Posts tagged ‘mean reversion’
Interesting paper that discusses outlier losses experienced by long/short hedge funds during 2007 and proposes an interesting EOD RTM strategy (one I developed and tested myself prior to coming across this paper, dammit!):
(click on title for link)
A quick study on jump diffusion models, as applied to energy commodity markets (click on title for paper):
Interesting paper on Forex RTM / MOM strategies (click on title for paper):
strategy performs better in foreign exchange markets than in equity markets. Also, it outperforms traditional foreign exchange trading strategies, such as carry trades and moving average rules.”
System A didn’t give me much to crow about for November; It ended the month flat at +0.5%. The system started the month out with some nice gains, booking over +8%, but then was spanked by the market mid month and gave them all back. The last two weeks of the month offered the system very few trades and it sat on the sidelines for nearly seven straight trading days.
In a prior post I discussed the performance of a system I’ve been trading live for over two years (and whose algobot is running as we speak). For the purposes of this discussion, I’ll refer to this system as “System A”.
As mentioned in the post, System A performs well but has a known weakness: It is very susceptible to Black Swans (outlier market shocks) and can generate some uncomfortable drawdowns when they hit. The system usually recovers from these drawdowns reasonably fast, but they’re certainly no fun to sit through when you’re trading with real $$$.
These Black Swans seem to be hitting the market with increasing frequency, so after surviving the most recent crash (August 2011), I started experimenting with a variation of System A (we’ll call it “System B”) that temporarily moves to the sidelines the moment it senses a crash is imminent.
The backtesting results of System B are encouraging. Here is the equity curve from an 8-year trading simulation run (click to zoom):