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Need advice on market neutral algo
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Need advice on market neutral algo

  #1 (permalink)
Elite Member
Kowloon, Hong Kong
 
Futures Experience: Advanced
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Posts: 14 since Aug 2018
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Need advice on market neutral algo

HI all,

I have built a market neutral, mean reversion day trade strategy that somehow performs very well on long side, but always only merely profitable on the short side....to the extent, sometimes the overall spending on trader's fee+ commission is higher than my net profit on short.

Shall I still keep my short side strategy in my algo? Or change my algo to keep the long side only?
It sounds like to me its empirical incorrect if my mean reversion strategy is only long but no short.

Need some advice here.

Cheers,
MY

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  #2 (permalink)
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charlotte nc
 
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It sounds like your "market neutral" strategy may not be as neutral as you think. You likely have a system that works well in ranges, but doesn't perform as well during trends. And from your testing you have likely experienced larger trends on the short side, and more range action on the long side. Arbitrarily cutting out shorts (Assuming your algo has the same logic on both sides) wouldn't make sense. Your real issue is likely that mean reversals do well when the market is flat, ranging, choppy, etc... But as volatility increases and trends break out, these types of systems do poorly.

My advice would be to filter out trending markets, and only trade when the market is flat. That would be the best approach to your type of strategy.

Ian




my2108 View Post
HI all,

I have built a market neutral, mean reversion day trade strategy that somehow performs very well on long side, but always only merely profitable on the short side....to the extent, sometimes the overall spending on trader's fee+ commission is higher than my net profit on short.

Shall I still keep my short side strategy in my algo? Or change my algo to keep the long side only?
It sounds like to me its empirical incorrect if my mean reversion strategy is only long but no short.

Need some advice here.

Cheers,
MY


In the analytical world there is no such thing as art, there is only the science you know and the science you don't know. Characterizing the science you don't know as "art" is a fools game.
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  #3 (permalink)
Trading for Fun
Atlanta
 
Futures Experience: Intermediate
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Posts: 79 since Jan 2017
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What is the best way to codify an anti trend algo? One that has a process for trend identification and that will stay out the market?how do we programmatically identify ranges chops consolidation so that our amigo knows when to deploy our system?

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  #4 (permalink)
Elite Member
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HI Ian, thanks for your advice and i think you are spot on.

I do have the same question as Michael's...
How do we identify of a breakout or trends...the identification of such are usually after the fact...maybe I am still an amateur in this field.
Would be great if someone can point me to the right direction.

Cheers,
MY

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  #5 (permalink)
Trading for Fun
Atlanta
 
Futures Experience: Intermediate
Platform: TT Desktop
Favorite Futures: ZF, ZN, ZB, ES
 
Posts: 79 since Jan 2017
Thanks: 22 given, 27 received


my2108 View Post
HI Ian, thanks for your advice and i think you are spot on.

I do have the same question as Michael's...
How do we identify of a breakout or trends...the identification of such are usually after the fact...maybe I am still an amateur in this field.
Would be great if someone can point me to the right direction.

Cheers,
MY

If it is a range, then calculate x standard deviations over a measure of time or rotations. Price outside of x standard deviation = false. Sleep. Run again in 10 mins..... True = define range by open and closes of bars within x standard deviations.

Something like that?

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  #6 (permalink)
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Ozquant's Avatar
 
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Donchian channels or W%R good for identifying range breakouts over 'x' period

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  #7 (permalink)
Elite Member
charlotte nc
 
Futures Experience: Master
Platform: ninjatrader
Broker/Data: NinjaTrader
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Posts: 341 since Jan 2015
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There are quite a few threads on here that cover this topic in more depth... Check out any all the topics on volatility. I forget which thread it was, but we had a good thread going earlier this year or late last year that covered this topic fairly well.

Ian



my2108 View Post
HI Ian, thanks for your advice and i think you are spot on.

I do have the same question as Michael's...
How do we identify of a breakout or trends...the identification of such are usually after the fact...maybe I am still an amateur in this field.
Would be great if someone can point me to the right direction.

Cheers,
MY


In the analytical world there is no such thing as art, there is only the science you know and the science you don't know. Characterizing the science you don't know as "art" is a fools game.
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