Failure isn’t an option, but it happens. Modeling the possibility that a portfolio strategy will stumble isn’t exactly cheery work, but it’s a productive and necessary exercise for stress testing what the future can do to the best-laid plans for investing. The good news is that there’s a

I. Trading Strategy Developer: Toby Crabel (NR7 Pattern). Source: Crabel, T. (1990). Day Trading with Short Term Price Patterns and Opening Range Breakout. Greenville: Traders Press, Inc. Concept: Volatility cycles. Research Goal: Performance verification of the NR7 pattern. Specification: Table 1.

In Vietnam, under French colonial rule, there was a rat problem. To solve the rat infestation, the French offered a bounty on rats, which could be collected by delivering a rat’s tail as proof of murder. Many bounties were paid out, but the rat problem didn’t improve. Officials soon noticed rats

I just returned Beijing from the Midwest Finance Association 2016 Annual Meeting in Atlanta, it is my first time in America, and the life there is quite different from that in the British cities... few people in downtown, hard to go out without a car, people are less friendly (at least look like)...

Having spent what seems like a lifetime in the financial industry at this point, I’ve always had this nagging suspicion about private equity (PE): private equity investments are not special. And I’ll take my hunch a bit further: public equity markets can deliver the same return profile as

In my previous post I announced that I want to try covering one feature in each post. During the days I doing this, I realized this would not work for me. I feel better in posting more frequent and discussing the code in smaller chunks. In this post I want to start creating the basic server

Fees are always a prominent topic in ETF selection, but they are not the only cost associated with the product. Even with seemingly similar passive ETFs, different index construction methodologies can lead to widely varying performance. Taking a holistic view that incorporates both the investment

Friday was the 4th day in a row that the NASDAQ closed higher. While this may not seem to be a big deal, it does not happen very often when the NASDAQ is trading below its 200-day moving average. The table below shows results following all times this has occurred since 2002. 2015-03-07 image1

These are the best quant mashup links for the week ending Saturday, 03/05 as voted by our readers: Quality is Rewarded: Clickthroughs vs Voting [Quantocracy] Machine learning for financial prediction: experimentation with Aronson's latest work - part 1 [Robot Wealth] Tech is Alpha [Cantab

I made the point to someone the other day that technology and coding is getting easier and easier to accomplish. I don't think I would have been able to perform 'machine learning' five years ago but with the resources available today (Python, SciKit Learn, and pages upon pages of

Back in Episode 32 we had a chat with Laurent Bernut, a systematic short seller who spent years working in the Hedge Fund world specializing in short selling strategies. He shared loads of knowledge with us in that episode but we actually had a lot more to talk about. We ran out of time back then so

In our latest Masters in Business podcast, we speak with quant and financial engineer Emanuel Derman. One of the first high-energy particle physicists to migrate to finance, he spent 17 years onWall Street, eventually becoming head of the renowned Quantitative Strategies group at Goldman, Sachs. At

In the current series on Advanced Trading Infrastructure we have described both the Position Class and the Portfolio Class - two essential components of a robust backtesting and live trading system. In this article we are going to extend our discussion to the Portfolio Handler Class, which will

One of the first books I read when I began studying the markets a few years ago was David Aronson's Evidence Based Technical Analysis. The engineer in me was attracted to the 'Evidence Based' part of the title. This was soon after I had digested a trading book that claimed a basis in

The academic research has provided investors with strong evidence that there is a small group of factors-or sources of returns-that have provided higher returns over the long term. To be considered among this group, the evidence should have the following characteristics: Persistence-it holds across

Was 2015 a hard year to make money if you were managing a portfolio of global asset classes? Absolutely! The Resolve Asset Management 2015 Annual Letter: "Navigating Active Asset Allocation When Diversification Fails", helps to explain why. You can read the summary of the letter and access

Is everyone around you talking about Machine Learning? Have you heard about some algorithms and techniques but missing the bigger picture? This could be a good place to start… A new generation of intellect Machine Learning is a hot topic in the science world right now. By combining the powers and

Cantab's Founding Partner and CTO, Erich Schlaikjer, explores the virtues and complexities of technology, and how good technology is ultimately what allows Cantab to create profits for our investors. Introduction When analysts enumerate the virtues of systematic funds, the first benefit in the

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

Tuesday posted the 1st IBD Follow Through Day (FTD) since the rally began. Unusual about this FTD is that it occurred in conjunction with SPX making a new 20-day high. The study below examines other times a 20-day high was accompanied by a FTD. 2015-03-02 image1 Results here are impressive over both

This paper investigates the size, value and momentum effects in 18 emerging stock markets during the period 1990−2013.We find that size and momentum strategies generally fail to generate superior returns in emerging markets. The value effect exists in all markets except Brazil, and it is robust to

I'm very proud of the following graph. Below I've shown the average number of clickthroughs a link receives from our website (excluding RSS, Twitter and Stocktwits) broken out by the number of votes cast by our readers. Votes by Clickthroughs Clearly (and way more starkly than I expected)

This review will review the “Adaptive Asset Allocation: Dynamic Global Portfolios to Profit in Good Times – and Bad” book by the people at ReSolve Asset Management. Overall, this book is a definite must-read for those who have never been exposed to the ideas within it. However, when it comes

In my previous posts I was talking about my experience learning the basics of service oriented applications. After many days and nights struggling with all the theory, practicing and trying different concepts and libraries, it forced me to go two steps back and watching the whole “big picture”

If you're working with daily data (without access to intraday data) and need to calculate volatility, then using close-to-close squared returns is by far not the best way to go. Trades and quants know that it is a very noisy metric, and come up with few work-arounds. In this post I will do a

