Questions tagged [strategy]

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51 views

Market neutral without short selling

Would it be possible to design a market neutral strategy without short selling? According to Investopedia: Market-neutral strategies are often attained by taking matching long and short ...
2
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3answers
266 views

Basics of trading strategy development

I am Computer engineer and I know programming in python, go-lang, C++, I am interested in trading, I know how to make system to get data, send orders, back-test, fault-tolerance system, etc I have ...
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19 views

Arbitrage and dominant strategies : Linear Pricing measure

Given a monoperiodic setting, my professor defines that if there is no arbitrage opportunity, it means that there is no dominant strategy. This is clear. However he defines that if there is NO ...
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2answers
78 views

Black-Scholes Delta value at maturity?

Having to implement a replication strategy for European options, I encounter the following problem: Delta tells me how many shares to hold at time t in my replication strategy. To do so, I simply ...
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5 views

Non-binary Strategy evaluation by comparing to a perfect baseline

When building a strategy, how do you evaluate if it is 'good enough'? Some may say 'Well if it has positive return and low drawdown it should be a good indication', and others will add more 'things it ...
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1answer
95 views

Rigorous proof that volatility target strategies actually tend to the target

I'm working on a paper about volatility timing and target strategies, practical implementation included. While writing down the mathematical description of the model I wanted to include a rigorous ...
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1answer
92 views

Adjusting volatility while constructing portfolio

I am trying to construct a portfolio based on a macro momentum strategy for backtesting purposes as outlined in https://www.aqr.com/-/media/AQR/Documents/Insights/White-Papers/A-Half-Century-of-Macro-...
6
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3answers
331 views

Is there a way to figure out “hot” strategies?

Apparently, short vol strategies have gotten crowded, according to the recent Bloomberg piece. When I read this, I thought how about factor based strategies -- value, growth, etc.? Aren't they ...
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2answers
73 views

Custom benchmark construction (S&P500 + add-on)

If I have a strategy that has the same risk as S&P500 but also requires 150 bps on top of S&P500 Index, how would I construct such a benchmark? I have the following approach, but it is not ...
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2answers
121 views

If price is a random walk, is ok to use the binomial distribution to estimate a trading strategy?

Is it OK to assume a trading strategy should have a binomial distribution if the price is just a random walk? using p of the event as: $$\frac{AverageStopLossPercent}{AverageStopLossPercent + ...
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0answers
151 views

R squared of a good Trading strategy

What would you consider a decent R square value of a good trading strategy. I know R squared is not a good metric for judging trading strategies but still at an initial stage how do you decide to ...
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2answers
1k views

Why should a self-financing strategy be previsible?

There is an amazing answer on mathematics stackexchange which defines what a self-financing strategy is—both in the discrete and continuous sense. Please check out this short answer to better ...
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58 views

What is the difference between Rolling Returns and Moving Average and how to calculate them?

So I understand what a moving average is and how to calculate it. I'm using this numpy function for it. I am somehow confused about how to calculate rolling returns. Different sites explain it ...
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1answer
315 views

Why not just be long VIX and wait for the next volatile period?

Over the past 3 months, VIX has been relatively low. Therefore, there seems to be a "free-lunch" here by just being long VIX, and wait for the next market turmoil (which is happening at the moment ...
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0answers
108 views

how to avoid building a strategy that depends on very long trends

When I construct a strategy, it is easy to make subtle dependencies on trends that have existed for a long time. Sometimes it is legit to explicitly take advantage of the trends. For example, it has ...
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2answers
144 views

Strategy if dividend is lower than expected

Here is a question I encountered: In 2009, a trader believes that dividends for a stock in 2011 will be lower than expected, what is the best strategy among: long/short 2010 forward, long/short ...
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1answer
206 views

Strategy for implied volatility

I encountered this question: "A trader observed that the implied vol of OTM calls and puts are higher than that of ATM option, what is the best strategy among: Calendar Spread, Bull Spread, Bear ...
2
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2answers
194 views

Why Good forecasting != Good trading? [closed]

In AI for algorithmic trading: 7 mistakes that could make me broke the author talks about why good forecasting cannot equal good trading based on the strategy selected. While reading the article I ...
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0answers
479 views

Why “profit factor” is used to compare trading strategies?

