December 26th, 2011 | 
Author: What is this software?
Going forward we will be using custom pattern searching software for creating new strategies. The software searches through thousands of potential patterns and only saves the patterns that exceed statistical thresholds. The method for finding strategies is very similar to standard neural networks except with a few custom twists.
How is a pattern found?
We feed raw indicator values and the resulting output into a “training” file. The software then constructs neural networks that “learn” the profitable patterns. For example, we may wish to find a pattern that identifies a high likelihood of being profitable 5 bars into the future. For this training file we would write the delta between today’s bar and 5 bars into the future with the corresponding raw indicator values for each entry.
The software then traverses the training file and determines the best patterns for reaching the desired outcome.
Statistical Thresholds
When searching for patterns in an automated fashion, we have to be careful not to include a pattern just because of random luck. To filter out patterns that are the result of luck, we require the pattern to exceed values on win% and/or trade expectancy. At the start of each training cycle the software traverses the training file and determines the average win% and trade expectancy for various trading frequencies as well as the corresponding standard deviation.
Using this information the software identifies which thresholds need to be exceeded to be statistically significant.
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