Comment by chollida1 | Hacker News Reader

Comment by chollida1 | Hacker News Reader

A few notes

We normally use ordinary least squares when we do the linear modelling. Maybe they are and I can’t read the Julia code.

Also they aren’t adjusting their closing prices do dividends as far as I can tell.

Nor are they taking dividends payments into account at all as far as I can tell.

They did get the shift from daily to hourly right when they went to their crypto example so good for them. They are ahead of most day traders there:)

Also no work in the hurst exponent to figure out the reversion time frame

Also no modelling on how each pair will fit into your portfolio composition and if you can get borrow, which you certainly can in this instance, and trading fees.

Also they skip regime detection, which is determining what regime the market in general is.

Lots of pairs only work in up or down or sideways markets and you’d want a different ratio for each. And you’d want Tom look at how your pairs works in each market regime. I find this to be the most important piece and. You never seen pairs tutorials take this into account.

Probably because you his is the hard piece that makes you money.

This is why pairs are thought to trade. This link is the star arg 101 tutorial that is in 50 different places in the internet but it doesn’t show any of the actual meaningful work you need to do to trade pairs.

Other missing pieces are leg sizing, how long you let a leg hang, how many legs do you out out, portfolio composition, dynamic hedge ratio calculation,market regime detection.

It shows the easy piece that you can code up in an afternoon.

And now I feel like I’ve shit all over this poor kids project. It’s well done and covers the 101 issues with a few pretty large missing pieces that I’ve pointed out

Nope - you didn’t shit all over it. This is a fair disclaimer for anyone venturing on this journey.

There’s a steep learning curve - it’s many times harder than writing full stack code and solving business problems.

To be moderately successful, you’ll need to acquire practical knowledge on many different topics (economics, sociology, statistics, technical analysis, stock exchanges, brokers, margin, local trading/day trading laws, etc). And this is just for stocks/ETFs, leaving out Futures and Options (skip those in your first few years).

It’s a very raw, dog eats dog kind of world. Each person is out for themselves. You’ll experience a whirlwind of emotions. I find it best to schedule positions ahead of time, and avoid trades in real-time. It’s so important to manage your emotions and protect your capital.

curious what exactly you're referring to by market regime detection / classification, anything I've seen on this (several models from bulge sellside) has been backward looking and fairly useless.

We’ll refine detection is detecting when the market refine changes. But I assume you know that.

Typically you’ll run one set of strategies in a bull market for a given Security and another in a sideways market and others in a bear market.

Keep in mind different securities can be in different regimes at the same time.

And the market in general can be in a different return from individual securities.

To detect regime change you typically model it as a hidden Markov process.

For back testing we typical pre-label the data by the regime that we know the market was in because we have the benefit of hindsight:

My understanding of this is that you want to classify what all of the other traders are doing, basically. That is, intro investment discussions build on intrinsics of what you are trading. As you trade more, you also want to trade on the behavior of everyone else that is trading.

Sadly, all market discussions I've seen are always "backward looking" and fairly useless for most folks. High frequency trading is basically cheating by do much smaller forecasts that can be acted on quickly and profitably. But if you can't react fast enough, the information is effectively useless.

Is like knowing tomorrow's rain forecast when you are trying to plant for the season. It is of little help. Even if it is far more accurate than the year's forecast.

This

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