Fuzzy Logic Trading

First of all. What is fuzzy logic? In normal logic you say that something is true or false. Fuzzy logic goes further than this in the sense that it says in how far something is true or false.

normal boolean logic => true (1) or false (0)
fuzzy logic => example 1/3 true or 1/2 false ....or 34% true or 66% false

How can this be implemented in trading? When another trader ask you if you advice to go short or long. What do you answer? You can say for example: "I advice short" or you can say "I give it 60% that it will drop" In the second case you are actually using fuzzy logic.

Now lets talk about indicators and fuzzy logic. Some indicators are easy to use in fuzzy logic others are very hard. Lets take an easy one to start with.

Relative strength indicator (RSI)
Boolean logic => overbought above 50

fuzzy logic => (1-(100-RSI)/RSI)
rsi =50 => (1-(100-50)/50) = 0 (or 0% overbought)
rsi =75 => (1-(75-50)/50)=0,5 (or 50% overbought)
rsi=100 => (1-(100-100)/100) = 1 (or 100% overbought)

What is the basic setup of a fuzzy logic CTL strategy?

So if you wanna make a fuzzy logic based strategy you first have to decide wich indicators you will be using. Then the hardest part is you have to make them fuzzy with a formula. Then you setup trading rules. An advantage of a fuzzy logic based strategy is that you can start your strategy with a certain risk level. If you want to take little risk you tell your strategy to go in when it is sure for 95%... The day after you want to "gamble" .....you tell it to take position when it 60% sure....