tag:blogger.com,1999:blog-261139923818144971.post5721309448430503731..comments2024-03-27T07:58:49.946+00:00Comments on This Blog is Systematic: A simple breakout trading rule (pysystemtrade)Rob Carverhttp://www.blogger.com/profile/10175885372013572770noreply@blogger.comBlogger55125tag:blogger.com,1999:blog-261139923818144971.post-73860073660860851852022-10-19T08:41:39.089+01:002022-10-19T08:41:39.089+01:00"Also, it seems strange that the breakout rul..."Also, it seems strange that the breakout rule, unlike the MAC rule, should never allow for a position 2X the size of a normal one."<br /><br />Well it's a different kind of rule, which will always have natural maxima and minima, but the MAC rule has no theoretical maximum.Rob Carverhttps://www.blogger.com/profile/10175885372013572770noreply@blogger.comtag:blogger.com,1999:blog-261139923818144971.post-5649937920448605312022-10-19T08:40:41.374+01:002022-10-19T08:40:41.374+01:00" If we use a forecast scalar of less than 40..." If we use a forecast scalar of less than 40, aren't we eliminating any possibility of the maximum position, +-20?"<br /><br />Er, no. Consider a trading rule that generates a forecast with a Gaussian distribution with mean 0 and standard deviation 100. The appropriate forecast scalar would be around 0.1. But the maximum position achievable is much higher than 20; for example around 0.15% of the time (every couple of years) the forecast would be +300, which after scaling is +30.Rob Carverhttps://www.blogger.com/profile/10175885372013572770noreply@blogger.comtag:blogger.com,1999:blog-261139923818144971.post-68578313481039818832022-10-19T02:25:29.365+01:002022-10-19T02:25:29.365+01:00Hi Rob,
I recently read your book, "Leveraged...Hi Rob,<br />I recently read your book, "Leveraged Trading". While I found the book very helpful, the section about forecast scalars for the breakout system confused me. If we use a forecast scalar of less than 40, aren't we eliminating any possibility of the maximum position, +-20? For example, you say in the book that for the 320 window, a scalar of 33.5 should be applied. Doesn't this mean that we will never have a forecast greater than 16.75? If this is the case, why do you also caution in your book to make sure to add the 20 cap? Also, it seems strange that the breakout rule, unlike the MAC rule, should never allow for a position 2X the size of a normal one.<br />Thank youE. Roznerhttps://www.blogger.com/profile/18334117731189025571noreply@blogger.comtag:blogger.com,1999:blog-261139923818144971.post-64932541461308013692022-01-13T04:31:53.625+00:002022-01-13T04:31:53.625+00:00This comment has been removed by a blog administrator.Bali Travel Agencyhttps://www.blogger.com/profile/06769447137557190690noreply@blogger.comtag:blogger.com,1999:blog-261139923818144971.post-86959180917376839072021-04-20T10:31:17.364+01:002021-04-20T10:31:17.364+01:00OK, many thanks for your prompt reply Rob!
Initi...OK, many thanks for your prompt reply Rob! <br /><br />Initially I'll test your version of Breakout as input for Ranking of a portfolio of stocks within a long only momentum strategy. We will see if smoothing is required to slow down the trading or if a ranking criteria based on combining a number of a different time frames might be stable enough...Anonymoushttps://www.blogger.com/profile/09405651798870322961noreply@blogger.comtag:blogger.com,1999:blog-261139923818144971.post-17169651824217183412021-04-20T09:23:50.735+01:002021-04-20T09:23:50.735+01:00Makes the book simpler.