A lot of books/articles/trading forums mention that "profit factor" is probably the most important measure and should be used to compare different trading strategies. They define profit factor as ...
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2answers
230 views

Seagull Spread payoffs

I'm looking at different option strategies and the ways that their payoffs differ (and therefore how they can differently be used). I'm looking at the long seagull (buy a call spread and sell a put), ...
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1answer
146 views

Is forex trade set up where profit target is twice as far from stop loss is good strategy? [closed]

I was listening to this youtube video and the author is explaining that good way is to set up forex trades in a way where 10 pips in 'losing' direction (Stop loss) and 20 pips in 'winning' direction (...
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1answer
140 views

Methods to improve systematic strategies

Soliciting advice on ways to improve systematic strategies. Some things that I can think of off the top of my head: Using a risk model (correlations) instead of 1/n or 1/vol weighting Including a ...
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1answer
472 views

Option Strategy: Python Implementation Advice

I've been tasked to create and backtest an option strategy. The strategy, in vague terms, is to essentially write call options on securities in a universe, i.e., selling insurance. I have an idea of ...
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0answers
341 views

Market Maker portfolio management

I am interested in articles/strategies related to portfolio and inventory management for market makers and to management of order cancellation, updates of order, etc. Most of the strategies from ...
3
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1answer
569 views

What's the rationale behind having several orders on each each side for market makers

I've been browsing market making codebases and I've noticed most of them tend to create multiple orders on each side. Originally I thought having orders on each side is an advanced approach but here'...
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0answers
88 views

How to choose trades over time when capital is limited

Say I'm in the business of trading forward contracts. So at some point in time, I look at the markets, and determine a number of trades I could make. For each trade, I know the profit I expect to make,...
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1answer
302 views

Why there is a Deviation on my RSI indicator in comparison from one of the other Trading Markets

Hello all, and sorry for this stupid question. I am using my custom RSI indicator to which I created programmatically. I follow the equation type from here. My problem is when I compare it with the ...
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0answers
55 views

How to ascertain/establish certainty of a portfolio rebalancing strategy?

I created a portfolio rebalancing strategy, that I am currently paper trading with. It is, primarily, based on mean-reversion principle with a few rules in place, and geared towards cryptocurrencies, ...
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0answers
96 views

Backtesting: what happens to real-executed order if mine fills instead?

I'm writing a backtester and using an order-by-order Nasdaq ITCH feed whilst testing it. Let's say the bid-ask spread is 100 @ 9-11 @ 100 My strategy inserts an bid order for 100 @ 10 and this ...
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2answers
639 views

Backtrader doesn't display time when backtesting

I am trying to backtest a strategy with Backtrader (not the first time) and have a problem while printing date & time for each iteration (time stay on 23:59:59). Here are the first lines of my ...
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1answer
2k views

Calculate Returns of Momentum Strategy (Overlapping Portfolios - Jegadeesh and Titman 1993)

I want to implement a Momentum Strategy, followed by Jegadeesh and Titman (1993) with overlapping Portfolios. I want to duplicate their results. Quick Link to the paper (Unfortunately the Method is ...
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2answers
58 views

Does MPR imply strategies with positive average return?

Doesn't the existence of Market Price of Risk make investment strategies relying on the average outcome of a risky investment attractive as compared to the expected value of it (computed under the ...
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1answer
104 views

Literature on credit risk premia

I am looking for a comprehensive ressource describing known strategies of credit risk premia. Is there such kind of articles/books/websites?
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90 views

Calculating basic win% of simple trend-following strategy?

