# Questions tagged [strategy]

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### Maximum profit from trading on a random walk with a specific strategy

My question is related to this thread, but I'm interested in a special case. Suppose that the price of an asset starts at 100 USD, and changes according to a geometric random walk; one step of 1% ...
999 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 ...
1 vote
213 views

### Sharpe ratio 1 and probability to lose money

I came across the following interview problem and I am looking for a possible solution. We have a strategy with risk free return 0 and sharpe ratio 1. What is the probability to lose money over four ...
37 views

### How to Control for longer term trends in an asset against an intraday strategy?

Say I have a simple S&P500 intraday strategy that buys at open, close at noon. What are some good methods for controlling for the fact that the S&P500 tends to move higher over the long term ...
57 views

248 views

### Colosseum Fight - A probability problem

Problem Statement : Alice and Bob are in Roman times and have 4 gladiators each. The strengths of each of Alice's gladiators are 1−4, while Bob's gladiators have strengths 4,5,9, and 12. The ...
72 views

### Is the self-financing condition necessary/"useful" in practice outside of replication/valuation?

I know that the need for a portfolio/strategy to be self-financing (the purchase of a new asset needs to be funded by selling of an older one/ones) is very helpful when attempting to price derivatives ...
143 views

### Is the Gittins index useful in determining when to change an investment/trading strategy?

I've been reading about multi-armed bandits and the explore/exploit trade-off that can be solved with dynamic allocation indices such as the Gittins Index Theorem. Could this be applied to when to ...
1 vote
99 views

### In the CRR model, describe the strategy replicating the payoff $X=(S_T-K)^{ +} +a(K-S_{T-2})^{+ }$ for $a \neq 0$ [closed]

In the CRR model, describe the strategy replicating the payoff $X=(S_T-K)^{ +} +a(K-S_{T-2})^{+ }$ for $a \neq 0$ $X$ consists of two parts: European call option with strike price $K$ and expiration ...
604 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 ...
9k 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 ...
118 views

### Differences vs ratios

High, I am working on an exercise which involves performing a regression analysis to predict market direction (e.g. up or down). I am using daily OHLCV data. I've created various factors from the ...
1 vote
205 views

### Relative Strength in Altcoins compared to Bitcoin

I trade stocks using relative strength analysis compared with S&P index. I was wondering if crypto traders do the same compared with Bitcoin price %change. These coins had a higher %gain than btc ...
227 views

### Workflow in algorithmic strategies

Sorry for the basic question, I'm trying to educate myself on algorithmic strategies. Just to see how it works, my idea is to create a simple moving average strategy. Let us suppose I have $N$ ...
2k 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 ...
779 views

1 vote
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### 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 ...
459 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 ...
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 ...
2k 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?
900 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 ...
127 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 ...
1 vote
261 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 ...
4k views

### Categories of systematic trading strategies?

What are the main categories of systematic trading strategies (e.g. momentum, mean reversion), as might be considered by an index or fund-of-fund analyst? Are there any common sub-strategies?
259 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 ...
372 views

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), ...
237 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 (...
783 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 ...
1k 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'...
1 vote
92 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,...