Welcome to my online repository of research and insights on automated trading system development
Non-stationarity of the markets… That old chestnut! Everything would be so much easier (boring?) if markets were not changing all the time… Non-Stationarity, is defined as a quality of a process in which the statistical parameters (probability distributions) of the process change with time. One of the consequences is that it might not make [...]
Entries Tagged as 'distribution'
Vince’s Leverage Space Model: better than MPT?
March 22nd, 2010 · 33 Comments · Backtest, Money Management
Ralph Vince‘s book Handbook of Portfolio Mathematics has been shamefully lying untouched on my desk for a few months… I started reading it but never finished it. I recently found a 30-page paper introducing the ideas and principles of his Leverage Space Model. I thought reading it might be a good way to get back [...]
Tags: distribution·leverage space model·optimal f·optimisation·ralph vince·research paper
Intricacies of Market and Trend Following Changes
March 10th, 2010 · 14 Comments · Strategies
In the last post we looked at the Turtle Trading system and saw that its performance went from outstanding for a long period of time to flat for 20 years. This opens a can of worms: Does Trend Following work, is it dead, do markets change, does trend following rules need to adapt to these [...]
Tags: autocorrelation·distribution·kurtosis·michael covel·niederhoffer·Turtle·walk-forward
Price Distributions and Trend Following
December 8th, 2009 · 7 Comments · Data, Forex, Trend Following
I posited in an earlier post that fat tails are one of the main reasons why trend following works. The underlying concept can be summarized as follows: trend following attempts to capture big price moves (a.k.a. trends). Since price distributions are leptokurtic (i.e. they exhibit fat-tails) long trends occur at abnormal frequency, providing greater sources [...]
Why Trend Following works: look at the Distribution
October 21st, 2009 · 7 Comments · Strategies, Trend Following
One of the most important underlying concepts that contribute to the success of Trend Following is the fact that the strategy is based on the non-normality of market returns. Let me explain. Trend followers position themselves to profit from and capture the “fat tails” exhibited in market returns distribution. In a fat-tail distribution (Power law, [...]
Tags: dave harding·distribution·fat-tail·levy·mandelbrot·power law·Trend Following·winton capital
