In my last post I introduced how I identified possible technologies and learned the basics about different languages, operating systems and IDE’s. I also mentioned that my choice was to build on top of .Net’s C# and Visual Studio, as my base for developing. In this post I want to dig a little

We have a large number of vendor-developed backtesting platforms available in market which can be very efficient in backtesting automated strategies; but to decide which once will suit your requirements, needs some research. Ideally custom development of a backtesting environment within a

It is with a giddy sense of schadenfreude that every year around this time, we get to read bold prediction rubbish like this: A best-selling personal finance guru, a behavioral economics columnist at MarketWatch, a Harvard-educated economist and other notable financial experts all warn the stock

We investigate whether two clustering techniques, k-means clustering and hierarchical clustering, can improve the risk-adjusted return of a random equity portfolio. We find that both techniques yield significantly higher Sharpe ratios compared to random portfolio with hierarchical clustering coming

We often see statements like “linear regression makes the assumption that the data is normally distributed”, “Data has no or little multicollinearity”, or other such blunders (you know who you are..). Let’s set the whole thing straight. Linear regression assumes nothing about your data It

Recently I posted a number of articles on various breadth diffusion indicators and their relative effectiveness in predicting the health of the S&P 500. The big winner was the system that compared the number of stocks in the historical constituents of the Russell 3000 that were up 30% or more

I'll leave it to others to chime in whether forward P/E's are useful or not given the fact they typically overstate earnings and I'll ignore that earnings may be at a cyclical peak (more on the latter here). As an aside, technicals in the market are filthy, as most short-term signals

In the last two articles (here and here), we reviewed the backtest results of 28,840 short options straddles on the Russell 2000 Index (RUT). If you haven't read the last two articles, you may want to first read the introductory article for this series Option Straddle Series - P&L Exits. In

At the end of last year I announced that I would be working on a series of articles regarding the development of an Advanced Trading Infrastructure. Since the initial announcement I haven't mentioned the project to any great extent. However, in this article I want to discuss the progress

Summary We run a U.S. sector-based, long-or-flat trend following strategy. With largely sideways market action, 2015 was a tough year for trend following, especially for long-only trend following, since the large negative trend in the Energy sector could not be monetized. We believe portfolio

We show that opportunistic insider traders can be identified through the profitability of their trades prior to quarterly earnings announcements (QEAs), and that opportunistic trading is associated with various other kinds of managerial and firm misconduct. The subsequent buys and sells of

In the words of Asness et al (2014), “No other factor…has nearly as long a track record, as much out-of-sample evidence (including across time, geography and even security type), or as strong and reliable a return premium as momentum.” They were speaking only of relative strength momentum.

For those traders looking for an edge in every aspect of trading, today's topic is something that isn't discussed too much but has had a great impact on the 2 guests of this episode. The topic is collaboration in trading and the guests are Michael Cook and Kevin Davey. Both guests have

As index investing has grown in popularity, investors focus more and more on the market’s overall return and less on the return of its component parts (individual stocks). But underneath the hood of each market index we find many inequalities. The top 20% of stocks represent 85% of the overall

Stock markets as a fundamental component of financial markets play an important role in the countries’ economies. The factors that a ↵ ect the price of stocks include the political situations, company performance, economics activities, and some other unpredicted events. The traditional

In a previous post, I showed some elementary properties of discrete time Markov Chains could be calculated, mostly with functions from the markovchain package. In this post, I would like to show a little bit more of the functionality available in that package by fitting a Markov Chain to some data.

Joe Marwood has recently posted an article which includes a variety of tests of the RSI(2) when applied to the SPY etf or individual stocks. You can see the original article here. A while back I also tested the RSI(2) on a variety of Equity Index ETFs and I figured that readers might be interested

Hi Guys, please find the information about the upcoming event in Singapore where I also submitted my proposal to host and conduct a full-day workshop on Frontiers of Python for Finance. I hope to see You there! -Pawel SCF2016-logo_final_retina2 You are cordially invited to contribute as an author or

This code box contains updated code from my previous post. The main change is the inclusion of bias units for the directed auto-regressive weights and the visible to hidden weights. In addition there is code showing how data is pre-processed into batches/targets for the pre-training and code showing

West Texas Intermediate (WTI) Crude Oil price started plummeting from a high of US$107.95 in June 20, 2014 to a low of US$31.42 in Jan 11, 2016. Prices of US Banks and oil are becoming more coupled now due to US Banks’ exposure to energy companies; especially medium size companies and shale oil

Momentum in firm fundamentals, i.e., earnings momentum, explains the performance of strategies based on price momentum. Earnings surprise measures subsume past performance in cross sectional regressions of returns on firm characteristics, and the time-series performance of price momentum strategies

The January barometer is the claim, often mentioned in financial circles, that the performance of the stock market in January is a reliable portend of its performance for the full year — as January goes, so goes the year. The term was first coined by Yale Hirsch in 1972. Many market analysts take

Nothing gets the adrenaline rushing as strong backtesting results of your latest equity trading idea. Often, however, it is a mirage created by a subset of equities, which have performed particularly well or poorly thereby inflating the results beyond what seems reasonable to expect going forward.

