How to Predict Asset Prices (and how not to)

How to Predict Asset Prices (and how not to)

If you have some factor that you think predicts future stock returns (or similar) and you are making charts like below, then here are some tips… We’ll go through an example of trying to “time” SPX with the level of VIX. You get daily SPX index prices and daily VIX close data You align them […]

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What P&L Swings Can I Expect as a Trader?

Many beginner traders don’t realize how variable the p&l of a high-performing trading strategy really is. Here’s an example… I simulated ten different 5 year GBM processes with expected annual returns of  20% and annualized volatility of 10%. (If you speak Sharpe Ratios, I’m simulating a strategy within known Sharpe 2 characteristics.) I plotted the […]

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How do I know if I have an edge?

I’ve been helping a family friend with his trading. I’ve given him a simple systematic strategy to trade by hand. First, we set expectations We can plot the distribution of historic trade returns from past trading or a backtest as a histogram.   This is useful because it gives us a hint as to what […]

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Are Cheap Stocks Expensive? A Simple Equity Factor Analysis Walkthrough

I have been sharing examples of simple real-time trading research on my Twitter account. I do this kind of thing a lot in the training program of our trading group – and I’m sharing in the hope that it might also help a wider audience. Here’s a piece of analysis I did recently on a really […]

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Tesla’s inclusion in the S&P 500 – Is there a trade?

The S&P index committee recently announced that Tesla, already one of the biggest stocks listed in the country, would be included in the S&P 500. Here’s the press release: Due to TSLA’s size, it was widely expected to have entered the S&P 500 index much earlier – but S&P has some discretionary criteria it applies […]

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Where does FX sit in a Systematic Trading Portfolio?

You rarely meet a rich forex trader. I’ve met plenty of rich traders who trade quant factors or stat arb. Plenty of market makers, futures spreaders and volatility traders that do nicely. But I don’t think I’ve ever met a rich forex trader. Jeez man – what a downer! Don’t run away, we’re gonna turn […]

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Some Things Just Go Up (If You Wait Long Enough)

  Here’s a chart of long-term asset performance…. The blue line shows returns from US stocks from 1900 to today. That’s a 48,000x increase in nominal value. The yellow line shows the returns from US bonds from 1900 to today. That’s a 300x increase in nominal value. If you look at this in isolation things […]

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Trading the US Election – Profiting from “Known Unknowns”

You’ve probably noticed that there’s a US election on the horizon. This is an event of known uncertainty: a “known unknown” in the now immortal language of Donald Rumsfeld. In trading, we sometimes observe marginal pricing inefficiencies around these “known unknowns”. For example, ahead of  stock earnings announcements or significant economic or policy announcements, we tend […]

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Book Review: Positional Option Trading by Euan Sinclair

This is a review of Positional Option Trading by Euan Sinclair.  Trading books set a low bar for the reviewer. 99% are full of facile feel-good advice (don’t fight the trend, always use a protective stop). The 1% that are useful tend to either be dry technical treatments (quants who don’t trade), or sporadically helpful […]

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How to extend ETF prices with mutual fund data using SQL

In this post, we explain how to use SQL to extend back ETF price data with total return data from mutual funds or indexes.   On Zero to Robot Master Bootcamp, we teach how to build a portfolio of three automated systematic trading strategies. One of them is a long term Risk Premia Harvesting strategy […]

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