An algorithm to exploit market inefficiency
Wednesday, November 5th, 2008An algorithm to exploit market inefficiency
by Charles Watson
2-3 pm, Friday 14th November. MC206, C26, UNE
Abstract
This talk describes an automated trading algorithm using a set of basis functions formed by the difference of exponentially weighted means. An exponentially weighted variance is used to continuously measure market volatility and avoids the”ballooning” of Bollinger bands at the start of a trend. These functions scale with time to embrace the fractal self-similarity of markets which tend to trend then retrace. The algorithm signals the start and finish of trends and executes faster and more accurately than a human traders, thereby providing market liquidity, minimal volatility and market efficiency while extracting surplus equity.