State Machines

Two state machines are shown below: a "negative signal" state machine and a "positive signal" state machine. These state machines are based on market signal models that buy (in the case of the negative signal model) when the signal hits a negative level. This level is estimated from data from previous days (for example, see Buying on the minimums, July 28, 2008). A similar approach could be followed for short sales.

Figure 1: Negative Signal State Diagram

Figure 2: Positive Signal State Diagram

Unfortunately these models do not seem to be profitable. A significant flow is the limit order. The model makes a buy (in the negative signal case) on the basis of the signal, but the limit is based on market data. The limit appears to be hit much too frequently.