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Menampilkan postingan dari Februari, 2012

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

Ideas from a psychologist

I have just finished reading Daniel Kahneman's bestseller " Thinking, Fast and Slow ", and found it full of inspirations important for traders. This is no surprise, of course, since Kahneman won the 2002 Nobel prize in economics for his work on decision theory. Here are some of the notables: 1) Simple sum is often better than a linear regression fit. Remember my constant mantra that "simpler is better" when building trading models? I have always advocated linear regression over nonlinear models, but Kahneman went a step further. He said that in social science modeling (which of course includes financial markets modeling), assigning equal weights to the predictive factors is often superior to weighting them using multivariate linear regressors  when applied to out-of-sample data . 2) Overconfidence in corporate acquisitions. Managers of acquiring companies often believe that they are better than the managers of acquirees. This overconfidence has several causes: