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 ...

learn more… | top users | synonyms

2
votes
3answers
1k views

How to trade volatility?

I am analyzing the volatility of financial stock returns and let's say I have a pretty good model to forecast tomorrows volatility of the stock returns. So let's say for simplicity reasons I have a ...
5
votes
1answer
202 views

Momentum - skipping the most recent month

Many momentum studies skip the most recent month when calculating momentum to account for "reversal effects." On the other hand, I've read online that some people get better results from not skipping ...
2
votes
1answer
400 views

What are some quantitative trading strategies used by high-frequency trading companies to make a killing on a market crash day on 24Aug2015?

http://blogs.barrons.com/focusonfunds/2015/08/24/high-frequency-trading-firms-just-made-a-killing/ Virtu Financial (VIRT), the high-speed trading firm that went public earlier this year, was one ...
16
votes
3answers
4k views

Papers about backtesting option trading strategies

I am looking for all kinds of research concerning option trading strategies. With that I mean papers that publish results on different option trading strategies properly backtested with real-world ...
11
votes
1answer
375 views

What mathematical models did Harry Markopolos run to prove that Bernie Madoff 1% a month gain was a Ponzi scheme?

http://www.cbsnews.com/news/the-man-who-figured-out-madoffs-scheme-27-02-2009/ Asked how long it took him to figure out something was wrong, Markopolos said, "It took me five minutes to know ...
2
votes
1answer
98 views

Is there any application of power law to predict large returns?

Power law basically states that after a certain threshold, probability distribution $p(x)\sim c\,x^{a}$ where $x > x_{min}$, which is often the case for financial time series. It is also generally ...
1
vote
1answer
177 views

What is the logic behind this backtesting code in R

I am new to R and I have found this simple backtesting code and can you explain me what is happening here. ...
4
votes
1answer
173 views

Self-Frontrunning Arbitrage

If I have a large order to fill, shouldn't I always buy a derivative in the same direction to profit from the market impact? E.g. I sell 1 million shares and so I buy a put, which will hence almost ...
1
vote
1answer
394 views

Technical Analysis in FX: literature on effective methods

I am trying to use technical analysis method (Kagi and Renko method in particular) to analyse my high frequency data. I applied those methods over 1 year, 2 years and 5 years high frequency data. I ...
6
votes
2answers
262 views

Is there any research on pyramiding techniques of entering/exiting a trend?

I am looking for any research about optimal strategies for gradually building (scaling in) positions inside a trend as well as optimal gradual exit strategies on pullbacks/reversals to minimise ...
3
votes
0answers
95 views

How does one simulate intraday strategies which don't end up flat at the close?

I ran into this trying to simulate trading interlisted names between the NYSE and the TSX. Depending on my strategy parametrization it would sometimes end up with a significant short or long dollar ...
1
vote
4answers
4k 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 ...
2
votes
2answers
363 views

What are Barra style factors useful for?

I'm reading the paper's summary of: Beckers, Stan, and Jolly Ann Thomas. "On the persistence of style returns." The Journal of Portfolio Management 37.1 (2010): 15-30. about how some of these '...
1
vote
0answers
42 views

Major categories of tradable securities and the ETF's that track them?

I'm just starting to learn about quantitative finance and I'm overwhelmed by the amount of tradable securities out there. I'm seeing all these things like VXX, TLT, TMF, SPY, SPXL, HYG, VWEHX and so ...
4
votes
2answers
326 views

Covariance between two stocks in a two-factor model

I am studying the Arbitrage Pricing Theory using Pairs Trading: Quantitative Methods and Analysis.In page 44 the author gives an example on how to calculate the covariance between two stocks. I will ...
1
vote
0answers
86 views

ISM PMI data - sector trend through ranking and seasonal decomposition

I have monthly data for each of the 18 sectors in the ISM PMI. Each datapoint shows the trend of a sector: growing, contracting or neutral. It also tells the strength of that trend with a number: "...
42
votes
9answers
19k 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 ...
7
votes
3answers
236 views

New ways of communicating risk

One of the scapegoats of the financial crisis was value at risk. Still communicating risks effectively to clients is a big challenge and hugely important (also to keep your job as a quant!) In this ...
2
votes
2answers
153 views

Short volatility strategy using strangles

For a short volatility strategy using option strangles, is it better to target a fixed premium to earn? Or a fixed vega? Objective is to maximise the return/risk (sharpe) of the strategy. Any help ...
6
votes
1answer
1k views

Can momentum strategies be quantitative in nature?

I have read some papers on quantitative trading strategies and it seems like strategies that focus on mean reversion or statistical arbitrage give signals that are dependent on some quantitative model....
2
votes
1answer
80 views

Relationshiop between central bank official currency rates and spot forex

Central banks publish official figures for domestic interest rates, as well as spot currency rates for a few select countries (largest trading partners). To prevent arbitrage, I "expect" that in the ...
2
votes
0answers
108 views

forecasting trading costs with end of day data

I am trying to create a model that forecasts trading costs (using end of day data, so no intra day data). My trading cost (also called Implemented Shortfall (IS) is defined as such for a single stock, ...
0
votes
1answer
825 views

Binomial tree vs trinomial tree in pricing options

Very new to pricing models. Is there a general guideline when to use binomial tree and when trinomial tree is preferred? As far as I know, unlike binomial tree, trinomial tree only gives a range ...
18
votes
8answers
9k 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 ...
1
vote
0answers
69 views

Calculating Asset Returns

The question pertains to a simple phenomenon. There is gold futures listed on Exchange A and Exchange B. Exchange A and Exchange B overlap times with A and B starting 8 hours later and A and B ...
12
votes
4answers
4k 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 ...
1
vote
0answers
71 views

How to make the algo decide over a optimal selling point?

