A Permutation-Based Heuristic for Buy Low, Sell High

TL;DR

This paper demonstrates that a permutation-based representation combined with a simple decision heuristic can yield significant benefits in minute-by-minute stock trading, challenging traditional views on buy low, sell high strategies.

Contribution

It introduces a novel permutation-based approach and decision heuristic for stock trading, providing empirical evidence of their effectiveness in high-frequency trading scenarios.

Findings

Significant benefits observed using the heuristic in experiments.

Empirical support for simple decision models in minute trading.

Potential advantages over traditional strategies.

Abstract

Buy low, sell high is one of the basic rules of thumb used in investment, although it is not considered to be a beneficial strategy. In this paper, we show how the appropriate permutation-based representation (i.e., the epistemic form) of a minute-by-minute trading time-series, alongside the use of a simple decision heuristic (i.e., the epistemic game), may surprisingly result in significant benefits. Using our heuristic for selecting seven stocks, we ran two experiments on the data. The results provide empirical support for the possible benefit of using simple decision models in investment, even in the context of minute-by-minute trading.