Creating a trading strategy is only the first step to trading successfully. You must then evaluate its performance and decide if you can trust it on a live account. While so much attention gets paid to coming up with a strategy, there is surprisingly little on how to tell if the strategy is any

Yesterday we shared a link to a video showing how Python’s Networkx package could be combined with Gephi to produce some stunning network visualizations. Today we wanted to use these same tools to look at the correlation structure of the S&P 500. To do so, we took the correlation matrix of the

The price of gold is a unique and interesting financial series but not an easy one to predict. It is very volatile with large sharp unexpected movements. In this post we analyse its relationship with certain currencies and if they can provide an indication of the direction of the gold movements.

This post will introduce my up and coming IKReporting package, and functions that compute and plot rolling returns, which are useful to compare recent performance, since simply looking at two complete equity curves may induce sample bias (EG SPY in 2008), which may not reflect the state of the

I have added three new summary pages to this blog that can be accessed from the horizontal navigation/menu bar above. The topics covered are: Starting Structure Iron Condor Articles This page lists most of the iron condor (IC) starting structure backtesting posts from this blog. This page can be

The study below appeared in the Quantifinder on Friday. It is one I last showed on January 27, 2014 and it examines large drops on Fridays. Both the Crash of ’29 and the Crash of ’87 happened on Monday. The Crash of ’87 is still remembered by many traders that are active today. In 1987 there

#83 - Pre-Holiday Effect Authors: Carchano, Tornero Title: The Pan-European Holiday Effect Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2556949 Abstract: The construction of a single European block in the context of financial markets has caused the different national stock exchanges of

This past Friday (3/6/2015) was a difficult day for most portfolios that are long any major asset excluding the dollar index and volatility. Stocks, bonds and gold declined. SPY was down 1.4%, TLT fell 2.2%, GLD also down 2.7%. We got some reactions from some of our subscribers asking if the models

To install Systematic Investor Toolbox (SIT) please visit About page. MKTSTK an another amazing graphics example to visualize correlation matrix at Stock market visualization: Minimum Spanning Trees Following their example, I will visualize below the stocks in NASDAQ 100 Index for the last year

See this, but then VIX and everything else has not peaked yet… Connor RSI4 triggered EOD

Understanding Options-Based Sentiment in the Stock Market (Traderfeed) What Do Accruals Tell Us About Future Cash Flows? (Barth, Clinch and Israeli) Look for People, Not for Alpha: Mutual Funds Success and Managerial Intellectual Capital (Naidenova, Parshakov and etal) Financial Education, Literacy

Barry has a nice piece in the Washington Post asking a simple question: What is the best valuation metric to assess if a stock is cheap or expensive? Jack and I were honored to see that Barry highlighted our 2013 Journal of Portfolio Management paper: Analyzing Valuation Measures: A Performance

This excerpt is from the book Global Asset Allocation now available on Amazon as an eBook. If you promise to write a review, go here and I’ll send you a free copy. It is also available as a printable PDF on Gumroad. —— “No strategy is so good that it can’t have a bad year or more. You’ve

This excerpt is from the book Global Asset Allocation now available on Amazon as an eBook. If you promise to write a review, go here and I’ll send you a free copy. It is also available as a printable PDF on Gumroad. —- “I think the single most important thing that you can do is diversify your

In a recent article I wrote about an indicator that I read about somewhere that I had written down only as “MVCI”. Well, thanks to alert reader Gary, I have come to learn that I read about in the March 2013 issue of one of my favorite magazines, “Technical Analysis of Stocks and

We wanted to celebrate our 100th post on MKTSTK by exploring a new type of financial visualization. New to us, at least. One of the best aspects to making of living off the markets is that you never stop learning. A few weeks ago we ran across an example in Python’s sklearn for visualizing stock

Congratulations to Apple (AAPL) for being added to the Dow Jones Industrial Index. Frankly, it is about time. AAPL is the largest company by market cap in the world and one of the most influential. What apparently made this possible is a 4 for 1 stock split by Visa (V). Since DJIA is a

Before and after performance of stocks recently added to the Dow Industrials $DIA $AAPL

The recent series analyzed Factor Dual Momentum. US Value and Momentum factor portfolios were tested back to 1950, courtesy of Ken French’s data library. Portfolios are ranked on 12 month return. Using VBR and PDP for value and momentum, the current … Continue reading

In the February 2015 edition of The Journal of Finance, a well known academic paper, “The Pre-FOMC Announcement Drift”, was finally published, almost 4 years after the working paper was released in the public domain in 2011. Authored by researchers, Lucca and Moench, at the US Federal Reserve,

How worried should you be when you hear someone say that the market is overvalued? Wesley Gray at Alpha Architect takes a deep dive into the topic of timing the market using CAPE, Shiller’s Cyclically Adjusted PE ratio in a recent post. His results should give pause to even he most strident market

Ever heard that joke about how if you are young and you aren't a democrat, you have no heart, but if you are old and you aren't a republican, you have no brain? Well, there seems to be something similar happening with the portfolios of young and old investors. Stocks with the youngest

I have shown the study below a several times in the past, but not since January, and the employment night hot streak remains strong. The overnight futures market has been loving the Employment Report since the summer of 2012. The Employment Report is released at 8:30 AM Eastern (normally the 1st

Contrary to basic finance principles, high-beta and high-volatility stocks have long underperformed low-beta and low-volatility stocks. This anomaly may be partly explained by the fact that the typical institutional investor’s mandate to beat a fixed benchmark discourages arbitrage activity in

