Let’s start an experiment!
This post will be the first in a series on going through the process of creating a trading strategy. It will not only detail the steps that I myself curently follow when I am building a strategy, what I’m hoping for is that others contribute to the process by adding their ideas, criticism, point out logical flaws etc. Maybe someone also wants to share their process. The ultimate goal would be that the resulting endproduct is a collaborative design of a “strategy-creation-blueprint” that serves as a guide/starting point for those new to personal quantitative investing/trading.
There was an excellent presentation held about designing trading strategies at this years QuantCon by Rob Carver (blog is here). I’m mentioning this just to clarify that I dont want to copy what he presented. I want to build on it in a practical way and exchanging ideas with others and also get to know people with the same passion.
Now this only properly works if some of you, the readers, help me out with this! Otherwise it will be just me detailing my personal process and while I think I will get some comments on how I do things myself, I really would like this to be a common effort.
With that being said, the planned structure of the series looks as following (of course this is open to changes):
- Idea generation/collection
- Universe selection & data collection/cleaning/preparation
- insample testing including parameter selection, randomization tests
- out of sample testing and practicality check
So for the first part, the idea generation/collection, I invite you all to share your thoughts on what we should work on, it can be some market anomaly, something based on economic theory, a news-based strategy, something focused on sentiment analysis, you name it! It can be any frequency (although I would recommend we stay away from high-frequency for practical reasons) and any asset class.
To avoid steering it into a certain direction right from the start, I will not mention a specific idea yet. To give a little bit of a background though, I myself mostly focus on trading ETFs/US Stocks with daily up to monthly rebalancing. As a European citizen, I would like to investigate trading stocks/options on European exchanges as things (in my opinion) are a bit different here. Also the good old lure of trading volatility comes to mind.
So hopefully this whole thing isn’t too ambitious and I haven’t deterred you from participating. Im looking forward to hearing all your thoughts and ideas, please comment below!
Until next time,