[ALGOA+] Markov Chains Library by @metacamaleoLibrary "MarkovChains"
Markov Chains library by @metacamaleo. Created in 09/08/2024.
This library provides tools to calculate and visualize Markov Chain-based transition matrices and probabilities. This library supports two primary algorithms: a rolling window Markov Chain and a conditional Markov Chain (which operates based on specified conditions). The key concepts used include Markov Chain states, transition matrices, and future state probabilities based on past market conditions or indicators.
Key functions:
- `mc_rw()`: Builds a transition matrix using a rolling window Markov Chain, calculating probabilities based on a fixed length of historical data.
- `mc_cond()`: Builds a conditional Markov Chain transition matrix, calculating probabilities based on the current market condition or indicator state.
Basically, you will just need to use the above functions on your script to default outputs and displays.
Exported UDTs include:
- s_map: An UDT variable used to store a map with dummy states, i.e., if possible states are bullish, bearish, and neutral, and current is bullish, it will be stored
in a map with following keys and values: "bullish", 1; "bearish", 0; and "neutral", 0. You will only use it to customize your own script, otherwise, it´s only for internal use.
- mc_states: This UDT variable stores user inputs, calculations and MC outputs. As the above, you don´t need to use it, but you may get features to customize your own script.
For example, you may use mc.tm to get the transition matrix, or the prob map to customize the display. As you see, functions are all based on mc_states UDT. The s_map UDT is used within mc_states´s s array.
Optional exported functions include:
- `mc_table()`: Displays the transition matrix in a table format on the chart for easy visualization of the probabilities.
- `display_list()`: Displays a map (or array) of string and float/int values in a table format, used for showing transition counts or probabilities.
- `mc_prob()`: Calculates and displays probabilities for a given number of future bars based on the current state in the Markov Chain.
- `mc_all_states_prob()`: Calculates probabilities for all states for future bars, considering all possible transitions.
The above functions may be used to customize your outputs. Use the returned variable mc_states from mc_rw() and mc_cond() to display each of its matrix, maps or arrays using mc_table() (for matrices) and display_list() (for maps and arrays) if you desire to debug or track the calculation process.
See the examples in the end of this script.
Have good trading days!
Best regards,
@metacamaleo
-----------------------------
KEY FUNCTIONS
mc_rw(state, length, states, pred_length, show_table, show_prob, table_position, prob_position, font_size)
Builds the transition matrix for a rolling window Markov Chain.
Parameters:
state (string) : The current state of the market or system.
length (int) : The rolling window size.
states (array) : Array of strings representing the possible states in the Markov Chain.
pred_length (int) : The number of bars to predict into the future.
show_table (bool) : Boolean to show or hide the transition matrix table.
show_prob (bool) : Boolean to show or hide the probability table.
table_position (string) : Position of the transition matrix table on the chart.
prob_position (string) : Position of the probability list on the chart.
font_size (string) : Size of the table font.
Returns: The transition matrix and probabilities for future states.
mc_cond(state, condition, states, pred_length, show_table, show_prob, table_position, prob_position, font_size)
Builds the transition matrix for conditional Markov Chains.
Parameters:
state (string) : The current state of the market or system.
condition (string) : A string representing the condition.
states (array) : Array of strings representing the possible states in the Markov Chain.
pred_length (int) : The number of bars to predict into the future.
show_table (bool) : Boolean to show or hide the transition matrix table.
show_prob (bool) : Boolean to show or hide the probability table.
table_position (string) : Position of the transition matrix table on the chart.
prob_position (string) : Position of the probability list on the chart.
font_size (string) : Size of the table font.
Returns: The transition matrix and probabilities for future states based on the HMM.
Markovchain
[SGM Markov Chain]Introduction
A Markov chain is a mathematical model that describes a system evolving over time among a finite number of states. This model is based on the assumption that the future state of the system depends only on the current state and not on previous states, the so-called Markov property. In the context of financial markets, Markov chains can be used to model transitions between different market conditions, for example, the probability of a price going up after going up, or going down after going down.
Script Description
This script uses a Markov chain to calculate closing price transition probabilities across the entire accessible chart. It displays the probabilities of the following transitions:
- Up after Up (HH): Probability that the price rises after going up.