This paper suggests an alternative explanation for the recently documented betting against beta anomaly. Given that the equity of a levered firm is equivalent to a call option on firm assets and option returns are non-linearly related to underlying stock returns, linear CAPM-type regressions are

First draft of 'JavaScript for Financial Analysts' Chapter 13. Download all the code here and give it a test run! ~ The central theme of this book has been transforming data in a stateless manner using map and reduce. Data flows through our code until it's in the form we want it to

In this post we will discuss about building a trading strategy using R. Before dwelling into the trading jargons using R let us spend some time understanding what R is. R is an open source. There are more than 4000 add on packages,18000 plus members of LinkedIn’s group and close to 80 R Meetup

Wesley Gray, Jack Vogel and David Foulke preface their 2015 book, DIY Financial Advisor: A Simple Solution to Build and Protect Your Wealth, by stating that: “This book is a synopsis of our research findings developed while serving as a consultant and asset manager for large family offices. …Our

Persistent selling has resulted in an unprecedented stretch of elevated levels of New 52-Week Lows. One of the most noteworthy aspects to the ongoing stock market correction has been the persistence of selling pressure. Unlike declines in recent years, there has been little to no let up, even when

This is a follow up to my RUT Straddle Backtest Results Summary and presents the RUT straddle results in a slightly different format. Basically tabular results in a structure similar to my iron condor and strangle results articles (here, here, and here) ... with each row associated with a strategy

I've just added the ability to estimate forecast scalars to pysystemtrade. So rather than a fixed scalar specified in the config you can let the code estimate a time series of what the scalar should be. If you don't understand what the heck a forecast scalar is, then you might want to read

Suppose that you had the magical ability to foresee turns in the business cycle before they happened. As an investor, what would you do with that ability? Presumably, you would use it to time the stock market. You would sell equities in advance of recessions, and buy them back in advance of

After graduation I moved into a small, empty, apartment in the city. My grandmother, I’ll never forget, told me that moving into a new house is like meeting someone for the first time, you need to pick one room and make it yours, go slowly through the house, be polite and introduce yourself, so

The term ‘curse of dimensionality’ is now standard in advanced statistical courses, and refers to the disproportional increase in data which is needed to allow only slightly more complex models. This is true in high-dimensional settings. Here is an illustration of the ‘Curse of

Larry Williams has been a guest of the podcast before, sharing insights from 50 years of trading in Episode 20. In 1987 he won the World Cup trading championship, turning $10,000 in to over $1.1 million in 12 months. He is a published author, with a long list of best-selling books and has also

World markets have been extremely volatile recently. TASI changed -12.68% in 1-month, -25% in 3-months and -31.73% in 12-months. How do the changes in TASI compare to other GCC stock markets? In this post, I use QQ plots for comparing the log returns distribution of TASI index versus other GCC stock

These are the best quant mashup links for the week ending Saturday, 01/16 as voted by our readers: If you’re going to sin, sin systematically [Flirting with Models] On The Relationship Between the SMA and Momentum [QuantStrat TradeR] Components of a black box, humans vs computers, and HFT w/

Accruals are the non-cash component of earnings. They represent adjustments made to cash flows to generate a profit measure largely unaffected by the timing of receipts and payments of cash. Prior research finds that expected returns increase in firm profitability. However, firms with high accruals

Over the past few months, a number of new CRAN packages have appeared that make it easier for R users to gain access to curated data. Most of these provide interfaces to a RESTful API written by the data publishers while a few just wrap the data set inside the package. Some of the new packages are

Early this week, Rob Hanna at Quantifiable Edges put out some research showing what happens when you get Repeated Hard Selling at Intermediate-Term Lows. The definition he used was: S&P 500 ($SPX) closes down more than 1% for three straight days. Each close is a new 20-day low. The final close

Despite recent stock market carnage, the reaction by the VIX has been a relative yawner. Well, the New Year hangover continues. Another day, another drubbing in the stock market. With indices pushing double digit losses just 8 days into the new year, it certainly seems reasonable to expect some

A reader on my blog (Thanks Kris!) suggested that I explore how much noise is needed to send Genotick off the deep end. You’ll recall from my earlier post on the subject that I was looking for hidden biases that Genotick might have, and explored how it responded to pure and noisy sine waves of

We use industry multiples-based market-to-book decomposition of Rhodes-Kropf, Robinson and Viswanathan (2005) to study the value premium. The market-to-value component drives all of the value strategy return, while the value-to-book component exhibits no return predictability in both portfolio sorts

Happy new year. This post will be a quick one covering the relationship between the simple moving average and time series momentum. The implication is that one can potentially derive better time series momentum indicators than the classical one applied in so many papers. Okay, so the main idea for

If you knew the future price of assets when you are creating a portfolio, it would be the best way to be a millionaire. However, this is difficult if not impossible, so what if you knew what would be the movement of the price? It could be enough to earn money! To predict the trend of the price is

A really interesting paper hit the NBER wires recently. The central argument of the paper is that “rock star” thought leaders dominate a field, but when they die, new thought leaders are able to emerge. In summary, there seems to be a cost and a benefit attached to a powerful intellectual: On

Over the last seven weeks we reviewed the backtest results of 28,840 short options straddles on the Russell 2000 Index (RUT). In this post, I won't discuss how these trades were structured and managed. For background on the setup for the backtests, as well as the nomenclature used in the charts

By far the greatest source of personal consternation as a professional in markets is investors’ obsession with finding the best stocks, or the best stock pickers. The fact that investors pursue this objective at all undermines all meaningful arguments about efficient markets. After all, why on

Algorithmic automated trading or Algorithmic Trading has been at the centre-stage of the trading world for a few years now. The percentage of volumes attributed to this form of trading has been increasing in the past few years. As a result, it has become a highly competitive market that is heavily

Do you know where the risk in your portfolio is coming from? Well, of course, you do. After all, you designed the portfolio and so the asset weights reflect the risk contribution. A 50% weighting in stocks translates into a 50% contribution to risk for the portfolio overall, right? That’s a

Last Monday, we posted a piece regarding what was one of the worst year-opening days ever for stocks. In it, we looked at prior years that saw very weak days to open the year to see what it might mean (if anything) going forward. Well, it must have been some New Year’s Eve party because the