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Understanding Underlying Value in Trading: Identifying Arbitrage Opportunities

This discussion explores the concept of underlying value in asset valuation, focusing on the assumption that every asset has a true value despite market emotions and structural influences that can cause price fluctuations. By estimating this underlying value, traders can uncover arbitrage opportunities. Examples will include practical demonstrations using Google Finance along with technical indicators such as Simple Moving Averages (SMA), MACD, and Bollinger Bands. We will also cover the importance of standardizing units, especially in the range of -1.0 to +1.0 for event definition and machine learning applications.

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Understanding Underlying Value in Trading: Identifying Arbitrage Opportunities

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Presentation Transcript

  1. Major Theme: Underlying Value (opinion) • Assumption is that there is a true underlying value for the asset. • Emotions and market structure cause price to deviate If we can estimate the underlying value, we can find arb opportunities

  2. Examples • Demo with Google Finance • SMA • MACD • Bollinger

  3. Important: Convert to Standard Units • Usually like to use -1.0 to +1.0 • More convenient for defining events and for Machine Learning

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