Summary Style boxes give us the impression that "growth" and "value" sit at opposite ends of the spectrum. In reality, whether a company is growing or shrinking ("growth") is independent of whether a security is cheap or expensive ("value"). To align with the

Managing risk via tactical asset allocation (TAA) offers a number of encouraging paths for limiting the hefty drawdowns that take a toll on buy-and-hold strategies. But what looks good on paper can get ugly in the real world. There's a relatively easy fix, of course: consider the total number

I recently read “Adaptive Asset Allocation” ( link to the book) by Butler, Philbrick and Gordillo of ReSolve Asset Management. The book is the culmination of research developed over the years by the ReSolve team towards the next generation approach of dynamic asset allocation. The core

One of the most fertile areas of research is in factor rotation. Any asset class, investment strategy, or factor, despite working well over time, goes through periods of over and underperformance. Those periods set the stage for future reversion, and are largely due to fund flows and people chasing

For those of you who have been following my blog posts for the last 6 months will know that I have taken part in the Executive Program in Algorithmic Trading offered by QuantInsti. It’s been a journey and this article serves as a report on my final project focusing on statistical arbitrage, coded

These are the best quant mashup links for the week ending Saturday, 02/27 as voted by our readers: Build Better Strategies! Part 3: The Development Process [Financial Hacker] Volatility Futures and S&P500 Performance [Blue Sky AM] New Book from GestaltU: Adaptive Asset Allocation [Amazon]

Last month a millennial emailed me saying he liked my book. But he wondered if the outperformance of dual momentum would disappear if he used dollar cost averaging (DCA) because he would not be able to buy cheaply during bear markets. This is because dual momentum reduces bear market drawdowns. I

About this Course Our Python 1-day intensive course is addressed to all who wishes start programming in Python language straight away! We will cover the fundamentals of Python (2.7, 3.5), numerical aspects of coding, and over 100 individually crafted examples covering various applications coming

Key Points 1. Factor returns, net of changes in valuation levels, are much lower than recent performance suggests. 2. Value-add can be structural, and thus reliably repeatable, or situational—a product of rising valuations—likely neither sustainable nor repeatable. 3. Many investors are

This is my fourth article in a series devoted to helping investors stay disciplined in the face of market volatility—and even lengthy periods of underperformance by risky assets. The first was a December 2015 post dealing with what I call “investment depression.” The second was a January post

A question… When an overvalued security continues rising in price, does that mean the valuation indicator is broken? If you listen to many investors, the answer would be “yes.” An oft-repeated phrase I hear goes something like: “ABC valuation indicator has been flashing expensive since XX/XX

We’ve discussed the use of predictive regressions in the past. Here is an article to learn a bit more about the technique. And while the idea sounds cool, and could even be relabeled a low-tier “machine-learning” technique if someone wanted to sell the idea, we can’t find anything exciting

First draft of 'JavaScript for Financial Analysts' Chapter 16. ~ This book was aimed at introducing a VBA replacement. No doubt VBA has its place, but it is also stuck in that same niche, unable to evolve and in turn not giving VBA developers a chance to grow. Set in stark contrast is the

The period May 1 to the turn of the month of November (last five trading days October) has historically produced negligible returns. The rest of the year (late October to the end of April) has essentially all the year's gains. In this paper we show that there is a statistically significant

Tomas Nesnidal has been a full-time trader for over 11 years, specializing in automated algorithmic trading strategies. He has experience with a number of trading styles, including option trading, spread trading, statistical arbitrage and market internals but in this episode we’re going to discuss

This is the third part of our interview with a senior quantitative portfolio manager at a large hedge fund. In the first part, she discussed the theoretical phase of creating a quantitative trading strategy. In the second part, she described the transition into “production.” This interview

One question often asked in forums and blogs is how to adjust stock prices in order to take into account dividend payments. There are several reasons why we may be interested in adjusting stock prices: Analyzing total returns taking into account dividend reinvestments for reporting (performance,

This is the third part of the Build Better Strategies series. In the previous part we’ve discussed the 10 most-exploited market inefficiencies and gave some example algorithms for trading strategies. In this part we’ll analyze the general process of developing a model-based trading system. As

One of the most commonly cited maxims is that market timing is impossible. In fact, empirical evidence makes a compelling case that market timing is feasible and can yield substantial economic benefits. What’s more, we even understand why it works. For the typical portfolio investor, applying

In the previous article in the Advanced Trading Infrastructure series I discussed and presented both the code and initial unit tests for the Position class that stores positional information about a trade. In this article we will consider the Portfolio class, used to store a list of Position

Do Volatility Futures Provide Useful Information for Future S&P500 Performance? Volatility or VIX Futures are based on the S&P500 index and are calculated from the implied volatility of different option strike prices across different expiration periods. In contrast to the VIX index, VIX

Investors often focus their analysis on benefits. In the finance industry, we’ve distilled this down to a single metric: alpha. Benefits and risk require separate analysis. Increasing benefits does not necessarily reduce risk or even leave it unchanged. In practice, increasing alpha can actually

Risk is not a simple entity, it comes in many flavours, and requires respect and consideration even when you least expect. If one was to try ‘totally avoid’ risk in their market endeavours they would most likely just be holding cash – where are the returns in that? The truth is that in almost

Python in Sydney: Course+Workshop Wednesday, March 16, 2016

I’ve been off the beaten path for the last few weeks in East Africa, so I’m long overdue one of these “best of” posts. Below are the best quant mashup links while I was away, as voted by our readers: Stock Market Prices Do Not Follow Random Walks [Turing Finance] Fitting time series models