Quantitative trading strategies use quantitative signals and a set of predefined systematic rules to make trading decisions. Strategies operate within parameters based on historical analysis (backtesting) and real world market studies (forward testing). Strategies may be executed manually (by a ...

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0answers
251 views

Fluid dynamics for order book depth modelling

Would someone be able to give me an idea what type of fluid dynamics I could look at for modelling the order book? My background is more signals-related maths (correlation, covariance, fourier etc). ...
32
votes
8answers
11k views

How useful is the genetic algorithm for financial market forecasting?

There is a large body of literature on the "success" of the application of evolutionary algorithms in general, and the genetic algorithm in particular, to the financial markets. However, I feel ...
3
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0answers
417 views

How to determine ratios for mean-reverting basket

Suppose I have a basket of 3 securities A, B, and C. I believe that the basket is cointegrated and I want to create a mean-reverting trade. I fit the model: ...
6
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5answers
670 views

Indicators and research for stress-based investment strategies

In reference to this paper: Can risk aversion indicators anticipate financial crises? and the investable UBS Risk Adjusted Dynamic Alpha Strategy: ...
2
votes
2answers
923 views

backtesting options strategies in R

I would like to backtest an options strategy in R. I require the ability to delta hedge and rebalance to options in the portfolio at different frequencies (daily, monthly,etc.) What packages are the ...
-2
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1answer
335 views

How to test the efficiency of Exponential Moving Averages as a trading startegy? [closed]

I would like to know how I can test the efficiency of Exponential Moving Averages when it comes to forex trading. Can i have any papers that point to the efficiency of this strategy? Thank you. :)
3
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0answers
236 views

Quant/Stat Factor Performance Website/Distribution?

Does anyone know of a decent quant/stat factor website, distribution(public or private) or publication that tracks performance of "many" of traditional quant/stat factors? By that I mean would show ...
14
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2answers
1k views

From a high frequency point of view, with a price prediction and assuming infinite leverage, how do you determine optimal trade size?

I have read about something like Kelly criterion for long term expectation maximization assuming a fixed starting bankroll. But if one can assume unlimited leverage, and one has a signal for a price ...
3
votes
3answers
2k views

How to distinguish between different types of algorithmic trading

Algorithmic trading involves the use of algorithms to optimally execute trading instructions. Then there are algorithms which initiate trades, based on various quantitative strategies (e.g. pairs ...
10
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3answers
725 views

What is the expected return I should use for the momentum strategy in MV optimization framework?

As all research on the momentum strategies are focused on the indicator, i.e. the entry point, there seems not much discussion on its expected return? Though there are some discussions on the exit ...
3
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3answers
538 views

portfolio diversification tester

Are there any online tools (optionally with developer API, to spare me the scraping) that given an existing portfolio, calculate how well a new candidate position would score to increase combined ...
0
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1answer
387 views

Selecting timeframe for time series analysis

In technical analysis, we may use confluence of direction for 3 timeframes to roughly gauge bias of market now. Similarly, if we use time series forecasting methods to predict(say daily data-whether ...
14
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7answers
8k views

Switching from Matlab to Python for Quant Trading and Research

Has anybody else out there made this switch? I'm considering it right now. What were the negatives and positives of the switch?
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1answer
505 views

Target daily ROI for a market-making algorithm

I'm designing a market-making algorithm, I was wondering what a decent ROI / day would be to aim for in such a system?
4
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2answers
731 views

Cointegration trading: Ignoring pairs that aren't economically related

Cointegration trading question What's the state of the art when it comes to choosing proper subsets of stocks/assets where cointegrating relationships aren't ignored as (likely to be) spurious? For ...
3
votes
1answer
930 views

Understanding Passive Rebate Arbitrage

I was reading a BMO paper which offered the following example of passive rebate arbitrage: "For example, if BBD.b is trading at $4.71 - ...
8
votes
1answer
850 views

What is the Sugihara Trading System?

I recently heard the term Sugihara Trading System. I guess it might be some trading strategy or a special model to predict trends in market data, but I couldn't find out anything about it. Does anyone ...
7
votes
3answers
598 views

Why is random trading minus transaction costs not zero expected value?

Somebody was telling me that if you buy randomly and assuming no transaction costs in todays market place, you wont make money 50% of the time and lose 50% of the time because of adverse selection. Im ...
2
votes
1answer
535 views

Using alpha to evaluate trading strategy

I have a trading strategy that generates returns $R_{t}$. I want to test the strategy by looking at the alpha: $R_t - R_{f,t} = \alpha + \beta (R_{m,t} - R_{f,t}) + e_t$ I compare my alpha against ...
5
votes
1answer
663 views

Statistical significance of trading systems that use indicators with long lookbacks

Let's say we have a trading system that trades daily, holding for one day, but uses an indicator that looks back over the last 5 years. A simple example could be the percent change in price of an ...
1
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2answers
542 views

Evaluating forecasting algorithm

I am trying to evaluate a forecasting algorithm for stock price prediction. However, the performance of the algorithm may be very much tied to the trading strategy. Is there a systematic way for ...
1
vote
0answers
78 views

How to trade risk-adjusted returns?

Why does dividing daily returns by daily range eliminates fat tails and results in an (almost) gaussian distribution? And how could that distribution be exploited to enter trades?
1
vote
1answer
213 views

normalized accumulation distribution

I am looking for a way to take an accumulation/distribution indicator and normalize it so I can compare a bunch of stocks with stock prices that have no relationship with each other. EDIT: This ...
5
votes
4answers
2k views

How should I include the bid-ask spread as a transaction cost in a backtest?

I have two backtesting algorithms: One that uses bid and ask prices for signal generation. For example: Buy when $ask < threshold_1 $ and sell when $bid > threshold_2$. Bid and ask prices are ...
1
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3answers
2k views

Appropriate method for calculating negative returns on a trading strategy?

