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Statistical Forex Systems

August 6, 2008 by

Statistical Forex system is a system that relies on the information which was previously collected from the market and the amount of this information is proportional to the period of time, on which the market is analyzed. Common input parameters optimized over the period of time aren’t considered as the statistical information, thus not every optimized system or expert advisor is statistical. Statistics is collected into a special file in a format that is recognized by the system; optionally the system may update this statistics. Designing a statistical Forex system is a complex problem that involves market analysis, rules developing and real-time evaluator building.

If you want to build such trading system, you need to answer these questions first:

What period of time to use for statistics gathering? Intuition suggests that the longer the period the better will be statistics, but in fact there could be some problems if system collects the information from the time periods that due to some reasons are unrelated to the current market’s mechanics.

What information will get into statistics data? This is probably the most important question if you want to create your own statistical expert advisor. Will you record raw quotes, indicators values or some custom calculations? What indicators or calculation methods to use? What else should be recorded?

How will your system compare current market situation with the statistical data? You have some data that is associated with the rising market, some — with the falling market and the rest of your statistics is associated with the sideways market. What methods can you use to compare current market data with your statistics to make your next trading decision?

Will it learn or will it be taught? The statistical Forex system doesn’t have to collect statistics, but it may be designed to do so. This addition has its advantages and disadvantages.

How complex will it be? Statistical Forex EA can be a very simple program, but it can be also developed as a powerful analyzing and comparing program. It can be capable of recognizing not only price action patterns, but also correlation with the days of the week and the trading hours, as well as look into the past to see the start of the trend or the previous price patterns.

MT4 expert advisor built as statistical Forex system can be very profitable, but its creation is not a trivial task. I’ll try to elaborate more on these questions and the details of their solutions in the next posts.

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