Forex quantitative trading strategies
Quantitative investment and trading ideas, research, and analysis. I generally trust your book reccommendations, but a quick google search on this one looks dubious. Are you sure about this one? I prefer to separate asset class decisions from momentum at the sub-asset class level. For instance, a cyclical industry might rally strongly simply due to its high beta if the market rallies. Take the idiosyncratic returns, calculate the month return first month tends to have some mean reversionscale that by the idiosyncratic volatility.
You could do this within each asset class or across all the asset classes. You could also take some views at an asset class level as well with a similar approach.
Once you have a method to combine disparate types of views together, you could easily incorporate mean-reversion and momentum strategies into one portfolio.
We do it just for stocks but can be adapted to other fields as well, as long as they can have a "buzz". We thought of using it for algo-trading, which is more relevant to you but making it fully automatic was a big problem.
We decided to go for a decision-helping tool, that the trader does the final decision.
Would be interesting to hear what professional algo-traders think of the idea. Anon, As I mentioned in my book, I seldom find any published strategy profitable as is. Often, it won't even stand up to backtesting, not to mention live trading. The important take-away from the book is some techniques I didn't know before which I can modify and improve on. John, Thanks for your idea. Actually, this reminds me of a whole class of momentum strategies that I read about: Apparently this works not only in stocks, but in commodities futures too.
Google the paper by Joelle Miffre and Georgios Rallis called "Momentum in Commodity Futures Markets". The problem for me but not necessarily for, say, pension funds is that the holding period is too long, and the return comparatively low. The long holding period necessarily imply that the portfolio suffers interim volatility thus suppressing the Sharpe ratio. Which is not to say that your suggestion necessarily has this problem.
Guy, Thanks for sharing your product with us. In this context, I should mention that the company Ravenpack has a similar news sentiment indicator which I believe can be used for algorithmic trading, and Ravenpack's indicators can be integrated into Alphacet Discovery's platform. Also, if one is interested in news gathered from the internet but not necessarily from financial newswire, the company Recorded Future also offers similar sentiment data through an API suitable for algorithmic trading.
Ernie, Thanks for pointing me to Ravenpack. They do sentiment analysis which a few other companies do as well www. They all try to decide if a news item is positive or not. SensoBeat tries to answer a different question: As far as we know this information is not available to traders.
When the trader reads a news item from his favorite feed he doesn't know if this news is now starting to spread, is it already "all-over" the internet, and so on. Guy, That is certainly an interesting feature. Good to know this product exists! The thing with momentum is that it can keep on going and going or it can be a dud.
The best rule that I find to trading momentum strategies is just manage your exits and never set a target. The saying "limit your losses and let your profit run" may be simplistic but it's so true. Another idea, which I picked up from TraderFeed long ago, is to: Effectively, buying at local minimums in a bull market, for example.
This is such a timely article!
I was re-reading your book again and you suggested that if one has a low level of capital, strategies with leverage such as futures and forex are probably the best to start out with. Paul, Yes, with momentum strategies I like to have stop loss but no profit target.
Conversely, with reversal strategies I like to have profit target but no stop loss. However, just as a frequently recomputed profit target can actually act as a stop loss, a frequently recomputed stop loss can become a profit target as well.
Hi Faizul, In terms of trading futures, you can start with Joe Duffy's book as I recommended. For FX, I learned everything I know "on the job" and from my ex-partner in my hedge fund. Maybe some readers here can suggest a good book?
Just ordered the book today so hopefully will get it in a week's time or so. Found a website that's good as it really starts from the basics. Ernie, do you feel that mean reversion isn't a good strategy in forex? Perhaps it is because currency markets are so big they are only really moved by actual news, not stochastic trading patterns. AZRamblers, There are mean-reverting strategies that work in FX, but EURUSD is not a good candidate. One has to look for countries whose economic indicators are more strongly cointegrated.
For gaining more momentum on your Forex trading,visit http: Gary, Many of us quants have used Gaussians in many forms, but maybe you can be more specific as to its usage in the momentum context? Maybe point to a online reference? Hi Ernie, I am a big fan of your book and this blog, but I couldn't find any way to track your fund's performance. Where can I go to see that please? Hey Ernie you just made me famous: I have been reading mostly about Forex for the last couple of years, as well as practicing different momentum-techniques with a demo account with no consistent success.
The only book I found "more or less" interesting to read, to get a good grasp of all the stuff was "Day trading and swing trading the Currency Market", by Kathy Lien, but again, it is just a "learn the basics" book.
