[…]these rules exactly without hesitation or emotion. In this respect mechanical trading is the complete opposite of discretionary trading. The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing In most domains of life, skill and luck seem hopelessly entangled. Different levels of skill and varying degrees of good and bad luck are the realities that shape our lives—yet few of us are adept at accurately distinguishing between the two. Imagine what we could accomplish if we were able to tease out these two threads, examine them, and use the resulting knowledge to make better […]
[…]terms as a function of hundreds of millions of shares in SPY. What we can see is that, as volume comes out of a market, movement also becomes less. 600 Days Without a 3% Daily Change It’s been a long time now since the S&P 500 had a big change in a single day. You have to go back to November of 2011 to find the last day that the S&P 500 rose or fell by 3% in one day. Since 1950 there have been 200 trading days out of 16,202 in which the S&P changed by 3% or […]
[…]These posts will be short and interspersed between my regular posts. Icons made by Freepik from www.flaticon.com is licensed by CC 3.0 BY One of my favorite parts about BJJ is that it forces you to focus. At the start of class, I am often still thinking about the research and trading day. I may be happy with my trading results for the day. Or thinking about a solution to research project or how to improve a client’s strategy. But I must quickly focus on the class and my training partner. He will soon be actively be trying to break […]
Thank you for subscribing to my blog. You should be receiving a welcome email in about 15 minutes., which will look like the following. Please add Cesar@AlvarezQuantTrading.com to your whitelist so my emails do not end up in your Junk folder. If the email does not arrive, please try entering your email again. In the mean time, have you seen my trading signal service? These are strategies that I trade myself. Go to Tranquility Trading. Or do you have trading idea that you want tested? I can write and test the code for you. Click here for my information on […]
[…]trading, and many more issues. The 7 steps to do when you find the Holy Grail. Source: https://www.flickr.com/photos/spiritual_marketplace/2207966935 Step 1: Assume you did not find it In the excitement of finding a strategy that makes lots of money, one forgets there is always a possibility that you did not find it. The better the results the more likely there is a problem. Step 2: See Step 1 I really must emphasis this point. The more excited you get the more you make up stories to justify why your strategy is working. We started to fall down this path. Step 3: […]
[…]and is simple to make but difficult to master without understanding the interaction between components. Trend-following strategies are no different: anyone can create a simple strategy, few can master the nuances. Do Risk-Adjusted Returns Matter? The firm’s latest piece looks at smart beta and a host of factor investing data. One factor they looked into was the small cap anomaly. Past research has shown that small cap stocks have outperformed large cap stocks over longer time frames. Research Affiliates determined that this actually isn’t the case: The Remarkable Truth about 52-Week High Stocks On Wall Street, there are […]
[…]Beta http://www.researchaffiliates.com/Our%20Ideas/Insights/Smart%20Beta/Pages/Home.aspx http://www.cnbc.com/id/102500144 http://www.forbes.com/sites/billstone/2014/09/03/how-smart-is-smart-beta/ http://seekingalpha.com/article/3118616-how-smart-are-smart-beta-etfs The spreadsheet The spreadsheet includes yearly breakdown of returns, other portfolio sizes and the Monte Carlo runs. Fill in the form to get it. Final thoughts Remember, the original S&P500 index is capitalization weighted. Imagine instead of being capitalization weighted the index was equal weight and those results were worse than capitalization weighted. We would then call ‘capitalization weighting’ smart beta because it beats the index. There is nothing special with any weighting scheme other than being different. One can make arguments about why one is better than the other but it is arbitrary. […]
[…]researcher has a Holy Grail strategy they pursue. Mine is the breakout strategy. I would love to complement the reversion-to-the-mean strategies I trade. Unexpected Results The unexpected result is my favorite thing about research. I have added filters to a strategy that I just knew that it would make it better, and then it makes it worse. Or the reverse, when I thought it was crazy to try an idea because it would lose money and it makes money. Idea Generation My ideas for what to research often come from my trading. I will see some pattern or the market […]
[…]Or you don’t want to gyrate with the market, then you want a value near zero. Another comparison to do is comparing against existing strategies you are trading or considering. Again there is no good or bad value but understanding how they compare and if you want that. The Strategies We will be comparing three equity curves from 1/1/2007 to 9/30/2015. SPY buy and hold Sigma, a short term SP100 stock strategy I am working on Epsilon, a short term ETF strategy I am working on The Simple Comparison The simple and most common way to do a correlation analysis […]
[…]next month at the open Results A very promising start. As always we need to look deeper and compare to Buy and Hold. Buy & Hold Comparing to buy and hold on the SPY, now the results don’t look so great. What about buckets? Next we check to see if looking at buckets of 25 stocks each shows a pattern. This means the first bucket contains stocks ranked 1-25. The next bucket is from 26-50. And so, while the last bucket is stocks 476-500. What I like to see is a pattern with the best results on top and […]
