Questions tagged [quant-trading-strategies]

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 human trader) or automatically (by a computer).

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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 ...
Graviton's user avatar
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50 votes
4 answers
8k views

How much data is needed to validate a short-horizon trading strategy?

Suppose one has an idea for a short-horizon trading strategy, which we will define as having an average holding period of under 1 week and a required latency between signal calculation and execution ...
Tal Fishman's user avatar
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37 votes
4 answers
10k views

What types of neural networks are most appropriate for trading?

What types of neural networks are most appropriate for forecasting returns? Can neural networks be the basis for a high-frequency trading strategy? Types of neural networks include: Radial Basis ...
phoenix1886's user avatar
28 votes
8 answers
16k 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 ...
vonjd's user avatar
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28 votes
8 answers
5k views

How to design a custom equity backtester? [closed]

I was thinking about writing my own backtester and I realize I have to make some assumptions. So I was hoping I could post what I am planning on doing and hopefully some of you can give me some ideas ...
user667's user avatar
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27 votes
6 answers
4k views

Most successful investors using academic-based framework?

What are the most famous/best performing absolute-return funds employing approaches based on mainstream finance theory (i.e., theory presented in Journal of Finance, AER, Econometrica, using typically ...
gappy's user avatar
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27 votes
3 answers
7k 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 ...
26 votes
5 answers
9k 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 ...
vonjd's user avatar
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26 votes
3 answers
8k 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 ...
vonjd's user avatar
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26 votes
1 answer
3k views

How do different methods and techniques used in pairs trading compare?

I was going through the paper of Avellaneda (2008) on stat arb and I found it interesting that he uses asset returns vs. their respective ETFs to compute the s-score. I am wondering if anyone has ...
silencer's user avatar
  • 1,553
23 votes
2 answers
8k views

Regime-Switching Model for detecting market shifts

I'm always wondering whether anyone has utilized regime-switching models successfully in forecasting or trading. Academia has long discussed this topic in-depth, such as using Regime Switching ...
Simon's user avatar
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23 votes
4 answers
10k 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 ...
Oleg Vazhnev's user avatar
21 votes
3 answers
9k 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 ...
siamii's user avatar
  • 747
21 votes
2 answers
5k 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 ...
Ram Ahluwalia's user avatar
21 votes
0 answers
917 views

Questions on Kelly criterion

I am new to asset allocation problems and have some concerns regarding the derivation of the continuous-time Kelly criterion (i.e. not the original version destined to discrete sports betting/Casino). ...
user22568's user avatar
  • 211
20 votes
4 answers
5k 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 ...
Darren Cook's user avatar
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20 votes
10 answers
12k views

Usage of Random forests in Quantitative analysis of stocks

I have a question about Random forests and how they could be utilized in trading? I heard Random forests are used for classification, is that accurate? If so, could someone give an example of what ...
user793468's user avatar
19 votes
4 answers
4k views

How to optimally allocate capital among trading strategies?

I'm trying to find an optimal way to allocate capital among trading strategies. "Quantitative Trading" by Ernie Chan claims on page 97 that the optimal fraction of capital to allocate to a given ...
Tom Tucker's user avatar
19 votes
1 answer
4k views

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

For example, Stanford has a class (STATS242 - Algorithmic Trading and Quantitative Strategies) on quantitative trading. But i am not able to determine what are the textbook(s) used in this course. The ...
mauna's user avatar
  • 293
19 votes
2 answers
5k views

How can I learn about the quantitative aspects of market making in illiquid single stock options?

I would like to learn more about the possible ways of doing quantitative research regarding option market making. In particular, while the mainstream index option market may be very liquid, the ...
Soham's user avatar
  • 305
19 votes
2 answers
3k views

How to build a regime-switching model which knows its own limits?

In recent months I've come to the conclusion that there are not only certain regimes in the markets (like bear or bull) but phases where all models fail because we are in uncharted territory. The ...
vonjd's user avatar
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18 votes
7 answers
13k 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?
Rich C's user avatar
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18 votes
4 answers
2k 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 ...
vonjd's user avatar
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18 votes
2 answers
2k 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 ...
Palace Chan's user avatar
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17 votes
4 answers
4k views

What is the ideal ratio of in-sample length to out-of-sample length?