I have a cumulative profit/loss time series below for a trading strategy, what is the appropriate way to calculate the returns in percentage for such a series? My issue is the appropriate ...
5
votes
2answers
1k views

How are momentum and reversion long/short strategies dynamically combined in trading?

I'm trying to understand how to combine two strategies dynamically in trading: one mean-reversion and the other momentum. One way (also the simplest one) of doing this is by scaling/normalizing ...
0
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0answers
40 views

Inferring Returns From Minimal Data Points [duplicate]

Possible Duplicate: How much data is needed to validate a short-horizon trading strategy? Suppose I have daily returns for a trading strategy against one month of data. Before starting ...
10
votes
1answer
388 views

How does one measure the effect of latency on potential returns?

I am looking to evaluate the hypothetical advantage one trading system has over another in terms of the possible returns given their latency. Irene Aldridge wrote a piece (How Profitable Are ...
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1answer
1k views

Can end-to-day trading be profitable? If not, why? [closed]

Many academics argue that end-to-day trading, where you go long or short before opening and sell your security at the end of the day, is not profitable. Various explanations are given for this ...
13
votes
3answers
3k views

What are the best sources for equity quantitative research?

What are the best sources of quantitative finance research in equities? I will list a couple and note an asterisk if the research is available by request (i.e. non-clients) or online: BAC-Merrill ...
-3
votes
1answer
448 views

Trading Strategies and Portfolio Constructions based on Cross Sectional Regression? [closed]

I often see trading strategies and portfolio construction that are based on cross-sectional regression. For example, I often see regressing some numbers against some factors. I was wondering how ...
12
votes
2answers
2k views

statistical arbitrage option overlay strategies / volatility trading

Here's an interesting trading puzzle that I would love to get the community's input on. Let's say there exists an alpha signal that does a good job of sorting equities expected excess returns over ...
17
votes
7answers
6k views

How are cryptography and speech recognition technology applied to forecasting financial markets?

One of the answers to my previous question regarding the strategy of Renaissance Technologies, there was a reference to The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly ...
-4
votes
1answer
561 views
1
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0answers
543 views

Using volatility cycles to switch between trend following & range bound trading? [closed]

"...a low volatility environment is usually a good environment for trend following strategies; see Jez Liberty’s state of trend following report here..." ...
12
votes
4answers
1k views

HFT: What is the big differentiator in comparison to other time scales?

High Frequency Trading (HFT) seems to be the big money making mystery machine these days. The purported source of unlimited floods of gelt pouring into the investment shops using it. For me, HFT is ...
12
votes
3answers
3k views

Techniques to optimize the placement of orders in market making strategy?

Market making often requires placing and canceling a lot of orders. You have to buy and sell nearly simultaneously, so you need to move orders pretty often to beat other traders. But I would like to ...
3
votes
2answers
491 views

Distribution for High Kurtosis

Can you please advise which distribution to follow when your skewness is 0.28 and Kurtosis value is 51. Since it's leptokurtic and positively skewed I would like to fit distribution and also wanted to ...
7
votes
5answers
1k views

Is Visual Basic a fast enough for millisecond orders

I have an API that for an order routing platform that is in visual basic. The maximum frequency or orders to exchanges will be milliseconds, where the underlying systems are expected to be able to ...
12
votes
5answers
3k views

Proof that you cannot beat a random walk

There is much speculation to what degree financial series are random (and what kind of randomness prevails). I want to turn the question on its head and ask: Is there a mathematical proof that ...
15
votes
6answers
2k views

Can social media be applied to algorithmic trading?

Can social media sites, like Twitter, be used to analyze financial markets for algorithmic trading? How much research has been done on this topic?
5
votes
5answers
2k views

What are the advantages of switching platforms/languages between strategy development and implementation?

I am interested in coding a medium frequency (trading over minutes to hours, holding for days to weeks) quantitative trading strategy and trading it with Interactive Brokers. I have seen many people ...
9
votes
1answer
867 views

How to use macroeconomic indicators for long/short trading strategies?

I am trying to understand how to use macroeconomic data in my trading. I understand that using such data could be used to gauge an overall view of the market and how it's doing as a whole. I have been ...
7
votes
2answers
629 views

What quantitative strategies were successful through the 2008 crisis?

Obviously, strategies like "short everything" did well during this period, but getting the future right is one thing and having a robust strategy is another. In particular, many quantitative ...
6
votes
4answers
933 views

How to properly evaluate backtest returns?

Do you evaluate a strategy in a backtest based on the cumulative returns generated by the strategy (i.e. looking at the cumulative returns of the trades that occur) or do you start with a certain ...
8
votes
1answer
1k views

How to apply the Kelly criterion when expected return may be negative?

My concern is how to handle a negative value for the Kelly formula. Even when you have a system that has positive expectancy, you can (and usually will) sustain a number of losses, sometimes ...
4
votes
3answers
2k views

How to compute the alpha decay of a strategy?

How can one compute the alpha decay of a systematic trading strategy?
11
votes
3answers
3k views

How to combine multiple trading algorithms?

Is it possible to combine different algorithms so as to improve trading performance? In particular, I have read that social media sentiment tracking, digital signal processing and neural networks all ...
16
votes
4answers
2k views

Evaluating automated trading strategies: accepted practice

Both for private projects, and for clients, I've been working on code a lot this year to evaluate automated trading strategies. This often ends up turning into the task of how to fairly compare apples ...
6
votes
2answers
5k views

What is a medium to low frequency trading strategy and why is it less hyped?

The term high frequency trading has been used quite often recently to refer to trading using real-time tick data (or data aggregated to few seconds) and having an intra-day holding period. How are ...