Using Monoid Operations to Combine Trading Decisions

Summary

The article introduces monoids as sets equipped with a closed, associative binary operation and an identity element, then applies the idea to trading choices. Example decision sets include lookback length, chart timeframe, applied price, indicator, and whether to trade with a range or trend. Candidate operations select the lesser or greater element, or the element closest to or farthest from the mean of a pair. Repeated pairwise comparisons reduce a set to one choice. The author emphasizes checking that the set and operation satisfy the monoid rules and that the output has a meaningful interpretation. The article also sketches using this approach to select a trailing stop in an MQL5 expert advisor and mentions comparison with a moving-average trailing stop. The supplied excerpt does not show the resulting performance figures, so it cannot establish that monoid-based selection improves trading. It cautions against curve fitting and stresses that the chosen decision points and operations are illustrative rather than universal.

Key ideas

• A monoid combines a set, a closed associative operation, and an identity element.
• Trading parameters such as timeframe or lookback length can be represented as sets of candidate values.
• Pairwise operations can iteratively reduce candidate values to a single selection.
• The selected operation must preserve the monoid rules and produce results with sensible domain meaning.
• The article sketches trailing-stop selection but the excerpt does not provide performance evidence for its benefit.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.