Number Crunching After Capturing and Sorting.

[ruthlessimon]

I'm starting to take that information and do something with it that hopefully nobody else is.

I've gotta try & find the vid, but I did note down the trader's exact words:

"The edge we have, & the reason I've been trading 30 yrs, is because everybody else thinks they know what they're doing"

It's a bold statement - but I think certainly can't be ruled out for explaining why some edges simply don't erode (although it's a bit of a paradox!!)

[foxwood]

Linus gave you a practical example of how he identifies and explores a strategy based on analysis of the data.

Have you tried doing something similar and put money in the market to understand how theory and reality sometimes blend and other times conflict ?

Do that, then analyse the results and think about why some worked and others didn't.

Either then adjust and try again with a modified version or abandon that idea and move on to the next one.

Simples - perpetual rinse and repeat of ideas.

[ruthlessimon]

Absolutely yus, I'll keep ya posted as the days go by - hopefully, it'll serve as a great case study for all

[ruthlessimon]

Anyone remember doing transformations in maths??

90degree rotation?

[ruthlessimon]

I think incorporating volume into any strategy is absolutely worth doing - the problem is - when we do - it becomes almost a multidimensional problem.

For example, how do we define "low volume". Here are a couple of factors I can think of:

1. Low volume in winter, is different to low volume in summer
2. Low volume @ 5mins, is different to low volume @ 1mins
3. Low volume @ 1.50, is different to low volume @ 15
4. Low volume @ Lingers, is different to low volume @ Chelt
5. Does low lay volume, behave differently to low back volume

What an effin nightmare

A traditional hypothesis would be low volume suggests lack of conviction - suggesting a propensity for mean-reversion - problem is my gut says it's not quite that straightforward when it comes to pre-race (i.e. that would bias mean-reversion to occurring before the liveshow - considering volume is far lower hrs prior)

Perhaps the best way to gauge the importance of each variable - is to simply build a strategy around each concept (i.e. backfitted to time, backfitted to course, backfitted to price), then see how they compare over a week/month of forward trading

[ruthlessimon]

Here's my first backfit of "expected" volume @ 5mins (fav only).



Exponential(ish), but highlights a £1000 stake @ 10, is gonna have a much larger impact than in the 1.xx region

It's slightly tricky to know the optimal points to slice the data. An optimal figure for each price seems OTT, but groupings will lead to the strategy being misfit at the edges

[CallumPerry]

That last graph is really interesting, will sleep on what conclusions to draw from it in the morning. I agree that volume should DEFINITELY be considered. Maybe break it down to each sort of race on each course and look at the rate of money hitting the market. Could be a very useful indicator to include amongst others. If X, Y and Z are doing this and volume is high for 2 minutes out on a so so course in Wolverhampton in September then it shows signs of strength.

[ShaunWhite]

a £1000 stake @ 10, is gonna have a much larger impact than in the 1.xx region.

I guess you didn't read my pm where I mentioned the idea of implied volume (prob not its real name, I made it up). That, or similar will remove that distortion.

I don't think low volume means lack of conviction. I think it just means there's so much racing that your average hard up punter can't afford to be spunking money on 150 races a week and picks what's decent to be interested in.

Take footy. Is there less 'conviction' in the outcome of a Vanerama match than a Premiership one? Where's the volume go? Gambling is a light entertainment industry, punters expect some entertainment. They don't make money from it so what's their motivation? What they do is add a little extra spice to something they already enjoy. Having £200 on a crap race is like rolling a turd in glitter, it's still just a turd. But put £200 on the group 1 race and it's a much more appealing package.

You seem to be posting a lot of positive edge charts lately. Are you sure they're all take strategies? I wouldn't trust anything in excel that needed offers.

[ruthlessimon]

I agree that volume should DEFINITELY be considered. Maybe break it down to each sort of race on each course and look at the rate of money hitting the market. Could be a very useful indicator to include amongst others.

