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How to Apply Hmm to Built a Trend Indicator
Durden Posted 18 Aug. in #Forex #Research #Trend #Finance #Cycles #Math #Stochastic Processes #Hidden Markov16/21
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Introduction I start to be interested at Forex during my PhD thesis when I read with interest some old papers about Hidden Markov Processes in Economy. As part of the thesis I decided to investigated if it was possible to apply this methodology utilized in areas like speech recognition, Macroeconomy, Physics in the FX market .I found some good articles like Stylized facts of financial time series and hidden semi-Markov models written by Bulla. But the objective was to create a HMM model that outperforms simple technical indicators.So I start to built my own HMM model, I ask to Andrea Procaccini a funny and great Matlab programmer to cooperate to do something that could have interest also out of the University walls. Cyclex We call Cyclex the model investigated. I would try to explain with no mathematical formulas some of our results.Cyclex is an exchange rate forecasting model that outperforms a random walk at short horizons and appears to be robust and efficient over different sample spans. So an easy way to translate could be THE MODEL IT IS BETTER THAN TO FLIP A COIN AND DECIDE. Later we would try to answer to the questions How better is our model compared with the flip of a coi…
