This patent application has not been assigned to a company or institution.
The following quote was obtained by the news editors from the background information supplied by the inventors: "In the financial markets, prices of securities fluctuate randomly. For example, stock prices generally fluctuate randomly with approximately equal chances of increasing and decreasing in value most of the time so that future prices cannot be exactly predicted. As a result, it is extremely difficult for an investor to make profit by trading.
"Efficient Market Hypothesis is a well-known theory in finance. It asserts that securities prices are always fair and reflect all known information about their economic prospects. The theory concludes that it is impossible for any investor to reliably and consistently outperform the market except by luck.
"However, many financial professionals believe that the markets are not perfectly efficient. Securities prices may occasionally deviate from their fair values. Greed and fear of investors may cause such a market condition. Many investors thus utilize various techniques to search for price moving direction or undervalued and overvalued securities in order to make profits from what they believe are temporary deviations from their fair prices. The interest and importance of making profit in finance are so great that it requires no further emphasis.
"Probability is an abstract mathematical concept that is used to define a chance that an uncertain event will happen. Probability Theory and Statistics has been used pervasively in natural sciences and engineering. Probability or probability distribution can be estimated by counting relative frequencies observed. Thus, the observed frequency distribution can be utilized to make prediction about the frequency distribution of the future results based on the past occurrences. Such an objective interpretation of probability has a wide variety of practical applications that result in valuable and useful predictions.
"From a point view of Probability Theory, results of a trading system may be considered as a random variable because of its uncertainty in nature. A trading system is a predetermined trading method consisting of a set of rules that clearly define entry and exist of a trading position. Trading results can be thus characterized in terms of probability, including sample average, sample standard deviation, as well as frequency distribution.
"This invention will make use of objectively estimated probability to make prediction about the future performance. It provides a method for investors to make positive net profits statistically. The phrase of 'to make positive net profits statistically' used here means that, after a sufficiently large number of trades, the total gains are significantly greater than the total losses."
In addition to the background information obtained for this patent application, VerticalNews journalists also obtained the inventors' summary information for this patent application: "The present invention provides an investment method and a system for achieving positive net profits after a sufficiently large number of trades. The method may use one or more trading systems, and begins with evaluating each of these trading systems. Based on past occurrences, average and variability of individual trading profits, and profit frequency distribution are calculated. Expected cumulative profits, cumulative variability, and cumulative profit frequency distributions of the trading system are then estimated from their individual counterparts. To ensure that positive net profits can be achieved, a high probability confidence level is specified. At the specified confidence level, a lower limit of cumulative profit is estimated. An expected performance map is then constructed with the expected cumulative profit and lower profit limit plots. When the expected average profit is positive, the expected cumulative profits will continuously increase. After sufficient trades, the lower profit limit will also increase and eventually become positive and beyond zero. As a result, a positive net profit can be achieved with high probability, while risk is limited by the lower limit of cumulative profit. Thus risk occurs at a low probability.
DESCRIPTION OF THE SEVERAL VIEWS OF THE DRAWING
"FIG. 1 shows a flow chart diagram of the method that implements the present invention.
"FIG. 2 shows the prices of e-mini S&P-500 future contract of 2007 4.sup.th Quarter expiration.
"FIG. 3 shows the prices of e-mini Nasdaq-100 future contract of 2007 4.sup.th Quarter expiration.
"FIG. 4 shows the profit frequency distributions of the individual and composite trading systems.
"FIG. 5 shows the expected performance map by using a trading system.
"FIG. 6 shows the expected performance map by using a composite trading system.
"FIG. 7 shows the cumulative profit frequency distributions that are calculated by the convolution from the profit frequency distribution of a single trade."
URL and more information on this patent application, see: Wang, Chuan; Wang,
Keywords for this news article include: Patents.
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