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Menampilkan postingan dari Juni, 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

Momentum strategies: a book review

As a devout mean-reversion trader, I find Mike Dever's new book " Jackass Investing " unexpectedly well-argued and readable. You see,  momentum and mean-reversion traders live in two separate universes, and they are often mutually incomprehensible to each other. Dever, as a CTA, inhabits the momentum universe. Example: my favorite performance measure, the Sharpe ratio, has been brusquely dispatched as a bad measurement of risk, and drawdown becomes king. But all for good reasons: Dever argues that Sharpe ratio measures only the daily volatility of returns, but disregarded the "black swan" events, which are much better captured by the maximum drawdown. I agree with the author on this point, but there are other uses of Sharpe ratio: a high Sharpe ratio strategy does indicate high statistical significance of the trading strategy, a claim that momentum strategies can seldom make. I often think of momentum strategies as being long options: you have to keep paying pre