Traders love the illusion of precision. A few bad weeks go by, and you think, “Let’s run a t-test and see if the strategy stopped working.” It sounds rigorous. It isn’t. Imagine a strategy that, in truth, earns 10% per year with 20% volatility – roughly the S&P’s long-term profile. We’ll simulate five years of …
When I first got interested in trading,
How do we find edges? First, we must be clear about what constitutes a good idea. It isn’t as simple as it having to make money. The risk profile must also be tolerable. This is a personal preference. Next, we need to be able to trade it. Robinhood won’t let you sell naked options. You …
We’ve all used on/off type trading signals at some point. But you can nearly always extract more insight with a simple adjustment that focuses on using data efficiently. Let me show you how using a crypto trend example. The problem with binary signals You’ve seen them everywhere. “If price is above the 20-day moving average, …
Do you find yourself obsessing over p-values and t-stats when evaluating trading ideas? I get it. If you come from an academic or scientific background, statistical significance feels like the gold standard for determining whether something is “real” or just random noise. And in many fields, that’s exactly right. But trading is different. Statistical tests …
The market is a highly competitive beast. If you’ve spotted an edge, others have too. And as capital piles in, most obvious mispricings will eventually decay. Take the reasonably well-known end-of-month bond trade, for example. Towards month end, excess price-insensitive demand for treasuries tends to come in, causing a temporary dislocation from fair value: A …
Recently, we had an excellent question on the
The best trading edges are often found in places most people don’t think to look. It’s why being a bit of a pirate – zigging when others zag and finding opportunities in the market’s blind spots – is such an effective approach. Today, I want to share something that has me genuinely excited. It’s a …
In this Ask Me Anything, Euan addressed the following questions: We didn’t have time for all the questions, but Euan will be doing more of these in the future. Here’s the replay:
Someone sent me their trading technology blueprint. It was a thing of beauty: timeseries databases, Grafana dashboards, message queues, and all sorts of fancy architecture. My first question: “What are you currently trading?” Their answer: “Nothing yet. But I’m planning a medium frequency stat arb basket trade.” I almost spat out my coffee. Look, I …
