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Randomness, Part I - "Random" dice

This is a three part series about randomness and predictability. For CASTrader, predictability of the stock market equals alpha. Unpredictability of the stock market due to randomness means CASTrader is a wasted effort. Given how crucial the question of the predictability of the stock market is to CASTrader, I thought I’d examine randomness and it’s cousin unpredictability in detail.
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Thomas Cover's Universal Portfolio - Part II, Further Reading

In Part I, I briefly discussed Thomas Cover and the Universal Portfolio. There’s lots of detailed reading material on the Universal Portfolio Method, including in Cover’s publication list. Cover has a book on Information Theory that contains a chapter on Information Theory and the stock market (that chapter from the first edition appears to be online here). Ernest Chan provides an easy to read description.
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Dark Market Design, Part I: Overview

As mentioned in the analysis of the performance of the first incarnation of CASTrader, one of the key components of CASTrader II will be a more sophisticated dark market. This three part series will look at the basic design of the dark market and it’s external components. At left is a diagram of how the dark market will interact with other components of CASTrader.
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Thomas Cover's Universal Portfolio - Part I, Introduction

Thomas Cover’s Universal Portfolio - Part I, Introduction Another trading methodology similar to Shannon’s Method (aka Shannon’s Demon) is the Universal Portfolio method, advocated by Thomas Cover, a professor at Stanford. Interestingly, he was a Shannon Award winner (the highest award in information theory) along with Elwyn Berlekamp. Cover’s methodology is implemented by Mountain View Analytics, which he is involved with.
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Is the world running out of oil, err I mean alpha?

All About Alpha (via Abnormal Returns)has a post comparing the recent dearth of alpha in hedge funds to the now ubiquitous theory “peak oil,” asking if we have passed the “peak alpha.” Alpha Male points out that alpha is not market inefficiency but rather the result of market inefficiency. The demise of alpha would logically mean the markets are suddenly efficient.
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The Shannon Method

Welcome, readers from Trading Psychology and the Motley Fool, and thanks to Dr. Steenbarger and “bladow,” a poster on the Mechanical Investing board at the Fool for recommending this blog. I was in Montana at the time most of you arrived, but I extend a belated welcome to all of you. Also, thanks to Rod at Perfectly Reasonable Deviations for the words of encouragement on this blog.
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Trading Patterns Links

What we find is that, 40 days after we get a large number of new highs, the S&P 500 Index ($SPX) is up on average by only .32% (68 up, 68 down). That is a subnormal return when compared to the average 40-day return of 1.47% (2695 up, 1501 down) over that period.
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The Kelly Criterion

As a supplement to Part I, Part II, and Part III of the reviews of William Poundstone's book, Fortune's Formula, I thought I'd summarize the actual Kelly Formula and some Kelly Math here. As Poundstone describes, the fraction of your bankroll you should wager on any given bet in a series of bets to maximize your expected growth of capital is

Divulgação de riscos: Negociar instrumentos financeiros e/ou criptomoedas envolve riscos elevados, inclusive o risco de perder parte ou todo o valor do investimento, e pode não ser algo indicado e apropriado a todos os investidores. Os preços das criptomoedas são extremamente voláteis e podem ser afetados por fatores externos, como eventos financeiros, regulatórios ou políticos. Negociar com margem aumenta os riscos financeiros. Antes de decidir operar e negociar instrumentos financeiros ou criptomoedas, você deve se informar completamente sobre os riscos e custos associados a operações e negociações nos mercados financeiros, considerar cuidadosamente seus objetivos de investimento, nível de experiência e apetite de risco; além disso, recomenda-se procurar orientação e conselhos profissionais quando necessário.