Explore the research behind our trading, plus some just-for-fun stuff....

Posted on Jun 21, 2019 by Kris Longmore
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The Federal Reserve publishes the yield-to-maturity of US Treasury bonds. However, the actual returns earned by investors are not publicly available. Nor are they readily and intuitively discerned from historical yields, since "a bond's return equals its yield only if its yield stays constant and if all coupons (cash payments) are reinvested at that same yield" (Tuckman and Angel, 2013, p.95). Recently, Laurens Swinkels of Erasmus University in the Netherlands estimated such a return series using publicly available data for US government bonds with 10-year maturity. The working paper accompanying the data is not yet available, but he has generously published his data in an Excel spreadsheet, including formulas for the return estimation process. You can find the data here. One nice result of this data is that it enables the construction of a proxy for a bond price series, which can be thought of as representing a constant exposure to 10-year treasuries, and thus facilitate ex-post analysis of various timing models. This idea of a constant exposure is much like an allocation to the ETF IEF or the ZN...

Posted on Jun 19, 2019 by Kris Longmore

Before you commit your precious time to read this blog post, I need to warn you that this is one of those posts that market nerds like myself will get a kick out of, but which probably won't add much of practical value to your trading. The purpose of this post is to scratch the surface of the markets from an information theoretic perspective, using tools developed by none other than the father of the digital age, Claude Shannon. Specifically, we're going to tinker with the concept of Shannon Entropy. Shannon (the man, not the entropy) was one of those annoying people that excels at everything he touches. Most notably, he was the first to describe the theory of electrical circuit design (in his Master's thesis at the age of 21, no less). Later, around 1948, he discovered Information Theory, which leverages his unique-at-the-time understanding that computers could express numbers, words, pictures, even audio and video as strings of binary digits. Not being one to let his genius go to waste, he and his buddy Ed Thorpe secretly used wearable...

Posted on Jun 09, 2019 by Kris Longmore
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I'm a bit late to the party with this one, but I was recently introduced to the feather format for working with tabular data. And let me tell you, as far as reading and writing data goes, it's fast. Really fast. Not only has it provided a decent productivity boost, but the motivation for its development really resonates with me, so I figured I'd briefly share my experiences for any other latecomers to the feather party. What is feather? It's a binary file format for storing data frames - the near-universal data container of choice for data science. Why should you care? Have I already mentioned that reading and writing feather files is fast? Check this out.  Here I've created a pandas data frame with one million rows and ten columns. Here's how long it took to write that data frame to disk using both feather and gzip:  Yes, you read that correctly: 94 milliseconds for feather versus 33 seconds for gzip! Here's the read time for the each format:  Platform agnostic The other thing I like about...

Posted on May 31, 2019 by Kris Longmore
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If you've ever delved into the world of retail foreign exchange trading, you'll have come across the MetaTrader platform. Let's be clear. The platform has its drawbacks. If you've traded "grown-up" markets, some of the features will leave you scratching your head. But one thing's for sure - MetaTrader provides fast, convenient access to pretty much every retail forex broker on the planet. That's no small thing. If we had the choice, we'd rather trade directly with the broker through a dedicated API rather than through a third-party platform, but often that's not an option. One thing that my life as a trader has taught me is that it's better to move fast in order to get trading strategies into the market with a solution that's "good enough" rather than spending valuable R&D time on developing "optimal" solutions - which usually end up changing anyway. So we suck it up and make the best of the tools at our disposal. It's all about being smart with priorities. We do our Spot FX trading through Darwinex. Not only is their business...

Posted on May 29, 2019 by Robot James
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If you don't bring a humble attitude to the markets, the markets will quickly humble you. Being humble is fundamental to everything we do at Robot Wealth: in our own trading, and in collaborative research in our Bootcamps. The more we trade, the more we are humbled by the markets. The more we are humbled by the markets, the simpler our trading becomes. The financial markets are very efficient. Good traders inherently understand this, because good traders know it is hard to make money trading. Understanding this point is a critical starting point for a trader's success. At Robot Wealth, we call this Embracing the Mayhem. Our new ebook, now available here. You must understand the efficiency and the randomness in the market, and you must accept it. Embracing the Mayhem is the first step. Next, you must understand the games available to you as a trader. You must pick the ones with the best chance of a positive outcome, and you must play those games in an effective way. There are two types of games available which will pay you:...

Posted on May 27, 2019 by Robot James
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Pick the Easy Games Like many sociopaths, Frank Wallace was a fan of the philosophy of Ayn Rand. He wrote a book called "Poker: A Guaranteed Income for Life", started a cult based on Rand's philosophy of objectivism, and got convicted of tax fraud.   "Poker: A Guaranteed Income for Life" is about getting edges in poker by playing weak players. The main character, John Finn, gets himself invited to a variety of home poker games. He creates a carefree atmosphere at the games, he befriends and encourages the weaker players, and slowly and carefully, he extracts their money. In short, he's a con artist. But he's a con artist who has correctly identified that the most reliable way to make money playing poker is to play in easy games. This lesson can be applied to trading. The smartest decision you can make in trading is to play easy games. What are the easy games in trading? Passively harvesting risk premia is an easy game Relative return prediction (cross-sectional strategies) is easier than making absolute return predictions (time series strategies) Immature...

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