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Hi Matt, Can you tell us which topic exactly talks about daily vs overnight ranges in gummy? As you know, his site has many topics and I couldn't find it by searching for "range" or "overnight." Thank you.

I think the seeming paradox(to me at least) is that constructing a basket of component stocks and trade them against the ETF is fundamentally flawed. Let's say the ETF has N components. You can form two time series: 1. the ETF itself 2. a basket of all N stocks with proper relative weights...

So I was studying epchan's blog on pairs trading and came across this interesting paradox that a reader and him discussed in this post: http://epchan.blogspot.com/2007/02/in-looking-for-pairs-of-financial.html I don't know if the policy allows a direct quote from another source, but here...

Hi, I understand that "linear correlation coefficient" is not a good measure of mean reversion. That's why I was asking about "Spearman Rank Correlation," since it was mentioned in your very first reply. Gummy also mentioned "Spearman Rank Correlation" in his pair trading sections. So it...

Hi Matt, I am wondering if you can share some insight regarding the effectiveness of cointegration vs Spearman Rank Correlation in pairs trading. Spearman Rank Correlation is A LOT easier computationally. I briefly scanned through some cointegration papers and they all seem to require a...

Besides MATLAB, is there any other software that can analyze cointegration with reasonable programming effort? Cointegration calculation seems quite involved and MATLAB is not that accessible to average retails traders. Also, is there any recommended time frame to re-evaluate the...

Hi Eric, What you said here is part of the reason that motivated me to ask this question in the beginning. It seems that the institutions would hire business school graduates with no trading experience into the money management business, but would not hire traders with even proven track...

Hi sjfan, Can you elaborate on maximum draw down distribution? Is there an analytical way to find it or do you have to rely on simulations? What methods do you use? Any reference on this topic? Thanks,

It seems like you are not a fan of Kelly. Can you share what other methods you think are better or more practical in terms of "real-world" position sizing and asset allocation? FYI, I am not arguing for or against Kelly. I am just curious to learn what other alternatives are out there.

Thanks for the clarification. I understand that you can get skewed profit distribution in your favor by using derivatives. But he specifically said that his strategy is only "long equities." That's why I thought it's some kind of betting scheme derived from the leverage space model. Anyway...

I am totally lost here. Is this some "trade secret" that you cannot discuss in public? Or is it some kind of betting/position sizing scheme? Apparently I am not knowledgeable enough to understand you, can you point me to right direction if this is something that's not a secret? Btw thanks for...

Dynamic sizing based strategy on equities? Can anyone enlighten me with just the general concept how it can maximize winning %?

I have read about mean-variance optimization that involves correlation, but I am not an expert. So I am here mainly to learn from other experts.

I think correlation is used in classical mean-variance allocation optimization. If you don't use correlation in asset allocation, I am curious as to what method/framework you use to achieve effective diversification.

I think the last post by sjfan summarized this thread pretty well. My original goal very early on was to "make it" as an individual trader. As I learn more and more about what it truly takes to be independently successful as a trader, I realized that the "expectancy" of retail traders is quite...

I totally agree. I would even go as far as to say that all the financial models are never wrong. It is the people who mis-use them who are wrong. They applied the methods without considering whether the underlying assumptions behind the models are realistic or practical to the real world.

Thanks for the book review dtrader98. Btw where did you learn about the historical background of Simons? He is so secretive that I have only seen one Bloomberg report about him. That was an interesting digression, but I am still interested in how portfolio allocation is done in the...

Hi dtrader98, Just for the record, I have read Pounderstone's Fortune's Formula and just re-checked again. In that book, he never made the claim that Citadel, Medallion, and D.E. Shaw are using or even aware of Kelly. The only place those firms are mentioned is around page 319 where he said...

sjfan's point is well taken. Being an outsider myself, even though I work hard on self-study, I do consider going back to school or take some examination(CFA, FRM..) to have some formal credential to get into the business. This seems to be the more logical way to switch career. As you said...

One of the main motivation for me to initiate this question is that, the concept of Kelly Criterion, Optimal f, geometric growth...etc, all seem very mathematically brilliant to me. Yet they don't seem to be the mainstream in the professional money management business. I am curious to hear any...