Category Archives: Trading System Analysis

Year-To-Date Performance Of Three Mean-reversion Strategies

Year-to-date performance trading the SPY ETF:  Popular RSI(2) system -2.9%, WR2 system +8.19% and PSI system -0.5%. More details with charts are included below.

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Look-Ahead Bias And How To Detect It

Look-ahead bias in backtests usually involves counting returns before the entry signal and in some cases also omitting returns due to the exit signal. In essence, this amounts to a backward shift of returns and it is mostly due to … Continue reading

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Performance of TFADAPT and PSI Trading Systems in 2015

The TFADAPT and PSI trading systems were not data-mined. The latter is based on a formula from a text on probability and stochastic processes and the former uses a trend detection method that takes into account volatility.

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Momentum, Randomness And Survivorship Bias

It is entirely possible that any outperformance of momentum strategies is due to survivorship bias. I present two examples of simple market anomalies that suddenly disappeared without warning and I claim that this will be the fate of momentum too. … Continue reading

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Long-Term Backtests Can Be Misleading

Authors of popular books and blog articles often present long backtests of certain strategies that exhibit superb risk-adjusted performance. It is important to realize that it is highly possible that these superb results are due to market conditions that may … Continue reading

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Short-Term Mean Reversion in Action

Since November 3 there has not been a two-day winning streak in S&P 500.  Despite that, prices reverted back near their highs after a short-term correction. This is mean reversion in action and it is part of the new market … Continue reading

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Analysis of a Simple Volatility Trading Strategy

Volatility trading strategies often realize impressive returns. However, some of those strategies cannot deal effectively with volatility spikes and exhibit large drawdown levels. In this article I look at a simple strategy for trading volatility that is available in the … Continue reading

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