- Down after Down (BB): Probability that the price will go down after going down.
- Up after Down (HB): Probability that the price goes up after going down.
- Down after Up (BH): Probability that the price will go down after going up.
Features
- Color customization: Choose colors for each transition type.
- Table Position: Select the position of the probability display table (top/left, top/right, bottom/left, bottom/right).
Markov Chain Trend IndicatorOverview
The Markov Chain Trend Indicator utilizes the principles of Markov Chain processes to analyze stock price movements and predict future trends. By calculating the probabilities of transitioning between different market states (Uptrend, Downtrend, and Sideways), this indicator provides traders with valuable insights into market dynamics.
Key Features
State Identification: Differentiates between Uptrend, Downtrend, and Sideways states based on price movements.
Transition Probability Calculation: Calculates the probability of transitioning from one state to another using historical data.
Real-time Dashboard: Displays the probabilities of each state on the chart, helping traders make informed decisions.
Background Color Coding: Visually represents the current market state with background colors for easy interpretation.
Concepts Underlying the Calculations
Markov Chains: A stochastic process where the probability of moving to the next state depends only on the current state, not on the sequence of events that preceded it.
Logarithmic Returns: Used to normalize price changes and identify states based on significant movements.
Transition Matrices: Utilized to store and calculate the probabilities of moving from one state to another.
How It Works
The indicator first calculates the logarithmic returns of the stock price to identify significant movements. Based on these returns, it determines the current state (Uptrend, Downtrend, or Sideways). It then updates the transition matrices to keep track of how often the price moves from one state to another. Using these matrices, the indicator calculates the probabilities of transitioning to each state and displays this information on the chart.
How Traders Can Use It
Traders can use the Markov Chain Trend Indicator to:
Identify Market Trends: Quickly determine if the market is in an uptrend, downtrend, or sideways state.
Predict Future Movements: Use the transition probabilities to forecast potential market movements and make informed trading decisions.
Enhance Trading Strategies: Combine with other technical indicators to refine entry and exit points based on predicted trends.
Example Usage Instructions
Add the Markov Chain Trend Indicator to your TradingView chart.
Observe the background color to quickly identify the current market state:
Green for Uptrend, Red for Downtrend, Gray for Sideways
Check the dashboard label to see the probabilities of transitioning to each state.
Use these probabilities to anticipate market movements and adjust your trading strategy accordingly.
Combine the indicator with other technical analysis tools for more robust decision-making.
MarkovChainLibrary "MarkovChain"
Generic Markov Chain type functions.
---
A Markov chain or Markov process is a stochastic model describing a sequence of possible events in which the
probability of each event depends only on the state attained in the previous event.
---
reference:
Understanding Markov Chains, Examples and Applications. Second Edition. Book by Nicolas Privault.
en.wikipedia.org
www.geeksforgeeks.org
towardsdatascience.com
github.com
stats.stackexchange.com
timeseriesreasoning.com
www.ris-ai.com
github.com
gist.github.com
github.com
gist.github.com
writings.stephenwolfram.com
kevingal.com
towardsdatascience.com
spedygiorgio.github.io
github.com
www.projectrhea.org
method to_string(this)
Translate a Markov Chain object to a string format.
Namespace types: MC
Parameters:
this (MC) : `MC` . Markov Chain object.
Returns: string
method to_table(this, position, text_color, text_size)
Namespace types: MC
Parameters:
this (MC)
position (string)
text_color (color)
text_size (string)
method create_transition_matrix(this)
Namespace types: MC
Parameters:
this (MC)
method generate_transition_matrix(this)
Namespace types: MC
Parameters:
this (MC)
new_chain(states, name)
Parameters:
states (state )
name (string)
from_data(data, name)
Parameters:
data (string )
name (string)
method probability_at_step(this, target_step)
Namespace types: MC
Parameters:
this (MC)
target_step (int)
method state_at_step(this, start_state, target_state, target_step)
Namespace types: MC
Parameters:
this (MC)
start_state (int)
target_state (int)
target_step (int)
method forward(this, obs)
Namespace types: HMC
Parameters:
this (HMC)
obs (int )
method backward(this, obs)
Namespace types: HMC
Parameters:
this (HMC)
obs (int )
method viterbi(this, observations)
Namespace types: HMC
Parameters:
this (HMC)
observations (int )
method baumwelch(this, observations)
Namespace types: HMC
Parameters:
this (HMC)
observations (int )
Node
Target node.
