We have a small cause for celebration today as this will officially be post #4000 here on Evil Speculator. Which incidentally was launched all the way back in early August of 2008 – almost exactly nine years ago. It was a time of wonder back then and electricity had just been invented a few months earlier. I still remember having to take an Uber horse buggy to the evil lair in the morning, on muddy unpaved roads seamed with beggars and packs of rabid wild dogs. Trading was done by telegraph in encrypted morse code and our favorite way of shorting commodity futures was by arson of a hapless local grain farmer. Those were the days! Quite a few of you regulars from back when are [...]

It is Mario Draghi’s turn to torment market participants this morning, which means a market overview will have to wait until the wave of volatility has washed over us and hopefully left some of our open campaigns intact. In the interim I decided to channel my inner Nicholas Taleb and ruin your collective day by singlehandedly smashing what you hold most dear as traders, i.e. your perspective on how markets function and your ability to anticipate what may come next. And if you think I am joking then you are most likely doubly mistaken. Read on at your own peril:

One of my readers, let’s call him Francis, sent me an interesting email yesterday. Apparently he had been inspired by Scott’s original post on the use of scatter charts for what I call raw edge discovery (RED), for lack of a sexier term. So he proceeded to spend a significant amount of time on slinging spreadsheets in Excel, which can get quite involved and in my opinion is rather error prone as each extra condition requires the addition of at least one more column. His primary focus thus far had been mean reversion and he is now attempting to apply a similar approach to trending or momentum systems.

A few weeks ago during my trip to Tenerife Scott produced a post on testing mean reversion in the context of parsing for what I personally categorize as ‘Raw Edge Discovery’ (RED). Since I was on vacation I had very little time to contribute to the ensuing discussion but I had been planning to circle back on Scott’s post for two reasons: First I was positively surprised by the high level of interest regarding machine learning and basic system development. Secondly, although being rather comprehensive, I had felt that his post could benefit from a more in-depth explanation of the math behind scatter charts, which of course directly relates to linear regression.