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@ -24,7 +24,7 @@ The correct answer is that you should double your bet each time you lose. Then w
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Mathematically, we can prove that as long as you have unlimited money to bet, you are guaranteed to make money.
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Mathematically, we can prove that as long as you have unlimited money to bet, you are guaranteed to make money.
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# Applying the Martingale Strategy
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## Applying the Martingale Strategy
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But we're all realistic people, and once you start talking about "unlimited money" eyebrows should be raised. Even still, this is an interesting strategy to investigate, and I want to apply it to the stock market. As long as we can guarantee there's a single day in which the stock goes up, we should be able to make money right? The question is just how much we have to invest to guarantee this.
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But we're all realistic people, and once you start talking about "unlimited money" eyebrows should be raised. Even still, this is an interesting strategy to investigate, and I want to apply it to the stock market. As long as we can guarantee there's a single day in which the stock goes up, we should be able to make money right? The question is just how much we have to invest to guarantee this.
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@ -53,7 +53,7 @@ $$
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If you invest exactly $d_n$ that day, you'll break even. But if you can make sure the money you invest is greater than that quantity on the right <small>(which requires that you have a crystal ball tell you the stock's closing price)</small> you are **guaranteed to make money!**
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If you invest exactly $d_n$ that day, you'll break even. But if you can make sure the money you invest is greater than that quantity on the right <small>(which requires that you have a crystal ball tell you the stock's closing price)</small> you are **guaranteed to make money!**
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# Interesting Implications
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## Interesting Implications
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On a more serious note though, the formula above tells us a couple of interesting things:
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On a more serious note though, the formula above tells us a couple of interesting things:
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@ -66,7 +66,7 @@ On a more serious note though, the formula above tells us a couple of interestin
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- You invest tomorrow expecting the stock to go up 1%
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- You invest tomorrow expecting the stock to go up 1%
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- The winning investment to break even (assuming a 1% increase) is to scale back the position, since the shares you purchased at the beginning would then be profitable
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- The winning investment to break even (assuming a 1% increase) is to scale back the position, since the shares you purchased at the beginning would then be profitable
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# Running the simulation
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## Running the simulation
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So now that we've defined our investment formula,we need to tweak a couple things in order to make an investment strategy we can actually work with. There are two issues we need to address:
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So now that we've defined our investment formula,we need to tweak a couple things in order to make an investment strategy we can actually work with. There are two issues we need to address:
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@ -171,12 +171,12 @@ sim_summary(investments, profit)
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In this example, we only get up to a 1.85x leveraged position, but it takes 25 days to turn a profit of 8¢
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In this example, we only get up to a 1.85x leveraged position, but it takes 25 days to turn a profit of 8¢
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# Summary
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## Summary
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We've defined an investment strategy that can tell us how much to invest when we know what the closing position of a stock will be. We can tweak the strategy to actually make money, but plenty of work needs to be done so that we can optimize the money invested.
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We've defined an investment strategy that can tell us how much to invest when we know what the closing position of a stock will be. We can tweak the strategy to actually make money, but plenty of work needs to be done so that we can optimize the money invested.
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In the next post I'm going to post more information about some backtests and strategy tests on this strategy (unless of course this experiment actually produces a significant profit potential, and then I'm keeping it for myself).
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In the next post I'm going to post more information about some backtests and strategy tests on this strategy (unless of course this experiment actually produces a significant profit potential, and then I'm keeping it for myself).
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# Side note and disclaimer
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### Side note and disclaimer
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The claims made in this presentation about being able to guarantee making money are intended as a joke and do not constitute investment advice of any sort.
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The claims made in this presentation about being able to guarantee making money are intended as a joke and do not constitute investment advice of any sort.
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