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Sunday, September 30, 2007

C2 Still Expanding

Six weeks ago was the last time I checked the number of newly added systems to the C2 universe of systems. It's time for an update:

During the last 30 days, 263 new systems were added. Not bad at all! The record of 365 new systems was set for the period 8/6 - 9/6.

Just for the five-day period from 8/29 - 9/2 as many as 166 new systems were added!
Of course, that is a little odd--so many systems in such a short period of time. So, I started to dig a little a deeper, and guess what? As much as 130 of these were from a single vendor. That must be quite a record. Even more peculiar: So far, none of these systems has made a single trade. Obviously, I'm very curious where this will go...

New Portfolio Weights

Starting this Monday, the optimal portfolio weights (for newly initiated positions) will change. Previous optimal weights were:
Weekend Trader: 9%
Trend Plays #1: 58%
ARS: 80%

Starting next week, the new weights will be:
Weekend Trader: 32%
Trend Plays #1: 53%
ARS: 68%

Since the weights sum to 153%, leverage will be about 1.5:1.

As a result of its good recent performance, statistics for Weekend Trader have improved substantially. Because it realized its recent gains in a time when ARS and Trend Plays #1 were mostly flat, it is not surprising that the portfolio optimizing algorithm was sensitive to this and let the weight increase substantially, from 9% to 32%.

Thursday, September 27, 2007

"Vince Rowe Show" Interview

Here are the links to my interview on the "Vince Rowe Show" a few days ago. Each segment is about 10 minutes. We discuss C2, selecting systems, auto trading, slippage and many more things. Obviously 10 minutes is too short for a real in-depth discussion, but nonetheless I hope you'll enjoy it.

First segment

Second segment

Monday, September 24, 2007

Weekend Trader Surprise

As you might have noticed there haven't been that many posts during the last month. Part of the reason is that really not a lot happened to the systems in my portfolio. When I recalculated the weights two weeks ago, they were nearly identical to those I calculated in August. The portfolio P/L was oscillating a bit between -10% and -5%, and that was about it. However, last week I was pleasantly surprised by Weekend Trader soaring 25% to an all-time high.

The event confirms that sticking to a system is important. My experience so far is that profits usually come when you expect them the least.

Even though the system has a history of nearly two years on Collective2, the events of last week had a substantial impact on the statistics. For example, the graph below shows the Sharpe ratio and its BCa-bootstrapped (10,000 replications) 95%-confidence interval on each day, calculated using the data available up to the day of calculation (e.g. the left-most point of the curves is based on the first 100 trading days, the right-most point is based on the entire history of 486 trading days). The last five trading days caused the Sharpe ratio to jump from 0.82 to 1.31, which demonstrates how unstable these statistics can be--even with two years of data.

What we can learn from this is that there really is no point in preferring a system with a Sharpe ratio of 1.2 over one with a Sharpe ratio of 1, if they jump around all the time and have large overlapping confidence intervals. Most likely these differences are too small to be both statistically and practically meaningful. Instead of trying to pick the "best" system, we might be better off trading a larger number of "reasonably good" systems simultaneously.

Wednesday, September 19, 2007

Science Trader On Air!

Tomorrow (Thursday) between 12.15pm and 1pm EST, I will be interviewed by host Vince Rowe of the Online Trading Academy Dallas Radio Show. If you're interested you can follow the show by podcast or--if you're living in the Dallas area--on BizRadio 1360am.

Friday, September 7, 2007

New Portfolio Weights

Starting next week, the optimal portfolio weights (for newly initiated positions) will change slightly. Previous optimal weights were:
Weekend Trader: 13%
Trend Plays #1: 57%
ARS: 78%

Starting next week, the new weights will be:
Weekend Trader: 9%
Trend Plays #1: 58%
ARS: 80%

Since the weights sum to 147%, leverage will be about 1.5:1.

(Part of the reason not to leverage to 2:1, is that some equity needs to be available for the put options that I use to offset against the broader market)