I apologize if this isn't the correct place to post this. I'm not quite sure where else I should post on stackexchange. I'd like to preface this by saying I'm not actually planning on trading. This ...
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0answers
30 views

Best strategy for generating floats with minimum amount of risk

I'm looking for a way to get cash-in-hand in exchange for future obligation. For example, I can sell deep-in-the-money puts and buy out-of-the-money puts (for hedge) with expiration of 2 years, The ...
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4answers
394 views

Where to get historical equity data?

I have a decade of experience as a software engineer, but little quantitative finance knowledge. I have an idea for a simple trading strategy based around moving averages. In order to test it, I'd ...
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3answers
3k views

Writing an Options Strategy Backtester

I've been doing some digging, and this question has been asked many times in various forms over the years - Backtesting Options Strategies in R Are there any good tools for backtesting options ...
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0answers
198 views

Trading signal strength: [-1 to 1] or [predicted return]?

In the context of a backtesting engine, is it better to have strategy generate trade signals in the range from -1 to 1 or as exact predicted returns (e.g. -12% or 26%). The difference lies in how to ...
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1answer
242 views

Do you think this strategy will work?

I have been playing with paper trading and am planning on getting into the real stock market soon, but I want to make sure my strategy is realistic before I put real money on it. I made a program ...
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1answer
212 views

how to measure a event driven strategy?

How to measure an event driven investment strategy? Say I have a strategy which I assume that if a firm has positive momentum and it has a refinance corporate action, it's value will increase. For ...
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4answers
344 views

Shorting an option every day vs shorting only at maturity

Suppose we have 2 strategies : strategy A : every $N$ days, we short a call option with a time-to-maturity of $N$ days; strategy B : every day, we short $\frac{1}{N}$ of a call option with a time-to-...
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3answers
253 views

Multi-asset class allocation

How to allocate asset classes in a multi-asset portfolio? An institutional client needs to meet his pension liabilities, and suggested a multi-asset-class strategy. I'm trying to find ideas to pitch. ...
2
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1answer
1k views

How to evaluate a success rate of a trading strategy

In order to compare various trading strategies, I am trying to calculate the success rate (the ratio of winning and losing trades). While it is clear to me that this indicator is far from being an ...
4
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1answer
375 views

How to compute daily compounded backtest returns closer to real-world results?

I often run quick tests of trading strategies in my analytics suites by: multiplying a vector of signal (lagged, {-1,0,1}) with a time series of daily percentage returns doing a cumulative product of ...
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3answers
815 views

Is linear programming important for quant?

I'm thinking about taking a course on Linear and Convex Programming, but I don't know how useful it is in the real world finance. Which areas in finance is mathematical programming used?
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1answer
1k views

Divergent or Convergent Strategies? Which is the way to go?

Consider first the simple convergent strategy to invest some amount $X$ in a game, if you win you simply take the winnings and keep playing a subsequent game. In the case of a loss, you believe in ...
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1answer
1k views

Pre-trade evaluation and risk assessment of option trading strategies (in market practice)

When a trader gets conclusion of the volatility is being underestimated (via volatility cone or some other technology), actually there are multiple ways for his trading. (Let's assume the underlying ...
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1answer
1k views

How to choose a rolling window type and size?

I'm developing a trading strategy which takes into account certain parameters (e.g. avg spread, weighted price, etc). Of course, these parameters can be calculated over different window types (i.e. ...
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1answer
1k views

Liquidity detection based strategy in HFT

This article contains the following statement. In terms of liquidity detection, traders intend to decipher whether there are large orders existing in a matching engine by sending out small ...
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4answers
546 views

Proof that the number of trades done (successfully) matters for whether or not a strategy was lucky

Me and a friend is trying to settle and argument in relation to the following quote by Nassim Nicholas Taleb: I don’t want to spend too much time on Buffett. George Soros has 2 million times more ...