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Menampilkan postingan dari September, 2008

Applying Corrective AI to Daily Seasonal Forex Trading

  By Sergei Belov, Ernest Chan, Nahid Jetha, and Akshay Nautiyal     ABSTRACT We applied Corrective AI (Chan, 2022) to a trading model that takes advantage of the intraday seasonality of forex returns. Breedon and Ranaldo (2012)   observed that foreign currencies depreciate vs. the US dollar during their local working hours and appreciate during the local working hours of the US dollar. We first backtested the results of Breedon and Ranaldo on recent EURUSD data from September 2021 to January 2023 and then applied Corrective AI to this trading strategy to achieve a significant increase in performance. Breedon and Ranaldo (2012) described a trading strategy that shorted EURUSD during European working hours (3 AM ET to 9 AM ET, where ET denotes the local time in New York, accounting for daylight savings) and bought EURUSD during US working hours (11 AM ET to 3 PM ET). The rationale is that large-scale institutional buying of the US dollar takes place during European working hours to pa

Index change strategy

Some years ago, I traded a simple index change strategy: buying stocks to be added to the SP500 index at the market open right after the index change announcement and exiting the position at the close, and similarly shorting stocks to be deleted. The results were mediocre at best. However, new research by University of Edinburgh Business School suggests that a similar strategy works well for FTSE350 stocks (Hat tip to J. Rigg for the link). The trick is to predict which stocks are to be added or deleted 30 days before the announcement ("review date"), buy/sell the stocks, and close out the positions just before the review date. Since the criteria for inclusion in the FTSE index is well-defined (and primarily based on market capitalization), it should not be hard for the interested traders to make their own predictions and profit from this rebalancing.