Quantivity Blogsite

I discovered an interesting new blog site for linkage. Quantivity is run by a economist and mathematician turned IT guy who takes a much more technical approach to quantitative analysis and delves into topics like Fourier Transforms and Wavelets. I perused through a number of posts and this one in particular caught my eye, additionally it was created on my birthday:

Naïve Backtesting is Bogus

Although I mostly agree I will add that the market can really only do 2 things, Mean Revert or Trend. A regime shift is usually characterized by which method/strategy is making more money at a particular frequency. Keep in mind that the Daily chart may be trending but intra-day may show highly profitable mean-reverting strategies. The simple answer is make sure you have all your bases covered and trade a diversified portfolio of strategies, that is unless you’ve discovered the holy grail and can forecast regime shifts ahead of time.

The other suggestion is to focus on Money/Risk Management. Your actual edge will likely fluctuate over the life of your trading. The reason trend followers tend to stay in the game is their losses are usually small (though frequent). A Mean Reversion trader exposes themselves to catastrophic loss but tends to win more often. Throughout this blog I have posted ideas on how a mean reversion trader can protect themselves through the use of options. It is an effort to get the reader less interested in finding that ‘perfect’ entry or system and instead focus on trading!

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~ by largecaptrader on September 16, 2009.

One Response to “Quantivity Blogsite”

  1. Thanks for your kind comments and link, largecaptrader. I broadly concur with your assessment, especially vis-a-vis decomp by reversion/trending. I would amplify along the same lines and posit further forecasting is actually unnecessary, if you can model regime distribution; by analogy: statarb does not require any “forecasting” (in the classic econometric sense), but makes money because of distributional assumptions (often amplified by either/both leverage and law of large trades).

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