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
I generally don't like to write about our investment programs here, since the good folks at the National Futures Association would then have to review my blog posts during their regular audits/examinations of our CPO/CTA. But given the extraordinary market condition we are experiencing, our kind cap intro broker urged me to do so. Hopefully there is enough financial insights here to benefit those who do not wish to invest with us. As the name of our Tail Reaper program implies, it is designed to benefit from tail events. It did so (+20.07%) during August-December, 2015’s Chinese stock market crash (even though it trades only the E-mini S&P 500 index futures), it did so (+18.38%) during February-March, 2018’s “volmageddon”, and now it did it again (+12.98%) during February, 2020’s Covid-19 crisis. (As of this writing, March is up over 21% gross.) There are many names to this strategy: some call it “crisis alpha”, others call it “convex”, “long gamma” or “long vega” (even though