About momentum-techniques to trade the fx market I guess purely mechanical methods per se wont work aka forex quantitative trading strategies systems you usually find published in many fxforums.
I will forex cambio lomas de zamora horarios you too Ernie ; Regards!! What is your take on catalysts such as earnings releases when it comes forex copy di instaforex mean reversion stock swing trading systems?
Have you done any statistical testing and decided to: Mark, I would avoid entering into positions of stocks that have announced or are expected to announce earnings for mean-reverting strategies. I had a hard time getting earnings dates for a large enough data set in order to actually test that - were you able to backtest this? Complete statistical center for seasonal and statistical patterns for Dow, Earnest money deposit and va loans, Nasdaq, Dax Search your best trading patterns choosing month, day of month, expiration weeks, moon phase, presidential cycle, politics etc.
Return n days after if change is Try it and profit. Mark, Have you heard of PEAD: Post Earnings Announcement Drift?
Quantitative Trading: Momentum strategies in futures and forex
Research indicates that price will not mean-revert after earnings announcement. I backtested such where can i get cashback with a discover card by web-scrapping data from earnings.
Thank you for your responses, Ernie. When it comes to PEAD and mean reversion testing with earnings. Most of the PEAD research I read about talks about a drift lasting months, while my mean reversion swing trades don't last longer than 4 days. A similar question to mine was raised at your blog at http: Mark, I can't disclose to you the exact holding period of my strategy, but I can tell you that the time scale is quite similar to your mean-reverting strategies.
PEAD momentum cannot possibly last more than 3 months, since there is an earnings announcement every 3 months which will trigger a new trend. Optionshouse short sell penny stock they have an average winning trade hold time of days and an average losing trade hold time of days. Because they cut losers and let winners run. Even the textbook triple moving average system is solidly profitable, my total money makeover workbook with punishingly large commissions and slippage, guide to forex trading in india legal or not tested on a diversified portfolio of how to earn mesos quickly in maplestory futures markets.
Another simple and profitable momentum system for futures appears on Ed Seykota's website. He calls it "Support and Resistance" but it's actually a classical Breakout system: Ernie, With how to make money recycling plastic bottles sort of capital did you find it possible start prop trading day trading for a living?
LIBOR is pretty low these days as wellrealistically do you think it's a bad period and fundamentaly different to the time you set up your own business?
Would we be talking about a bare minimum of k available purely for starting up?
Design and trade algorithmic trading strategies in a web browser, with free financial data, cloud backtesting and capital - yfyrurusus.web.fc2.com
It would be a simple calculation to find the returns needed for survival once you define the profit you need. Thanks for discussing Duffy's book.
I have found some interesting wrinkles there. Anon, Yes, I agree with you. Mean-reversion mainly works for individual what games on stardoll earn you money, while momentum mainly works for futures and currencies.
Hi Ernie, I can appreciate why you might no be inclined towards using adaptive strategies, especially if one is employing off the shelf tools such as the neural tool box in Matlab. Their michigan livestock exchange cattle prices nets mostly train in back propagation mode, burn through years of data, and your out-of-sample dataset is meaningless as the model is static and cannot adapt itself.
While trying to solve the overnight gap in futures and currencies, I decided to give neural nets another shot, and proceeded to design my own. Using compression technology, I managed to build one that burns through the minimum amount of data, e. At the end of the day, the net retrains itself thoroughly, and try to predict the opening work from home jobs elkins wv for the next morning, and then goes back to predicting intraday closing bars.
I view mechanical systems as saying to a sprinter to train intensively for 4 years, then drop out of sight and go on a binge for a year, reappear, go back immediately on the track and you're expected to win the gold medal.
We need to constantly upgrade our knowledge to reflect upon the future. Anyhow, ever since, it's been smooth sailing for overnight gaps in FX and futures trading. Hi Jay, Thanks much for sharing your improved neural net training method with us! It is gratifying to hear that someone has actually made adaptive methods work to profit in trading. However, there are quite a few people who told me they have used quite simple technical indicators to trade the overnight gap in futures and FX, and in fact I have backtested one such method which produces very nice results too.
So maybe sophisticated machine learning methods proofreading jobs from home nz not strictly necessary usd rupee rate history produce consistent results for this basics of trading in stock market market opportunity.
In today's Financial Times It is impossible to tell; but as he speaks, he becomes so animated that colour flushes into his cheeks.
