory of Finance
Source: https://www.socionomics.net/2012/06/contrastingmodelsoffinance/
Efficient Market Hypothesis (EMH)

Socionomic Theory of Finance (STF)


1. Objective, conscious, rational decisions to maximize utility determine financial values  1. Subjective, unconscious, prerational impulses to herd determine financial values 
2. Financial markets tend toward equilibrum and revert to the mean  2. Financial markets are dynamic and do not revert to anything 
3. Investors in financial markets typically use information to reason  3. Investors in financial markets typically use information to rationalize emotional imperatives. 
4. Investors' decisions are based on knowledge and certainty  4. Investors decisions are fraught with ignorance and uncertainty 
5. Exogenous variables determine most investment decisions  5. Endogenous social processes determine most investment decisions 
6. Financial prices derive from individual decisions about value  6. Financial prices derive from trends in social mood 
7. Financial prices are random  7. Financial prices adhere to an organizing principle at the aggregate level 
Source: https://www.socionomics.net/2012/06/contrastingmodelsoffinance/
Friday, 4 January 2019
Tuesday, 4 December 2018
Strategy testing
 Profit factor
 Sharpe Ratio
 Ulcer Performance Index
 Compound Annual Growth Rate
 Maximum Drawdown
 Percent Profitable Trades
 Average Win to Average Loss Ratio
 Equity
2. Sharpe ratio
Sharpe ratio is the measure of riskadjusted return of a financial portfolio. A portfolio with a higher Sharpe ratio is considered superior relative to its peers.
The Sharpe ratio is a ratio of return versus risk. The formula is:
The riskfree* rate of return
SD = the portfolio's standard deviation, a measure of risk
* Note that "sharpe ratio" is considering the volatility type of risk, ignoring that treasury notes are not really riskfree but involving other types of risks (inflation, interest rate risk, opportunity costs, etc)
Use Python to calculate the Sharpe ratio for a portfolio
 Sharpe Ratio = (Total return  Riskfree return) / SD
The riskfree* rate of return
SD = the portfolio's standard deviation, a measure of risk
* Note that "sharpe ratio" is considering the volatility type of risk, ignoring that treasury notes are not really riskfree but involving other types of risks (inflation, interest rate risk, opportunity costs, etc)
Use Python to calculate the Sharpe ratio for a portfolio
Realised historical return is used to calculate expost Sharpe ratio while exante Sharpe ratio employs expected return.
3. Ulcer Index & Ulcer Performance Index
Ulcer index is designed as a measure of volatility, but only volatility in the downward direction, i.e. the amount of drawdown or retracement occurring over a period.
Other volatility measures like standard deviation treat up and down movement equally, but a trader doesn't mind upward movement.
Flirting with Models: Looking into the Ulcer Index
Loss at a single point in time (max drawdown) is far less important than how a strategy manages losses over time (UPI).
http://www.tangotools.com/ui/ui.htm
The Ulcer Performance Index (known also as Martin Index) is calculated as follows:
Flirting with Models: Looking into the Ulcer Index
Loss at a single point in time (max drawdown) is far less important than how a strategy manages losses over time (UPI).
http://www.tangotools.com/ui/ui.htm
The Ulcer Performance Index (known also as Martin Index) is calculated as follows:
 SumSq = 0
MaxValue = 0
for T = 1 to NumOfPeriods do
 if Value[T] > MaxValue then MaxValue = Value[T]
else SumSq = SumSq + sqr(100 * ((Value[T] / MaxValue)  1))
 UPI = (Total return  Riskfree return) / UI
Saturday, 24 November 2018
Friday, 23 November 2018
Skin in the Game
Incerto is a four book bundle written by Nassim Nicholas Taleb
 Antifragile
 The Black Swan
 Fooled by Randomness
 The Bed of Procustes
Nassim Nicholas Taleb's landmark Incerto series is an investigation of luck, uncertainty, probability, opacity, human error, risk, disorder, and decisionmaking in a world we don’t understand.
Wednesday, 17 October 2018
Subscribe to:
Posts (Atom)
Trading carries a high level of risk, and may not be suitable for all investors. You should never invest money that you cannot afford to lose.
Postări populare

Profit factor Sharpe Ratio Ulcer Performance Index Compound Annual Growth Rate Maximum Drawdown Percent Profitable Trades Average Wi...

Contrasting Models of Finance: Efficient Market Hypothesis vs. Socionomic Theory of Finance Efficient Market Hypothesis (EMH) S...

After CNBC published an article about Bitcoin mining risks in Venezuela, now it is Investopedia's turn to talk about some rumors about &...

Incerto is a four book bundle written by Nassim Nicholas Taleb Antifragile The Black Swan Fooled by Randomness The Bed of P...

TensorFlow Tutorial  Importing Data TensorFlow Tutorial  Opening a Jupyter Notebook TensorFlow Tutorial  Running the Neural Network R...

Vitalik Unveils Ethereum 2.0 Roadmap

Bitcoin (BTCUSD) rally continues with support near 3200$/XBT tested Thursday 14 September 2017.