Momentum strategies in futures and forex
I have long found that it is easier to find good (i.e. high Sharpe ratio) mean-reverting strategies than good momentum strategies. Partly, that is because I was mainly a stock trader instead of a...
View ArticleThe many facets of linear regression
Many years ago, a portfolio manager asked me in a phone interview: "Do you believe that linear or nonlinear models are more powerful in building trading models?" Being a babe-in-the-woods, I did not...
View ArticleTime-of-day effects in FX trading
As I mentioned in a previous post, one of the main ingredients of success in constructing a profitable momentum trading strategy in Forex (and futures) is to pay attention to the entry and exit times....
View ArticleA platform, a shareware site, and some courses for quant traders
I mentioned in various places that Alphacet Discovery is an industrial strength integrated platform for backtesting and implementing quantitative trading strategies. But of course, it has many...
View ArticleEven more on news driven trading
News driven trading is even more in vogue today than when I last mentioned it, judging from the increasing number of vendors (e.g. Ravenpack, Sensobeat, Recorded Future, etc.) and researchers pitching...
View ArticleWhen cointegration of a pair breaks down
I have written a lot in the past about the cointegration of ETF pairs, and how this condition can lead to profitable pairs trading. However, as every investment advisor could have told you, past...
View ArticleHedge fund transparency and "barometers"
Jim Liew of Alpha Quant Club recently posted an interesting article about the increasing demand for transparency of hedge fund strategies by institutional investors, so much so that they are...
View ArticleThe social utility of hedge funds
There is an article in the New Yorker magazine profiling Bridgewater Associates, the world's biggest global macro hedge fund. Inevitably, we come to the awkward question: "If hedge-fund managers are...
View ArticleSorry, your return is too high for us
I enjoyed reading Richard Wilson's The Hedge Fund Book (Richard also runs the Hedge Fund Blogger site). To be clear: it is purely marketing-oriented. It doesn't tell you how to find a successful...
View ArticleMore on automated trading platforms
The ideal software platform for automating backtesting and executing your algorithmic trading strategies depends mainly on your level of programming expertise and your budget. If you are a competent...
View ArticleStop loss, profit cap, survivorship bias, and black swans
I have long espoused the view that we should not impose stop-losses on mean-reverting strategies, nor profit caps on momentum strategies. My view on the latter has not changed, but it has evolved on...
View ArticleTrading platform and EC2 revisited
Recently I opened a discussion on the various software platforms which allow the programmers among us to build trading strategies easily. Here is one other addition: Quantopian. It is only in alpha...
View ArticleRisk indicators
During the financial crisis of 2008, I wrote about how I watched some risk indicators such as the VIX or the TED spread to decide what leverage I should use for my trading strategies. It turns out that...
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What worked in 2011?
We all know that 2011 was a bad year for many hedge funds, with the average fund down 5%. But what type of strategies did well, and what did particularly poorly? The numbers are out: Forex funds lose...
View ArticleIdeas from a psychologist
I have just finished reading Daniel Kahneman's bestseller "Thinking, Fast and Slow", and found it full of inspirations important for traders. This is no surprise, of course, since Kahneman won the 2002...
View ArticleHidden Markov model applied to FX prediction
I read with interest an older paper "Can Markov Switching Models Predict Excess Foreign Exchange Returns?" by Dueker and Neely of the Federal Reserve Bank of St. Louis. I have a fondness for hidden...
View ArticleHigh-frequency trading in the foreign exchange market
This is the title of a report published by the Bank of International Settlements (which serves central banks around the world) in September 2011. As a Forex trader myself, I of course peruse it with...
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The life and death of a strategy
Sometimes it is instructive to look back at some strategies that used to thrive, and then quite suddenly contracted a chronic illness that ultimately led to its demise. It gives us a sense of the...
View ArticleA few announcements
First, an iPad version of this blog has been launched, so if you are reading this on an iPad, the look will be different. If you want to go back to the old look, just hit Page Turn in the bottom left...
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Momentum strategies: a book review
As a devout mean-reversion trader, I find Mike Dever's new book "Jackass Investing" unexpectedly well-argued and readable.You see, momentum and mean-reversion traders live in two separate universes,...
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