Fields:
index (series int) : . Key index of the node.
probability (series float) : . Probability rate of activation.
state
State reference.
Fields:
name (series string) : . Name of the state.
index (series int) : . Key index of the state.
target_nodes (Node ) : . List of index references and probabilities to target states.
MC
Markov Chain reference object.
Fields:
name (series string) : . Name of the chain.
states (state ) : . List of state nodes and its name, index, targets and transition probabilities.
size (series int) : . Number of unique states
transitions (matrix) : . Transition matrix
HMC
Hidden Markov Chain reference object.
Fields:
name (series string) : . Name of thehidden chain.
states_hidden (state ) : . List of state nodes and its name, index, targets and transition probabilities.
states_obs (state ) : . List of state nodes and its name, index, targets and transition probabilities.
transitions (matrix) : . Transition matrix
emissions (matrix) : . Emission matrix
initial_distribution (float )
FunctionProbabilityViterbiLibrary "FunctionProbabilityViterbi"
The Viterbi Algorithm calculates the most likely sequence of hidden states *(called Viterbi path)*
that results in a sequence of observed events.
viterbi(observations, transitions, emissions, initial_distribution)
Calculate most probable path in a Markov model.
Parameters:
observations (int ) : array . Observation states data.
transitions (matrix) : matrix . Transition probability table, (HxH, H:Hidden states).
emissions (matrix) : matrix . Emission probability table, (OxH, O:Observed states).
initial_distribution (float ) : array . Initial probability distribution for the hidden states.
Returns: array. Most probable path.
FunctionBaumWelchLibrary "FunctionBaumWelch"
Baum-Welch Algorithm, also known as Forward-Backward Algorithm, uses the well known EM algorithm
to find the maximum likelihood estimate of the parameters of a hidden Markov model given a set of observed
feature vectors.
---
### Function List:
> `forward (array pi, matrix a, matrix b, array obs)`
> `forward (array pi, matrix a, matrix b, array obs, bool scaling)`
> `backward (matrix a, matrix b, array obs)`
> `backward (matrix a, matrix b, array obs, array c)`
> `baumwelch (array observations, int nstates)`
> `baumwelch (array observations, array pi, matrix a, matrix b)`
---
### Reference:
> en.wikipedia.org
> github.com
> en.wikipedia.org
> www.rdocumentation.org
> www.rdocumentation.org
forward(pi, a, b, obs)
Computes forward probabilities for state `X` up to observation at time `k`, is defined as the
probability of observing sequence of observations `e_1 ... e_k` and that the state at time `k` is `X`.
Parameters:
pi (float ) : Initial probabilities.
a (matrix) : Transmissions, hidden transition matrix a or alpha = transition probability matrix of changing
states given a state matrix is size (M x M) where M is number of states.
b (matrix) : Emissions, matrix of observation probabilities b or beta = observation probabilities. Given
state matrix is size (M x O) where M is number of states and O is number of different
possible observations.
obs (int ) : List with actual state observation data.
Returns: - `matrix _alpha`: Forward probabilities. The probabilities are given on a logarithmic scale (natural logarithm). The first
dimension refers to the state and the second dimension to time.
forward(pi, a, b, obs, scaling)
Computes forward probabilities for state `X` up to observation at time `k`, is defined as the
probability of observing sequence of observations `e_1 ... e_k` and that the state at time `k` is `X`.
Parameters:
pi (float ) : Initial probabilities.
a (matrix) : Transmissions, hidden transition matrix a or alpha = transition probability matrix of changing
states given a state matrix is size (M x M) where M is number of states.
b (matrix) : Emissions, matrix of observation probabilities b or beta = observation probabilities. Given
state matrix is size (M x O) where M is number of states and O is number of different
possible observations.
obs (int ) : List with actual state observation data.
scaling (bool) : Normalize `alpha` scale.
