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.

August 24, 2016

in General by Cesar Alvarez

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!

August 3, 2016

in Data , Mean Reversion , Stocks by Cesar Alvarez

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.

July 13, 2016

in Mean Reversion , Research , Stocks by Cesar Alvarez

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?

June 17, 2016

in Mean Reversion , Research , Stocks by Cesar Alvarez

Mean Reversion and the Broken Rubber Band

A common way to describe a mean reversion trade is a rubber band that stretches away and then snaps back. Something that Steve, my trading buddy, and I discuss when a trade keeps going against us is that the rubber band has broken. I have never tested that concept. Meaning after N day sell-off, are we now more likely to continue to sell off than bounce? Doing research is not always about trying to develop a new strategy but sometimes it is testing a concept. The concept may lead to a new trading idea.

May 25, 2016

in Mean Reversion , Research , Stocks by Cesar Alvarez

ConnorsRSI Analysis

A couple posts ago, I did the RSI Analysis. This post will focus on ConnorsRSI which I created while working for Larry Connors. When creating the indicator, the focus was on short-term mean-reversion results. We will look at that here but also how does it handle longer-term holds. Since I did not test this when I originally did the work, I was looking forward to seeing the results.

ConnorsRSI

ConnorsRSI is an indicator made up of three components. The first being a 3 period RSI on the closes. The second being a 2 period RSI applied to the current up/down streak. The last being a rank of how big today’s move is. Then a simple weighted aveage is used to combine them. For more details on the calculation and how to use it see this link.

May 4, 2016

in General by Cesar Alvarez

Making new equity highs. It happens less than you think.

A reader sent me a link to presentation, Robert Frey – 180 years of Market Drawdowns, about drawdowns and the time that a strategy is underwater. I highly suggest you watch it. I wanted to perform my own analysis on how often a buy and hold strategy on the S&P500 index is making new equity highs. Then, I wanted to compare the results to a new strategy I am working on for my trading. From previous experience, this number is a lot lower than people expect.

April 13, 2016

in Mean Reversion , Research , Trend Following by Cesar Alvarez

Relative Strength Index (RSI) Analysis

Recently I have been researching longer term hold strategies. I wondered which indicators by themselves would show an edge 3 to 6 months out. I am not looking to create a strategy from the indicator alone but want to know is there a statistical edge with it. Naturally, I started with my favorite Relative Strength Index, RSI.

March 16, 2016

in Mean Reversion , Stocks by Cesar Alvarez

Adding Stops and Scaling Out to a Mean Reversion Strategy

I came on an idea recently that I had tested. I have tested adding max loss stops to a mean reversion strategy, with no success. See this post for more on that. About eight years ago, I tested scaling out of trades. But this person claimed that adding the two together was how to improve a mean reversion strategy. Interesting idea I had not tested.

I have a one question poll below about what to do with my research. Take 15 seconds to fill it out.

March 2, 2016

in Data by Cesar Alvarez

Is your data in good shape? Would you know it if it was not?

At the end of last year, I was working with a client and we were having problems with code I had written. We would get different results depending on who ran the code. After comparing trade lists and doing some debugging, we discovered that their database was missing several symbols. These symbols existed in my database but did not exist in theirs. We were both using Norgate Data, which I highly recommend and can read my review here.

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