Certainly but the following table highlights the issue of ordering by race type:



Before I even test it, I can predict right now: -

Hcap favs will have done less volume than Nov Stks faves @ 5mins.

Not via magic; but simply because Nov Stks generally have a short fav

& again race course will be biased depending on how many shorties there are. Therefore I'll make a 2nd prediction: -

There will be a correlation between course volume @ 5mins & the average price of the fav @ 5mins

[ShaunWhite]

Here's one your spreadsheet won't like..... Volume is subjective.

It's at the mercy of the weather, clashing events, prevailing economic confidence, time of the day or year, price of the favourite etc. And maybe a small amount of confidence in a given horse. But how that relates to predicting a market move other than the obvious likely increased volatility, is speculation from what I can see.

[ShaunWhite]

There will be a correlation between course volume @ 5mins & the average price of the fav @ 5mins

Probably yes, but that's mathematically inevitable. Rather than look at traded volume, look at traded liability (aka implied volume) and I'd guess it correlates with race quality more closely than price. It's simply not logical to compare the vol on a 1.5 horse to a 5.0.

[Euler]

Volume is dictated by many things but ultimately the price of the favourite is a key factor. The smaller the price the more money it will attract.

[jimibt]

There will be a correlation between course volume @ 5mins & the average price of the fav @ 5mins

Probably yes, but that's mathematically inevitable. Rather than look at traded volume, look at traded liability (aka implied volume) and I'd guess it correlates with race quality more closely than price. It's simply not logical to compare the vol on a 1.5 horse to a 5.0.

when i went down this route (which simon will recall from 15-18 months ago), it was an interesting time. the combo of vwap/ltp seemed to work REALLY well. UNTIL - we had a scatty runner that threw the rider or a crisp packet blew across the stalls! (strange but true). Due to this, I now have doubts that you can trade via signals (pre race) without a major caveat. IF (big IF), one were able to seperately detect a huge odds spike (due to crisp bags etc), and smoothe it out (based on current liability), then maybe you would be able to crunch beyond mishap.

at present, i'm of the opinion that unforeseen elements are just too difficult to deal with. this almost squares with an old observation that the best risk/reward ratio lies outside the *golden* 5 minute pre window.

disclaimer - i no longer trade pre on automation (at present) due to the scenarios that can occur out of kilter pre race...

[edit] - agree that there's a golden MEAN when we reach anything below 2.0 odds !! (tho - can go one way or the other)... Fractals anyone??

[ruthlessimon]

I guess you didn't read my pm where I mentioned the idea of implied volume (prob not its real name, I made it up). That, or similar will remove that distortion.

Yeah I musta missed that

I don't think low volume means lack of conviction. I think it just means there's so much racing that your average hard up punter can't afford to be spunking money on 150 races a week and picks what's decent to be interested in.

I'd be interested to know if that's a hunch, or a conclusion to a test you've already performed

You seem to be posting a lot of positive edge charts lately. Are you sure they're all take strategies? I wouldn't trust anything in excel that needed offers.

I could easily add a "handicap" to any strategy - in order to underestimate the profitability (probably worth doing i.e. -2 ticks). But my aim is to discover "general concepts" rather than tick perfect edges.

i.e. Is race type useful, - to which the above graph proves yes. (haps vs nov stks).

But also seeing concepts perfectly mirrored i.e.



Clearly even if I miss a tick entering & exiting, there's a bias which is linking novices & mdns

[ruthlessimon]

Volume

It's at the mercy of....

This is my whole overarching point. Crossing that barrier to profitability is tiny. But becoming a "big trader" means we have to answer those questions (i.e. volume varies during the yr, the volume is different on Sat)

.. which is why Peter/most top traders adjust their strats during a Saturday to account for the volume "spurts"

But also that's a refinement that could easily be tested (how does this strategy perform @ Saturdays vs Weekdays)

-Basically.. what I'm tryin to say. It's vital we don't jump to conclusions when asking the hard questions. & these are bloody hard questions! (i.e. does love volume promote mean-reverting activity)