Sunday, September 23, 2012

Interesting Trade (purely off historical tests, allegedly)

Came across this trading journal "Universal Trend Trading", where the trader works with Fx and index futures, and claimed
...CAGR over last 40 years is about 40%. 
I have a degree in IT, so I wrote my own backtesting engine.

Apparently anyone able to write code with minimal understanding of applied statistics could make a killing trading the insanely competitive products. Long story short, his $500K account lost about $200K in the first 2 month, and today (a year later), it is at roughly $190K.

Historical Patterns do not apply for competitive ventures 

Large enterprises invest heavy resources into R&D because they are aware of this. Simply repeating a business model that was successful in the past in no way guarantees similar success into the future.

Again, a good curve fit means nothing

As mentioned by Ramsey Theory, given any large set of random data, patterns can be found. Therefore, it is very unlikely for a purely quantitative approach to succeed in financial trading.

Sunday, September 9, 2012

Nonfarm Payroll Forecast

I keep an eye on economic events often at Trading Economics, and Nonfarm Payroll's one of the more important stats for me. So the next logical though is to apply our own forecast instead of the values from 3rd party websites.

I got data from the US Department of Labor, (link to Nonfarm Payroll data). It is for the period Jan. 1990 to July 2012.

Forecast Method

A simple forecast was done by regression analysis. We match each month's number with the follow, and curve fit the scatter plot where the future value is the Y-axis, i.e. the Independent Variable.Turns out the 2nd degree Polynomial Fit has the highest R-Squared (at 0.67).