Returns: - #### Tuple with:
> - `matrix _alpha`: Forward probabilities. The probabilities are given on a logarithmic scale (natural logarithm). The first
dimension refers to the state and the second dimension to time.
> - `array _c`: Array with normalization scale.
backward(a, b, obs)
Computes backward probabilities for state `X` and observation at time `k`, is defined as the probability of observing the sequence of observations `e_k+1, ... , e_n` under the condition that the state at time `k` is `X`.
Parameters:
a (matrix) : Transmissions, hidden transition matrix a or alpha = transition probability matrix of changing states
given a state matrix is size (M x M) where M is number of states
b (matrix) : Emissions, matrix of observation probabilities b or beta = observation probabilities. given state
matrix is size (M x O) where M is number of states and O is number of different possible observations
obs (int ) : Array with actual state observation data.
Returns: - `matrix _beta`: Backward probabilities. The probabilities are given on a logarithmic scale (natural logarithm). The first dimension refers to the state and the second dimension to time.
backward(a, b, obs, c)
Computes backward probabilities for state `X` and observation at time `k`, is defined as the probability of observing the sequence of observations `e_k+1, ... , e_n` under the condition that the state at time `k` is `X`.
Parameters:
a (matrix) : Transmissions, hidden transition matrix a or alpha = transition probability matrix of changing states
given a state matrix is size (M x M) where M is number of states
b (matrix) : Emissions, matrix of observation probabilities b or beta = observation probabilities. given state
matrix is size (M x O) where M is number of states and O is number of different possible observations
obs (int ) : Array with actual state observation data.
c (float ) : Array with Normalization scaling coefficients.
Returns: - `matrix _beta`: Backward probabilities. The probabilities are given on a logarithmic scale (natural logarithm). The first dimension refers to the state and the second dimension to time.
baumwelch(observations, nstates)
**(Random Initialization)** Baum–Welch algorithm is a special case of the expectation–maximization algorithm used to find the
unknown parameters of a hidden Markov model (HMM). It makes use of the forward-backward algorithm
to compute the statistics for the expectation step.
Parameters:
observations (int ) : List of observed states.
nstates (int)
Returns: - #### Tuple with:
> - `array _pi`: Initial probability distribution.
> - `matrix _a`: Transition probability matrix.
> - `matrix _b`: Emission probability matrix.
---
requires: `import RicardoSantos/WIPTensor/2 as Tensor`
baumwelch(observations, pi, a, b)
Baum–Welch algorithm is a special case of the expectation–maximization algorithm used to find the
unknown parameters of a hidden Markov model (HMM). It makes use of the forward-backward algorithm
to compute the statistics for the expectation step.
Parameters:
observations (int ) : List of observed states.
pi (float ) : Initial probaility distribution.
a (matrix) : Transmissions, hidden transition matrix a or alpha = transition probability matrix of changing states
given a state matrix is size (M x M) where M is number of states
b (matrix) : Emissions, matrix of observation probabilities b or beta = observation probabilities. given state
matrix is size (M x O) where M is number of states and O is number of different possible observations
Returns: - #### Tuple with:
> - `array _pi`: Initial probability distribution.
> - `matrix _a`: Transition probability matrix.
> - `matrix _b`: Emission probability matrix.
---
requires: `import RicardoSantos/WIPTensor/2 as Tensor`
FunctionSMCMCLibrary "FunctionSMCMC"
Methods to implement Markov Chain Monte Carlo Simulation (MCMC)
markov_chain(weights, actions, target_path, position, last_value) a basic implementation of the markov chain algorithm
Parameters:
weights : float array, weights of the Markov Chain.
actions : float array, actions of the Markov Chain.
target_path : float array, target path array.
position : int, index of the path.
last_value : float, base value to increment.
Returns: void, updates target array
mcmc(weights, actions, start_value, n_iterations) uses a monte carlo algorithm to simulate a markov chain at each step.
Parameters:
weights : float array, weights of the Markov Chain.
actions : float array, actions of the Markov Chain.
start_value : float, base value to start simulation.
n_iterations : integer, number of iterations to run.
Returns: float array with path.
