Traders' Roundtable

Babelproofreader, you know I would be interested!

Thanks for your kind comments, Ric and Marriot.

If I had to guess (and that is all I can do) I would say Winton did the following optimization of their trading system:

Minimize volatility subject to achieving a return greater than or equal to the typical pension fund return assumptions.

I think ...

Here's one I prepared earlier ...

Here's an analysis of the change in performance of Winton's Diversified Fund over the last 14 years which I did as an illustration of a Change Detection Algorithm.

Look near the beginning of this post where I set up the problem .

Look at the last section in this ...

Depends how you did your back-adjustment.

If you used a Panama approach (i.e. adjusting each contract up or down by addition) ATR is same for the actual and back adjusted series:

Adjusted Price = Actual Price + delta => adjusted ATR = Actual ATR

If you used a ratio approach, to get the ...

Upon waking this morning, I realized that the most likely source of differences in the Sharpes is going to be in the risk-free rate if the averages and standard deviations agree - doh! These years of zero short-term interest rates are having some effect - on my brain!

Jake,

I would definitely ...

trender41,

I am not sure how deep into this I want to get, but there are issues with some of the statistics produced by TB. I have a long-standing project under development: a TB statistics audit block. The idea being every time you upgrade to a new version, you throw this block into your system ...

The analysis might be thrown off by the initialization of the EMA's. I don't know how many bars of data you are fitting to - this effect becomes less significant the more bars you have. Possible ways of dealing with this:

1) Perhaps if you introduced two additional variables, the initial values of ...

I was curious so I looked at the pdf (linked by Babelproofreader) describing the indicator. Since the formula for the indicator is specified, I assume that it is the parameters you are trying to figure out.

Here's some things I noticed:

1) The diagram on page 2 must be a conceptual representation ...

Dean,

There is something funky with those numbers.

For example, if the data is for 5 years of returns, there are several entries where the compounded return is positive but the Sharpe is negative. Since arithmetic return is always greater than geometric (i.e. if compounded return is positive then ...

My understanding of ED is the settlement price is 100 - 3 month Libor. i.e. as rhc says, if 3 month Libor = 0% at expiration, then the settlement is 100. So, unless Libor goes negative, ED is capped at 100. Question is, can ED Libor go negative?

I searched around and could only find examples of ...

In addition to Matlab / Octave, I would recommend R, in the role suggested by PNW_Trader. It's open source, there is a huge library of gnu packages that comes with it, a lot of focus on financial time series analysis, etc. It seems, to me at least, to be the dominant statistical package in academia ...

Now if you are in the original trade and it moves against you then how is this different to entering the trade a bit later on at the risk you can afford.

It's a variation on the Monty Hall problem - the trade moving against you is like one of the doors being opened: you have posterior information ...

I would say it depends on what information you have about your system and how it trades in terms of probabilities.

Beware of the possible implications of what you find. For example, if the expected return of a trade entered with a delay is higher than that of a trade entered immediately, should you ...

Nice work stopsareforwimps.

Here's something similar I did a while ago. Almost the same idea (contracts filtered and ordered by volatility on the vertical axis, dependent contracts on the horizontal). I used a different set of contracts and looked at only 3 cases: 5% most volatile days upwards ...

I find ZH's blog site to be fun and all, but whoever writes it has a penchant for hyperventilating.

Let's be clear, without hypothecation you couldn't extend margin loans to clients. Do you expect the broker to lend their own capital to you so you can buy assets with their money? Of course not ...

Bravochico,

Would it be possible for you to cobble together an example that shows how using raw contracts would give a different back-test result from using continuous contracts?

I am really interested to understand the mechanism, and whether the issue is just a case of using the "wrong" type of ...

moto moto,

Your corns are prescient - we have 4" of snow and it's still coming down!

I think there are two approaches to this ...

1) If you run a back-test today and get a certain set of trades, then run a back-test at a later date after the current set of front-month contracts have expired then the back-adjusted contract values will have changed due to the rolls taking place ...

Hi Rich,

Nice to hear from you ...

I have always felt that your great-grandfather + theory explains the persistence of the Kondratieff Cycle.

to echo rhc: history doesn't repeat but it rhymes (Twain)
.. though I have a hard time coming up with anything that rhymes with "history"!

I just use R for off-line analysis - it is not suited to building a trading system as it is horribly slow for loop processing i.e. working through this time interval then the next and so on - you cannot vectorize in this case because of the time-series dependencies so why use R?