Suppose you are running a portfolio of quantitative strategies and that you develop a new potential strategy to be added to the mix. Assume for simplicity that the new strategy is independent of the ...
Tal Fishman's user avatar
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16 votes
7 answers
3k 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?
siamii's user avatar
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16 votes
1 answer
4k views

statistical arbitrage vs factor trading

I've recently read Avellaneda & Lee which seems to be widely recommended as an introduction to Statistical Arbitrage methods in trading. For those who aren't familiar with the paper, the method in ...
Michael's user avatar
  • 490
16 votes
3 answers
24k 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 ...
Lalas's user avatar
  • 269
16 votes
2 answers
370 views

Quantitative features of asset price bubbles beginning

Surprisingly, I've found very little research on this topic. Research papers I've come across propose some simple models to say that asset prices might be in a bubble. Most of the models take these ...
Lisa Ann's user avatar
  • 2,121
15 votes
2 answers
671 views

Transparent quant products with real track record

A real track record is better than backtesting! I am looking for products, funds, certificates, indices etc. that are based on quantitative trading strategies where the strategies and performance ...
vonjd's user avatar
  • 27.4k
15 votes
1 answer
739 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 High-...
Jonathan Evans's user avatar
14 votes
1 answer
1k 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 ...
asmaier's user avatar
  • 563
13 votes
4 answers
998 views

What are the risk factors in analysing strategies?

What do you think of strategies displayed on timelyportfolio.blogspot.com? I really like the fact that there is some code to reproduce the strategies, but they seem very elementary because he does ...
nicolas's user avatar
  • 759
13 votes
2 answers
5k views

Quantitative strategies in the Fixed Income space

I'm looking to learn more about systematic strategies in the the fixed income space, particularly in Rates products (anything from simple cash to inflation or vol). I've been reading a couple of ...
Ile's user avatar
  • 311
13 votes
2 answers
2k views

The Definition(s) of Momentum

I am currently studying the Momentum strategy and its differences in results (returns) when we change the formula describing momentum. There are indeed no accurate formulas for implementing the ...
Pierre's user avatar
  • 299
13 votes
1 answer
1k 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 that ...
curious's user avatar
  • 1,037
13 votes
1 answer
3k 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 ...
Mindstorm's user avatar
  • 305
12 votes
5 answers
3k 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 ...
silencer's user avatar
  • 1,553
12 votes
2 answers
15k views

How to calculate Sharpe Ratio from $ returns?

I have a pairs strategy that I am trying to calculate the sharpe ratio for. Currently I am using python for my analysis and calculation. I have a dataframe that contains the cumulative returns in $'s ...
jod51's user avatar
  • 141
12 votes
3 answers
2k 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 ...
Jason's user avatar
  • 123
12 votes
3 answers
4k views

Optimality of Kelly criterion in non-normal environment

It is a not so well known fact that the Kelly criterion is only optimal in a nice and well-behaved Merton-world. It is far from optimal when things are getting non-(log)normal (i.e. more realistic!). ...
vonjd's user avatar
  • 27.4k
11 votes
2 answers
5k views

R Backtesters: Quantstrat vs SIT

I am learning R, and want to start using a backtester. I have spent about a day reading all I can about R backtesters, and it seems there are 2 main contenders: quantstrat, which uses the packages ...
Adam Crypt's user avatar
11 votes
3 answers
3k views

Why is there a stong intraday-correlation between spot and vol?

Fig.1 shows an intraday scatterplot of the DAX future against its volatility index VDAX on 6-Jan-2016. The data suggest a strong negative correlation between the two. There are various models ...
user3072048's user avatar
11 votes
1 answer
313 views

Trading strategy for a misspecified density

I am trying to implement a strategy that exploits potential misspecifications in density predictions (e.g.: long states with too-low probability; short states with too-high probability). In particular,...
sets's user avatar
  • 1,461
10 votes
5 answers
2k 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 ...
CQM's user avatar
  • 1,862
10 votes
3 answers
11k views

What is the best alternative of Quantlib library

We need to build a Fixed Income Portfolio Risk Analytics solution. Somehow due to administrative reason we can't use Quantlib which is written in C++, even call it through SWIG via JNI. We have tried ...
pmr's user avatar
  • 335
10 votes
2 answers
3k views

How long do algorithmic trading strategies typically remain profitable?

As I understand it, an algorithmic trading strategy could lose profitability, if, for example: it's rediscovered by others employee turnover leaks the strategy to others market conditions change ...
MWB's user avatar
  • 301
10 votes
1 answer
2k views

What is the average Sharpe ratio of volatility arbitrage funds?

Where can I get data on performance metrics for volatility arbitrage funds? I am trying to compare the Sharpe ratio of my strategy to those of the major players.
Alan's user avatar
  • 101
10 votes
1 answer
5k 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 ...
Brian's user avatar
  • 101
9 votes
5 answers
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 ...
Tal Fishman's user avatar
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