Welcome to my online repository of research and insights on automated trading system development
OK, Profit Targets. You’ll tell me this is the anti-thesis of Trend Following, with one of its strongest mantra being: Cut you losses short, let your winners run… Indeed, Trend Following relies on a few positive outlier trades (from a fat-tailed distribution) to derive most of its gains. Stopping trades from running as high as [...]
Entries from September 30th, 2010
Profit Targets and Trend Following
September 30th, 2010 · 17 Comments · Backtest, Trend Following
Tags: profit target
A Different Application of the Bootstrap
September 28th, 2010 · 3 Comments · Backtest
In the last volatility filters post we saw that trades from a simple Trend Following system (20-50 MA cross-over) had different expectancy based on the relative level of volatility at trade entry. This suggested that a filter blocking trades most volatile at entry (in the top decile: 90 to 100% of past volatility) would raise [...]
Tags: bootstrap·volatility
Volatility Filters
September 23rd, 2010 · 6 Comments · Backtest, Trend Following
I have touched on trading regimes before; and looking at volatility-based regime switching was in my research stack since then. Today, I’m looking at a practical example: Trend Following results based on entry vs. past volatility. System Code Concept I developed a simple Trading Blox filter, which calculates the current volatility (via the Average True [...]
Tags: Trading Blox·volatility
Futures vs ETFs
September 21st, 2010 · 2 Comments · Futures, Instruments
Futures have been the main focus on the Au.Tra.Sy blog (in terms of instruments) but the ETF side of things has grown quickly very over the last decade and they do offer an alternative worth looking into. Smaller Trading Size = Greater Diversification I am a great believer in diversification. I think it is an [...]
Tags: etf
100th post and 1-year Anniversary
September 13th, 2010 · 9 Comments · Blog
Last week marked the first anniversary of the blog, and coincidentally the 100th post as well. Last September, the blog was born (does that make it a birthday or an anniversary?…) and I have not really looked back since. The first thing I want to do is to thank all of you, readers. I have [...]
Walk-Forward in Trading Blox: Back-Testing Adaptive Trading
September 8th, 2010 · 7 Comments · Backtest, Software
A few months ago, I got quite interested when Trading Blox announced that they introduced a new walk-forward functionality in their latest version. I just got round to upgrading, and giving that walk-forward testing a go. Amongst other things, some of the chart features have been improved – as can be seen in the eye [...]
Tags: Trading Blox·walk-forward
the State of Trend Following in August: good performance
September 6th, 2010 · 3 Comments · the State of Trend Following, Trend Following
Back to blogging with a new edition of the state of Trend Following report. August seems to have been pretty good to Trend Followers, with the composite index of the 12 “control” Trend Following systems included in this report showing a return of +8.08%, with most systems posting gains for the month. Detailed Results [...]
Tags: report
Au.Tra.Sy blog Summer Break
August 20th, 2010 · 1 Comment · Blog, Off-track
It’s nearly the end of the Summer and I hope you enjoyed a nice time. The blog will go on a short break until the end of August, while I (hopefully) enjoy some good weather in the French Cevennes and the English Lake District. In the mean time, I’ll leave you with a link to [...]
Tags:
Monte Carlo Permutation: Test your Back-Tests
August 18th, 2010 · 9 Comments · Backtest
The second method to evaluate the statistical significance of a back-test result presented by Aronson (in EBTA) is the Monte Carlo Permutation. This is an extension of the classic Monte Carlo method, applied to rule testing. The concept behind the Monte Carlo Permutation is similar to the Bootstrap method: Generate multiple random outputs based [...]
Tags: aronson·monte-carlo
Bootstrap – Take 2: Data Mining bias, Code and using geometric mean
August 13th, 2010 · 57 Comments · Backtest, Code
In part 1 of this bootstrap post, we looked at how to apply the method to establish the statistical significance of a single trading rule. In Part 2, we’ll look at how to deal with the data mining bias, the impact of geometric vs. arithmetic mean return. The code implementing the bootstrap test is available [...]
The Bootstrap Test: How significant are your back-testing results?
August 11th, 2010 · 27 Comments · Backtest, Books
As mentioned in the Evidence-based Technical Analysis review post, the main value of the book lies in the presentation of the two methods allowing for computing the statistical significance of trading strategy results, despite having a single sample of data: Both methods solve the problem of estimating the degree of random variation in a test [...]
Tags: aronson·bootstrap·data mining
VIX, Peso… Sometimes you just cannot trade it!
August 9th, 2010 · 5 Comments · Futures
Or a case for going short VIX despite high bullish consensus? I have been going on about roll yield and term structure for a few posts, and through two very concrete examples we’ll see how it can affect your trading and system development A reader recently mentioned a paper (pdf by Sloyer and Tolkin) presenting [...]
Tags: peso·roll yield·VIX
Evidence-Based Technical Analysis
August 5th, 2010 · 14 Comments · Backtest, Books
Evidence-Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading Signals Today I’ll be talking about an excellent book, which was recommended on several “quant” blogs I read: Evidence-Based Technical Analysis by David Aronson. One of the main reasons I picked this book is because it teaches you to fish (instead of [...]
the State of Trend Following in July
August 2nd, 2010 · 4 Comments · the State of Trend Following, Trend Following
The “Summer break” has not been very clement with Trend Following for this month of July 2010. The composite index of the 12 “control” Trend Following systems that I check in this report shows a performance of -4.3%, with a few systems posting losses around the 15% mark. Report Changes As discussed last month, [...]
Tags: report
Super Trend Following Index?
July 28th, 2010 · 8 Comments · Trend Following, Trend Following Wizards
I am firm believer in diversification, and so are most of the Trend Following Wizards tracked on the AuTraSy blog. How about applying diversification to the Trend Following Wizard funds themselves? Instead of trying to see which funds performed best (as I did previously with the Geometric Information Ratio ranking), I wanted to see what [...]
Tags: wizards
Better Trend Following via improved Roll Yield
July 26th, 2010 · 28 Comments · Futures, Strategies, Trend Following
To round off a series on backwardation, contango and roll yield (posts 1, 2 and 3), let’s put all this info together and use it in an innovative trading strategy to show how it can improve the performance of a Trend Following system by optimising its roll yield component (note: this could also be applied [...]
Tags: DB·roll yield
Roll Yield and Commodity Yield Curve
July 19th, 2010 · 3 Comments · Data, Futures
We have seen previously that backwardation and/or contango can induce a fairly large drift between the performance of an instrument’s spot market and its corresponding futures market. This phenomenon can be described as roll yield of futures trading and I suggested it was one of the four components in Trend Following returns. As per that [...]
Tags: roll yield·yield curve
