My last post using Ernie Chan terms in the topic making it so confusing so I want to make this new post to talk about what I really mean. Ernie Chan has two books and he claims that statistical arbitrage strategies with two or more derivatives (he means the term Mean-reverting to describe these ) are much better than any kind of "momentum" strategies like trend following.
I don't know how to design a statistical arbitrage strategy to backtest to see which one is better. In his new book, he has like at least 6 math formula to find out a relationship between two derivatives before talking about strategies, and I still don't really get the real formula of these except a general concepts after reading like half of the book.
Except being heavily talking about matlab and very likey matlab sponsor him, he talks very professionally and he had a lot of working experience in statistical arbitrage trading desk in banks and funds. He is not like other "coaches" that just talks without any real prove of making money.
I am one of the active participates in his blog for months. I know if I ask him question like this, he would just reply what he said in his book, so I want to see how other think over here.
For me who doesn't live in US, using statistical arbitrage is something not easy even not consider how to implement because
1. I would need to access to many different derivatives and I have to do both long and short, which means I have to access to US markets since most of these are over there, while my time zone is exactly opposite to US, then I basically either stay awake every night. Even auto trading, I should stay awake to make sure everything goes well.
2. Double commission with at least two derivatives instead of one. In his book there are no commission charge.
3. I need to transfer my money to US dollars, then later transfer back to my own currency. I counted it and this is already at least a 0.2% cost.
Of course if statistical arbitrage is really much more powerful, then all these 3 factors are almost nothing.
So how do you guys think? I am still reading his book and just implement all of his math formula to test out a statistical arbitrage is already much harder than any momentum ways I know.
Please share your thought
I don't know how to design a statistical arbitrage strategy to backtest to see which one is better. In his new book, he has like at least 6 math formula to find out a relationship between two derivatives before talking about strategies, and I still don't really get the real formula of these except a general concepts after reading like half of the book.
Except being heavily talking about matlab and very likey matlab sponsor him, he talks very professionally and he had a lot of working experience in statistical arbitrage trading desk in banks and funds. He is not like other "coaches" that just talks without any real prove of making money.
I am one of the active participates in his blog for months. I know if I ask him question like this, he would just reply what he said in his book, so I want to see how other think over here.
For me who doesn't live in US, using statistical arbitrage is something not easy even not consider how to implement because
1. I would need to access to many different derivatives and I have to do both long and short, which means I have to access to US markets since most of these are over there, while my time zone is exactly opposite to US, then I basically either stay awake every night. Even auto trading, I should stay awake to make sure everything goes well.
2. Double commission with at least two derivatives instead of one. In his book there are no commission charge.
3. I need to transfer my money to US dollars, then later transfer back to my own currency. I counted it and this is already at least a 0.2% cost.
Of course if statistical arbitrage is really much more powerful, then all these 3 factors are almost nothing.
So how do you guys think? I am still reading his book and just implement all of his math formula to test out a statistical arbitrage is already much harder than any momentum ways I know.
Please share your thought