I would not be surprised if there is a large difference in the "who is sitting where".. in other words, the added depth may just be exposing different traders, and you may now be getting more or less noise, depending on your trading "style".
On Fri, Jul 10, 2009 at 8:06 AM, nonlinear5 <[email protected]>wrote: > > > While using 10-level deep data will give different backtesting results > > (obviously), it should *not* be too much different if we apply the > > right transformation. If all is well, having more samples for the > > depth should just reduce the variability of the our estimate for > > supply--demand, which 'should' translate into a reduced variability of > > a trading strategy (although some strategies are hyper-sensitive to > > even tiny fluctuations, but these ones are probably not worth trading > > anyway). > > > > Right now, we track a normalized difference between the bid and ask > > depths. If we have a depth of N, all we need to do is find the best > > scaling factor that keeps our estimate approximately the same as a > > function of N. This could be done empirically for a few days to find > > an appropriate scaling. This would be impossible to check on our old > > dataset, but I believe it should work well enough for using our old > > dataset. > > > > If someone has the full recorded data for a few 10-deep days, we could > > simply try this out; that is, plot the distributions of our > > 'normalized difference' estimate as a function of N. If this doesn't > > work, I suspect that our assumption of collapsing 2N numbers (from the > > bid and ask) to a single number is not well justified ... > > You are assuming that the difference between the 5-level deep balances > and the 10-level deep balances is just variability which can be > compensated by a scaling factor. My guess is that there is more to it. > However, I agree that it would be useful to plot both side by side. > I'll modify my code to record both 5-level deep and 10-level deep > balances for a day and will post the results. > > > > --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "JBookTrader" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/jbooktrader?hl=en -~----------~----~----~----~------~----~------~--~---