Yet his new clients expected generous returns, and were soon demanding redemptions. Hi Ernie, can you please share some of the techniques to trade the FX overnight gaps?
Ali, An example of the overnight gap momentum is the London Breakout strategy discussed in the comment by Bernd referenced in my blog post. What would be the best choice for this trader to backtest the strategies?
8 Types of Algorithmic Forex Strategies - yfyrurusus.web.fc2.com
If this person trades part time and does it in the 4hr timeframe for example, will it be likely to achieve high sharpe ratios? I ask about this because, when you have k or 1Million or more, it can be profitable to invest 10 or 15k in automating your operations, even more, but if you are a 20k trader, that would just drain your capital Thanks in advance Ernest! Do you know of any book were I could find the basics of the technics involved. For exemple what are the slippage assumptions? What kind of order execution should I use for backtest trade on next bar opening price, VWAP?
Not that the trader execute many trades within this 4 hours? If so, then the trader can use Excel, or a standard FX automation program like Metatrader to automate the strategy. In fact, if the trader is good at programming but short of cash, she can use R instead. Hi Anon, Actually, you can just backtest what order types will produce the best backtest results.
Anon, I learn most of these execution-related issues from actual trading. Few books will go down to such details. However, you can check out the Trading and Exchanges book on my Recommended List on my blog's right sidebar -- it does a good job of explaining the market microstructure. Do you think that it is possible to find good mean reverting strategies in futures, that's a good question.
You can see how the momentum works in the fx from this program: Hi Ernie, Do you have any experience looking for co-integrated currency pairs? Do you have any references to papers that have conducted such studies for FX pair trading? Say we find a cointegrated FX pair using different base currencies, AUD. Hope to get your advice on this.
Hi Adrian, If NZD. You have to convert both sides of the pair to USD first before running them through the usual pair trading strategies. Instead of reading papers on FX pairs trading, I recommend reading up on basic FX trading. Hi Mike, When the multiplier is a constant as is the case for a future or ETF traded on a US exchangethe hedge ratio will take care of it automatically.
Hi Ernie, Could you elaborate on why "For futures, the overnight gap is obvious? Is there a "consensus" definition of the open and close in these markets in order to define gaps? Hi ezbentley, The gap in futures refers to the open and close of the pit trading. Ernie, Do you think is a good idea to apply momentum strategy during events like, for instance nonfarm payrolls announcement? I know that many traders use this technique to trade manually.
From the other side there are many high frequency traders that do the same and using low latency technology. What is the point to compete with them if this guys are always trade faster? Indeed, I haven't found much alpha at this short time scale. But that's because we never pretend to be HFT! The Logical Trader by Mark Fisher has some SIGNALS to play around for Momentum Trading Strategies.
Paul Tudor Jones recommends this as one of his favorite trading books and has an excerpt at the beginning of the book. You can also follow a blog on ELITE Trader: The guys on this blog are manual traders, but automated traders like can take many of these ideas and systematize it.
Friday, March 11, Momentum strategies in futures and forex. I have long found that it is easier to find good i. There are exceptions, such as after special corporate events such as earnings announcements, and I have tested momentum strategies based on these events.
But the success of even these event-driven strategies has been uneven, especially since more traders become aware of them. Now that I am focusing more on trading futures and currencies, I have gradually been introduced to the world of momentum investing. There is a good book in this area that deserves to be better known: Another example would be the London Breakout strategy mentioned by our reader Bernd in the comments here.
After studying these examples, I realized why my previous, rather desultory, search for momentum strategies in the futures and FX markets had been in vain: For futures, the overnight gap is obvious, but in the case of the London Breakout strategy, for example, the trader has the task defining for herself what the optimal closing and opening times are in order to compute the gap.
TRADOTO | Automated Trading Strategy for all financial markets: Futures, Forex, Stock, ETF, Emini | Quantitative Trading Strategies | Futures Trading Automation | Algo Trades | Trading Algorithms
Intraday trend without an overnight breakout does not seem persistent enough to be traded profitably. I also wonder if there is a more elegant i. If you know of ideas for good momentum strategies, you are most welcome to share and discuss them here! Posted by Ernie Chan at 2: Newer Post Older Post Home.
Labels Automated trading platforms 13 Book reviews 3 factor model 9 Strategies Ernie Chan View my complete profile. My Trading Workshops Options Strategies. Partner Center icBrokerWidget 'epchan',55. Subscribe to my blog Enter your Email. Twitter Tweets by chanep!