Smoothing is also more us...Makes the book simpler.<br /><br />Smoothing is also more useful if you are using a continious rather than binary forecast.Rob Carverhttps://www.blogger.com/profile/10175885372013572770noreply@blogger.comtag:blogger.com,1999:blog-261139923818144971.post-60810699976807604752021-04-20T09:22:53.446+01:002021-04-20T09:22:53.446+01:00Hi Rob, I am just about to implement and test your...Hi Rob, I am just about to implement and test your version of Breakouts as described in "Leveraged trading" when I came across your blog post (.../2016/05/a-simple-breakout-trading-rule...). <br /><br />The "Smoothing" of the raw model output as described in the post does not seem to be included in your book (which was published more recent). Unless I missed it somewhere, did you just want to keep the book on a "higher level" or were there other reasons (e.g. did you change your mind on the smoothing)? <br /><br />Many thanks, MagnusAnonymoushttps://www.blogger.com/profile/09405651798870322961noreply@blogger.comtag:blogger.com,1999:blog-261139923818144971.post-25383410585860850782021-04-05T10:49:04.565+01:002021-04-05T10:49:04.565+01:00Makes sense. Thanks so much for the explanation. Makes sense. Thanks so much for the explanation. Unknownhttps://www.blogger.com/profile/05821050393149046409noreply@blogger.comtag:blogger.com,1999:blog-261139923818144971.post-10767780003395697922021-04-05T10:42:24.051+01:002021-04-05T10:42:24.051+01:00It's my belief that (assuming equal vol per in...It's my belief that (assuming equal vol per instrument and equal SR, therefore equal expected returns) diversification reduces portfolio risk whilst holding expected returns identical. This increases Sharpe Ratio. Therefore one can take the benefits of diversification eithier purely in risk reduction (by doing nothing; an IDM of one), or entirely in returns (by applying an IDM such that the expected portfolio risk remains unchanged and the expected returns increase), or somewhere in between. We're still getting the full diversification benefit in the form of higher SR in all cases, it's just that we're choosing to have it paid out as some combination of higher return and/or lower risk.<br /><br />Footnote: at the margin, if we increase our expected SR then we increase our Kelly optimal risk target, and therefore we could apply a higher risk target and thus an even higher IDM, and obtain even higher expected returns.Rob Carverhttps://www.blogger.com/profile/10175885372013572770noreply@blogger.comtag:blogger.com,1999:blog-261139923818144971.post-17850100305078272112021-04-04T20:59:28.083+01:002021-04-04T20:59:28.083+01:00Hi Rob - quick question on the instrument diversif...Hi Rob - quick question on the instrument diversification multiplier, very much a philosophical one. <br /><br />As we know, the main benefit of diversification is the risk reduction that comes with it *without* impacting expected returns. Therefore, are we not giving up some of the diversification benefits when we use the instrument diversification multiplier to compute the number of contracts to buy? Or do we continue to retain the same diversification benefits although the level of risk is now more in line with our risk target? <br /><br />Probably it is the latter but I wanted to double check with you. <br /><br />ThanksUnknownhttps://www.blogger.com/profile/05821050393149046409noreply@blogger.comtag:blogger.com,1999:blog-261139923818144971.post-55014541513236183362021-04-02T11:23:28.469+01:002021-04-02T11:23:28.469+01:00I have no idea.I have no idea.Rob Carverhttps://www.blogger.com/profile/10175885372013572770noreply@blogger.comtag:blogger.com,1999:blog-261139923818144971.post-17237452005228977262021-04-02T11:13:14.202+01:002021-04-02T11:13:14.202+01:00Thanks - is my intuition on look back periods corr...Thanks - is my intuition on look back periods correct?Unknownhttps://www.blogger.com/profile/05821050393149046409noreply@blogger.comtag:blogger.com,1999:blog-261139923818144971.post-63285822516989674342021-04-02T11:09:28.457+01:002021-04-02T11:09:28.457+01:00It's on my to do list hopefully for this year....It's on my to do list hopefully for this year.Rob Carverhttps://www.blogger.com/profile/10175885372013572770noreply@blogger.comtag:blogger.com,1999:blog-261139923818144971.post-26207062220417101622021-04-02T11:04:34.535+01:002021-04-02T11:04:34.535+01:00This comment has been removed by the author.Unknownhttps://www.blogger.com/profile/05821050393149046409noreply@blogger.comtag:blogger.com,1999:blog-261139923818144971.post-31737624981634217962021-04-01T10:02:27.818+01:002021-04-01T10:02:27.818+01:0020,40,80,160,32020,40,80,160,320Rob Carverhttps://www.blogger.com/profile/10175885372013572770noreply@blogger.comtag:blogger.com,1999:blog-261139923818144971.post-17485576302150181902021-04-01T00:37:44.855+01:002021-04-01T00:37:44.855+01:00Excellent post, Rob. Question: which variations di...Excellent post, Rob. Question: which variations did you ultimately use? Unknownhttps://www.blogger.com/profile/05821050393149046409noreply@blogger.comtag:blogger.com,1999:blog-261139923818144971.post-50186644851522209302020-09-17T08:42:41.662+01:002020-09-17T08:42:41.662+01:00I don't know of any book, but https://www.topt...I don't know of any book, but https://www.toptradersunplugged.com/ is planning to do a series of interviews on the topic. I might write a blog post at some point, but it would purely be about the futures (VIX,VSTOXX)Rob Carverhttps://www.blogger.com/profile/10175885372013572770noreply@blogger.comtag:blogger.com,1999:blog-261139923818144971.post-89152899684469476972020-09-16T16:21:00.560+01:002020-09-16T16:21:00.560+01:00Hi Rob, this was an excellent post. Thanks for sha...Hi Rob, this was an excellent post. Thanks for sharing your insights.<br /><br />For the sake of curiosity, can you provide some references for how one could learn more about "tactical short volatility estrategies", which you have mentioned in this post? Any book or blog post covering the intuition behind such strategies?Rafael Ladeirahttps://www.blogger.com/profile/04888748113522914330noreply@blogger.comtag:blogger.com,1999:blog-261139923818144971.post-62257219469811488292018-01-11T14:50:14.853+00:002018-01-11T14:50:14.853+00:00Incidentally you made a mistake with Los formula -...Incidentally you made a mistake with Los formula - you are using an annual SR but you're assuming you have daily data. The correct range for the confidence interval is -0.43, 0.46Rob Carverhttps://www.blogger.com/profile/10175885372013572770noreply@blogger.comtag:blogger.com,1999:blog-261139923818144971.post-49092492892046782252017-09-22T13:19:46.591+01:002017-09-22T13:19:46.591+01:00Hi Rob, would you combine a system that trades spr...Hi Rob, would you combine a system that trades spreads in the same manner? It could be possible for one leg of the spread to get offset by the other rules; how do you think that would affect the system?<br /><br />Thanks!Matthttps://www.blogger.com/profile/16122419489436306940noreply@blogger.comtag:blogger.com,1999:blog-261139923818144971.post-9734186440747528122017-02-16T10:41:01.369+00:002017-02-16T10:41:01.369+00:00If your mean reversion rule is just minus one time...If your mean reversion rule is just minus one times your breakout rule then of course there is no point combining them. Assuming the breakout rule is profitable then the mean reversion rule would be unprofitable. However if you can find a mean reversion rule which is sufficiently different, and is profitable, then combining the two types of rules would make sense.Rob Carverhttps://www.blogger.com/profile/10175885372013572770noreply@blogger.comtag:blogger.com,1999:blog-261139923818144971.post-40231138740665173572017-02-16T02:12:41.701+00:002017-02-16T02:12:41.701+00:00I would like to better understand how adding a mea...I would like to better understand how adding a mean reversion trading rule could add diversification to the breakout rule which you describe in this article/blog post. <br />I have not tested it myself, but intuitively I would expect these two to be negatively correlated: assume the mean reversion rule generates a negative forecast if the price is above its mean value and vice versa. If the price of an instrument starts at the longer term mean and then goes up it generates a positive breakout forecast, but at the same time a negative mean reversion forecast. Adding the mean reversion rule would then offset the momentum rule. The net effect would be a neutral forecast signal, resulting in no trading activity.<br />If this is correct, would it then be better to select either breakout or mean reversion and not combine the two together?Jeroenhttps://www.blogger.com/profile/02819426964787793954noreply@blogger.comtag:blogger.com,1999:blog-261139923818144971.post-30726719076099818092017-02-15T15:46:45.762+00:002017-02-15T15:46:45.762+00:00Jeroen... could you be more specific?Jeroen... could you be more specific?Rob Carverhttps://www.blogger.com/profile/10175885372013572770noreply@blogger.comtag:blogger.com,1999:blog-261139923818144971.post-42584638300505858342017-02-15T14:45:26.011+00:002017-02-15T14:45:26.011+00:00Dear Rob,
I know that I'm late to the party, b...Dear Rob,<br />I know that I'm late to the party, but I would also be very interested to hear/read more about this from you.Jeroenhttps://www.blogger.com/profile/02819426964787793954noreply@blogger.comtag:blogger.com,1999:blog-261139923818144971.post-73055698736930968392016-10-25T22:34:07.288+01:002016-10-25T22:34:07.288+01:00So just regressing y on time t over some lookback ...So just regressing y on time t over some lookback T? The signal being -1/(y_T - y_hat) with some smooth parameter?kohehirhttps://www.blogger.com/profile/04463402290354923205noreply@blogger.com