Fluxionization Trading Strategy For Dow 30 Stocks

The Fluxionization™ strategy (FLUXDOW) makes use of Isaac Newton’s fluxions and probability theory to trade long-only Dow-30 stocks. The strategy has performed well even during the financial crisis bear market with a hypothetical return of about +13%.

Isaac Newton’s idea of fluents and fluxions changed mathematics, physics and the world. Very briefly, a fluxion is the instantaneous rate of change of a fluent at a given point in time. The Fluxionization™ strategy makes use of these ideas and probability theory to trade long-only Dow-30 stocks.

Fluxionization™ strategy (FLUXDOW)

Time-frame: Daily (adjusted data)
Strategy type: Long-only
Universe: 30 Dow stocks from current composition
Backtest period: 01/03/2000 – 03/17/2017
Maximum open positions: 30
Commission per share: $0.005/$0.01
Position size per stock: Equity/30
Position entry and exit: Open of next bar

Strategy performance

Parameter Strategy Buy and Hold
CAGR 7.8% 4.61%
Max. DD -19% -55.2%
Sharpe 0.87 0.24
MAR 0.54 0.09
Win rate 59%  –
Trades 16142  –
Profit factor 1.32  –
Payoff ratio 0.91  –
Exposure 49% 100%

It may be seen that based on the backtest results the strategy has outperformed buy and hold by more than 300 basis points in terms of CAGR. As far as MAR (CAGR/max. DD), there is significant outperformance, 0.09 for buy and hold versus 0.54 for the strategy. Note that exposure for the strategy is a little less than 50%.

Below are the equity curve, underwater equity curve and monthly returns table. (Click on images to enlarge.)

The 13.2% returns in 2008 and 2011 offer an indication of the robust performance of the long-only strategy. Below is a Monte Carlo simulation graph.

The probability of a max drawdown greater than 7.2% is 1%, according to the simulation. This is a good result given the large trade sample.

This strategy is available for sale to hedge funds only. Contact us for details.

If you have any questions or comments, happy to connect on Twitter: @priceactionlab

Note that the author of this website is not a registered financial adviser. Strategy performance results are hypothetical. Please read the Disclaimer and Terms and Conditions.

All charts were created with Amibroker – advanced charting and technical analysis software. http://www.amibroker.com

This entry was posted in Quantitative trading and tagged , . Bookmark the permalink.

Leave a Reply