Mar
18
Regime Identification, from William Weaver
March 18, 2011 |
A few months back David Aronson and I were talking about identifying markets as bullish or bearish prior to selecting strategies or parameters for various strategies. The conversation ended up taking a back seat to trading, family, etc., but I think now that markets are showing an increase in volatility it might be a good time to resume these talks.
Below I've included three links to a series of blog posts from Frank Hassler, who created (and explains) his own metric for identifying regimes, and how short term mean-reversion strategies work during different periods. What I find particularly interesting is his use of four possible regimes, whereas I use only two.
1. mefliter
2. using a market environment filter to decide how to trade
3. impact of a market environment filter
I've also found that many traders use simple metrics such as whether the broad market is above of below its 200ma when testing various strategies. My personal preference is to use fundamentals to predict longer term swings in equities.
Phil McDonnell writes:
There are a number of quirky things in the papers but overall the logic is interesting.
One quirk, for example is that he wants to use both rate of change and the slope of the moving average as indicators. Mathematically they are the same thing. Remember that a 200 day ma changes each day by lopping off the price level 200 days ago and adding in the current price. The daily difference (slop) is:
(current price - 200 days ago) / 200
But the rate of change per day is given by: (price - 200 days ago) / 200 Same thing!
We have received the following clarification from Frank Hassler:
I’m fully aware that slope = ROC.
The post isn’t about my trading, it’s rather an example what people should consider. Depending on the type of the system one should consider a different type of market environment filter.
Comments
1 Comment so far
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Hi,
I’m fully aware that slope = ROC.
The post isn’t about my trading, it’s rather an example what people should consider. Depending on the type of the system one should consider a different type of market environment filter.
Frank