Mean reversion strategies rely on the premise that extremes in price eventually revert to the mean price over time. They are effective during established markets – bull, bear or sideways – but unfortunately do not perform well during market regime changes or tail events. Tail events are outcomes that have …
Blog Posts
I was recently asked to be interviewed by Andrew Swanscott who runs bettersystemtrader.com. If you haven’t heard of this site before, it’s well worth a visit. Many of the trading legends that I have studied during the past ten years have shared their insights with Andrew during a Podcast. I …
In my last post we contrasted the effects of data integrity and sample size on the backtested performance of mean reversion and trend following models. In today’s post we’ll explore which markets are most suited to each approach, but before we do that, let’s quickly take a look at why …
The Sharpe Ratio A well-known and often quoted measure of risk is the Sharpe ratio. Developed in 1966 by Stanford Finance Professor William F. Sharpe, it measures the desirability of an investment by dividing the average period return in excess of the risk-free rate by the standard deviation of the …
Introduction A blog series to contrast the key distinctions between trend following and countertrend strategies during building, testing and trading. In this post we examine the effects of data integrity and simulated trade sample size on backtested performance. Price Data Integrity One of the major obstacles for traders looking to …
Short-Term Diffusion Enhances Trade Signals Following on from my previous post, in which I discussed a similar short-term diffusion approach, I’m going to share the performance of another simple breadth indicator this week. This study serves to confirm that breadth is a valuable addition to any trader’s toolkit. QuantTrade – …
Introduction I have the privilege of working with two of the sharpest minds in the industry. Last week I had a discussion with them via email about selecting a suitable benchmark for the strategies I run. I was specifically questioning them on the use of cash returns as a benchmark. …
One of the inputs I rely on to control risk is the simple moving average, more specifically, the 200 day simple moving average. This is a deceptively simple technique, but don’t be misled. The quantified results of this indicator make it one of the easiest and most powerful filters around. …
Short-Term Diffusion – A Type of Breadth Indicator With the launch of Trading Stocks just around the corner I thought that it would be fun this week to explore one of the quantified breadth filters that clients will have access to in our new platform. The indicator that I’ll feature …
Human beings – An Emotional Bunch! We know that human beings are not always rational when making investment decisions. Have you ever overpaid for something in the heat of the moment? What happened? Well, it’s likely that your decision to purchase was driven by emotion rather than rational reasons. I’ve …