Is synthetic XIV/VXX data safe to use?

I have done several posts about trading XIV & VXX. In these posts (here, here and here) I refer to using synthetic data before these ETFs started trading. I supported the use of the data due to the very high correlation of daily returns during the overlap period. With a correlation of .97, I thought great the data should be good to use for backtesting.

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Nine days down. How bad is that?

As anyone who pays attention to the market, the S&P500 is down nine days in a row. I had several people write me about this. I was talking to a trading friend over the weekend about this. Nine days down seems bad. Let us put this in a broader context. How far have we come down in those nine days? Only 3.07%. Now that got me thinking is 3.07% in nine days that bad?

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Presenting in Dallas and Austin, Texas

I will be in Texas next week giving presentations. Click the links below for more details. I hope to see some readers there.

October 17, 2016 Austin Market Technicians Association

For more information see https://www.mta.org/event-registration/austin-chapter-meeting-featuring-cesar-alvarez/

October 18, 2016 Dallas Association for Technical Analysis

For more information see http://www.afta-dfw.org/schedule.htm meeting #2.

Good quant trading,

Ask Me Anything Video for October 5, 2016

In this short five minute video I will answer the following questions:

• Have you used HV10/HV100 ratio? Have you found any value in it?
• When trading multiple strategies, how do you decide what percentage to allocate to each.
• What do you think about asset allocation ETF strategies, like Ray Dalio’s All Season portfolio?
  • List of strategies: https://allocatesmartly.com/list-of-strategies/

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Taming High Return and High Risk

I was at a recent talk of the Northwest Traders and Technical Analysts group where they presented a VXX strategy with some huge return and drawdown numbers. Trading this would be very difficult. This got me thinking. If I had a strategy like this, how could I tame the numbers? Through the years, I have seen various ideas about how to do this but never looked into it. Searching the web one can find various volatility ETF strategies with very high returns and high drawdowns. I found one that looked interesting and had lots of potential for optimization and improvement. Then, I optimized the hell out of it searching for a variation with over 100% CAGR. I found one but I would never trade it because I over fit the data. I needed to something to work with.

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Ask Me Anything Video for 9/12/2016

In this short five minute video I will answer the following questions:

• I am interested in knowing a little bit more about your own trading. What types of strategies are you trading?
• Why do you not manage outside money?
• What are the trading books you recommend?

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Strategy Up/Down Capture

A reader sent this interesting link about Up/Down Capture. The great part about this article it is something I have intuitively known about my trading strategies but never tried to quantify. This was the bump I needed to investigate this concept. When the SPY moves up on average how much does my strategy profit? When the SPY moves down how much does my strategy lose? I had fun creating an interactive spreadsheet where you can change the numbers and see the results for your own strategy. This is one of the best spreadsheets I have done for the site.

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Cesar’s Ask Me Anything Webinars

To those on my new blog notification list, I sent out the opportunity to join me in a one hour webinar where people could ask me anything about trading. I had a ton of fun answering lots of great questions. See the bottom of the post for links to download the mp3 files of the webinars.

Some questions, I answered are:

• What types of strategies are you trading?
• How long a period of underperformance you would tolerate?
• How do we know that we have a robust system? Walkforward vs Monte Carlo vs SPR vs other?
• Why do you not manage outside money?
• Am I mistaken that you don’t prefer trading trend following or momentum based systems/strategies. Can you explain why?
• How do you come up with the underlying idea for a brand new trading strategy?
• And many more great questions!

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Start Dates, Correlation and Random Strategy

In my last post I showed research on how optimization results can be mean reverting. Sometimes, my research keeps getting side tracked as I think of random ideas to look at. In this post, we look at the random walk my research took starting from my mean reverting optimization research. I will show how changing the start date can have a big change in the results, correlation of 1990’s to now, and random data and how it correlates.

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Optimization Mean Reversion

Often one runs a optimization of a testing idea, then using some set metrics from these results, one picks a variation to trade. What often comes as a surprise to people, and myself the first time I saw this, is that your optimization runs are often mean reverting. What do I mean by this?

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