Posts tagged ‘Trade Histograms’
January was a fairly moderate month and its limited volatility offered pretty slim pickings. The system had some nice returns right out of the gate, but these were pared back as the month progressed and most days were under +/- 1%. The good news is that the system was still able squeeze out a modest gain of +1.8% for the month. Not earth shattering, but I’ll take it.
Very readable paper on MC resampling techniques. Classic MC techniques tend to generate smoother equity curves with shallower drawdowns than actual live results, as they “chop up” returns too finely, thereby reducing the impact of correlation during Black Swan events. The paper presents a simple method which attempts to preserve these correlations (click on title to view paper).
Trading is a stochastic process; i.e, the outcome of each trade is not deterministic and has a distinctly random bias. Sometimes you win, sometimes you lose. Sometimes you win big, sometimes you take it in the pants. Often your winning or losing trades will cluster together in a row; Other times, they’ll alternate in a more noisy fashion.
After surviving the August 2011 meltdown, it occurred to me that the market is experiencing six sigma events (crashes) these days with increasing frequency. To wit: In just the past 3 years we’ve had the 2008 Mortgage Meltdown, the Flash Crash, the Japanese Tsunami, and the Debt Ceiling Crisis. That averages out to around one market crash per year.
I was curious to see how fat these “fat tails” actually get, so I ran some quick tests. Here’s a histogram of the daily returns for SPY (the S&P 500 index ETF) over the past 12 years (click to zoom):
I’ve been trading an intraday system live (with real $$) for just over two years now. Its based on mean reversion principles with a few extra wrinkles of my own design.
Here’s my live actual net returns as of yesterday (click to zoom):
Here’s some screen views from my algo trading system development application (click on image for a closer view).
Note that the charts were generated from a trading simulation of simple a diagnostic system that generates random trades (this obviously isn’t the system I trade live).
Stock Bar Chart View (with marked trades)