A kind reader directed me in a comment on Experiments in Time Series Clustering to this paper. Clustering of Time Series Subsequences is Meaningless: Implications for Previous and Future Research Eamonn Keogh and Jessica Lin Computer Science & Engineering Department University of California –

Utilities Divergence Spells Trouble for Stocks $SPY $XLU

SPX rallies 200% in 6 Years $SPY

After a strong string of positive performances, the State of TF index pulled back last month to post a negative return, still leaving 2015 in positive territory. Please check below for more details. Detailed Results The figures for the month are: February return: -2.05% YTD return: 4.24% Below is

MOVING FROM RESEARCH TO TRADING I have written recently about the comparative advantages of different programming languages in the context of research and trading (see here). My sense of it is that there is no single “ideal” programming language – the best strategy is to pick an appropriate

The recent post took a look at the Equity Put/Call Ratio (the ratio of put volume to call volume for all listed options of individual stocks across all exchanges) and what it tells us about the market. Above we see a five-day moving average of the Index Put/Call Ratio (the ratio of put volume to

Last week I announced the Robust Asset Allocation, or RAA, portfolio tracker which is inspired by Alpha Architect, The original article cited by Alpha Architect used 7-10 Treasury Bonds for the bond holding. I chose a broad-based bond bond (BND) in lieu of a 7-10 year treasury ETF like the iShares

Over the last eight posts we reviewed the backtest results for Iron Condors initiated at 38 days to expiration (DTE) on the Russell 2000 index (RUT). To be consistent with all of the earlier bactests posted on this blog, we looked at 38 DTE Iron Condors initiated with short strikes at four different

The market is off to a rough start again today. ES has the potential to leave an unfilled gap down for the 2nd day in a row. This is a fairly rare thing to see happen, but is has often been followed by a gap up the next morning. This can be seen in the study below. 2015-03-04 image2 The stats here

We were recently passed along an article suggesting that valuation spreads, or the spread in a valuation metric across the most expensive and least expensive stocks, matters for timing investments. We take this concept one step further and investigate if valuation spreads can help us time value and

One of the most useful ways to visualize the stock market is with Minimum Spanning Trees (MST). These are network graphs in which each vertex represents a stock symbol and where strongly related stocks are connected by edges. One popular way to do this is by using correlation matrices. In the past,

The market is off to a rough start again today. ES has the potential to leave an unfilled gap down for the 2nd day in a row. This is a fairly rare thing to see happen, but is has often been followed by a gap up the next morning. This can be seen in the study below. 2015-03-04 image2 The stats here

How should one develop a strategy for leveraged ETFs? Do you develop the strategy on the unleveraged ETF and then apply the rules to the leveraged ETF? Or do you develop the strategy on the leveraged ETF directly? Or do you develop the strategy on the unleveraged ETF then use signals on that to

Trend following’s performance accelerated over the last few months, with some markets showing some possible over-extension in their trends. It’s not such a surprise to see some pull-backs finally taking place. This has naturally taken the index down, mostly giving back some of the large open

Tuesday saw the 1st somewhat sizable drop for the market in a while. And the action triggered the study below, which looks at relatively large drops from intermediate-term highs. I have updated all the stats.

A recent paper (“Evaluating Trading Strategies”) on the hazards of backtesting in The Journal of Portfolio Management has been receiving a fair amount of attention lately, inspiring some folks to go off the deep end and argue that econometric analysis of investment strategies is always a bad

I'm currently working on creating better indicators of stock market sentiment. Above is a five-day moving average of the equity put/call ratio: the ratio of put volume traded for all listed individual stocks divided by their call volume (no index volume included; raw data from e-Signal). You

Do you only invest in the in the country where you live? If you do it’s a big mistake as it severely limits your investment opportunities and returns. You are fishing in a pond that is just too small. ​ Don’t take my word for it But don’t take my word for it as I found an interesting

The R Project has once again been selected as a mentoring organization for this year's Google Summer of Code (GSoC). If you're not familiar with GSoC, it's a global program that offers students a stipend to write code for open source projects, under the direction of a mentor. Mentors

This post is a continuation of the prior post. In this post we will look at the backtest results for dynamic exits of 38 days-to-expiration (DTE) Iron Condors (IC), with 20 delta short strikes, with different profit and loss exits as a percentage of the initial credit. Recall that these RUT ICs were

This excerpt is from the book Global Asset Allocation now available on Amazon as an eBook. If you promise to write a review, go here and I’ll send you a free copy. It is also available as a printable PDF on Gumroad. To celebrate the launch of the new book, my last two ebooks (Global Value and

We wanted a quick (and free) way to lookup the SIC code for a stock symbol in python. You can do this manually with the SEC’s EDGAR website, but if your list is 100’s of stock symbols this can get old pretty quickly. The following code makes use of Python’s BeautifulSoup package to extract the

I’ll be in NYC twice in March to speak at QuantCon on March 14th and the MTA Conference on March 27th. If you want to schedule a meeting let me know!

For the second year in a row, the S&P 500 has started the year with a down January followed by an up February. In the following table, the past 13 times appear in chronological order. 2015 is the first pre-election year that opened with this combo. Bold-italic years are years that started with a

Last night I spotted this tweet about the R package TSclust. I should start by saying that I really don’t know what I’m doing, so be warned. I thought it would interesting to apply TSclust to the S&P 500 price time series. I took the 1-day simple rate of change, grouped by year with dplyr,

Following on from my last post, here is an Octave .oct file implementation of the one dimensional Particle swarm optimisation routine, with one slight twist: instead of using a for loop I've implemented it within a while loop with a stopping condition that the algorithm should cease once there