Please don't bully if its a basic question.Kinda new to the topic hence experimenting. Problems to construct trading algorithm.For the example I assume I am getting a buy signal from the DMI/ADX ...
2
votes
1answer
111 views

How to account for correlation between strategies when they are added linearly?

There are n strategies which are going to be combined linearly. Using a pre-exisiting model I get a set of n weights which will be used to combine the strategies. But the model does not take ...
1
vote
1answer
108 views

What does NPV ASSENTED after stock name mean?

For a project, I have to quantitatively implement a strategy for value investing in EURO STOXX 50. I pulled the data from Datastream. When I was checking some data plots for dividend yields and total ...
1
vote
0answers
138 views

Method to combine trading signals to achieve higher sharpe

There are a few thread with the question of methods to combine different trading signals/strategies. But is there any method that can ensure that by combining two signals, we can achieve a better ...
2
votes
1answer
351 views

Various ways to choose bonds for a butterfly strategy?

What are the various ways to choose bonds for a butterfly strategy? For eg., I already know the most common one i.e., choosing short and long term for the wings (barbell) and the medium term for the ...
0
votes
3answers
357 views

Research methodology of systematic strategies

Can someone please share your research methodology of systematic trading strategies? I feel like I am always using the a same data driven procedures over different underlyings and would like to get ...
1
vote
0answers
77 views

Straddle neutral strategy

What does it mean to implement a delta-neutral strategy for straddle ? A straddle consists in buying a call and a put simultaneously, at the same date, on same underlying, with same maturity and ...
3
votes
3answers
7k views

What is the difference between the Interactive Brokers demo account and a personal paper trader account?

I'm interested in testing my trading strategy using the Interactive Brokers API for Trader Workstation. A demo account is provided to play with TWS for free, but if I fund a real account I will be ...
-1
votes
1answer
107 views

conservative approach payoff table

With the conservative approach, we choose the decision which maximises minimum payoff. I was wondering which decision is chosen if 2 decisions have equal minimum payoff (which is the maximum)? ...
0
votes
2answers
256 views

Who holds stock overnight?

I have heard from several different sources, e.g. professors, books and traders, that daytraders and quants avoid holding positions overnight and during holidays and weekends. Instead, they sell their ...
4
votes
1answer
2k views

Learn backtesting using MATLAB

What are some good ressources (books, articles, ...) to learn backtesting of investment strategies using MATLAB ? It can be strategies related to fixed-income, equities, derivatives, ... whatever. ...
3
votes
2answers
286 views

Arbitrage and dominant strategies

If there is no arbitrage there is no dominant trading strategy, but there may be arbitrage opportunities even if there are no dominant trading strategies. Could you explain this statement and bring ...
9
votes
3answers
8k 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 ...
-1
votes
2answers
156 views

Automatic trading strategies - what are benchmarks for PL on serious backtesting?

There are plenty books and sites which offer automatic trading strategies (robots) and claim they are very profitable. On the other hand many people do not believe in such things, saying that: if ...
1
vote
0answers
30 views

Correct term for position accumulation relative to price?

I've been looking at various accumulation algos and it appears that the greater majority are predicated on building a position largely relative to a time component or market volume for obvious reasons....
1
vote
2answers
202 views

what volatility do we calculate using GARCH model

what volatility do we calculate using GARCH model, Historical vol or Implied vol or Future Vol or Actual vol.
0
votes
0answers
416 views

How to calculate returns of backtested strategy?

Lets say I have some strategy (long/short) backtested for certain period. Strategy has entries/exits only at the end of the day and may have overnight positions hold. Now I would like to compare ...
7
votes
1answer
1k views

What are the textbooks used to teach Quantitative Trading at universities?

For example, Stanford has a class on quantitative trading. But i am not able to determine what are the textbook(s) used in this course. The same also applies for similar courses at Stony Brook, ...
2
votes
0answers
87 views

seasonality and generalized additive model

I am reading a report which talks about seasonality. There is a chart showing the average returns for each month of the year. In the chart it appears the last 3 months of the year tend to be negative. ...
1
vote
1answer
274 views

quadratic programming portfolio optimisation

I am using MATLAB to do an optimisation. The QP minimisation problem is set up in the standard form shown below. The optimisation is used to calculate the weights (x vector in the equation below) of a ...
1
vote
1answer
81 views

optimisation problem with linear constraint

I have an optimisation problem. I wish to maximise a function subject to a constraint. It is the constraint that is causing me problems. I am using an addin in Matlab which does the optimisation ...
3
votes
2answers
470 views

How to select optimal betting strategy from backtest?

I have written a model for predicting the winner of UFC fights. My model calculates the probability of each fighter to win a given match. I have back tested the model and found it to be very ...
2
votes
1answer
409 views

Analog - Pattern Recognition model using KNN

I'm building a pattern recognition model for my master thesis. The idea is to build a framework with some Macro variables (long/short term rates; rates differential; equity; fx; vix) in order to find ...
4
votes
3answers
323 views

Capital Allocation for Portfolio of Multi-Strategy and Multi-Instrument

I would like to know if there is a way (or theory) to manage a multi-strategy, multi-instruments portfolio that would calculate the optimal weight to allocate capital for each combination of strategy ...