Good regime for trend-following and mean-reverting strategies?

[ammo]

start with the simplest example and break it down,i had the computer draw the 50% line,amazing how many times it was s/r

 

[mizhael]

Quote from Mike805:

There is a ton of academic info on this matter as it is widely accepted that volatility displays significant autocorrelation across all products/time-frames.

Understanding regime shift means understanding the concepts behind volatility analysis and forecasting. There is some great practical info out there should you choose to take a thorough look.

I'd venture a guess that any system that shows promise is actually capitalizing on volatility... why? Vola is an MR process that displays conditional heteroscedasticity.

http://en.wikipedia.org/wiki/Heteroscedasticity

Enjoy.

Mike

Mike, I was talking about the autocorrelation of the price series not the vol series.

And you went even more extreme - you are saying that any promising system has source of returns driving by VOL.

On the other hand, I agree with you, if vol is a purified tradable time series, we can devise MR trading strategies on vol (this is a different trading strategy than trading based on price series, but it's an interesting deviation brought up by Mike). But I guess trading MR on vol is too hard to do?

 

[mizhael]

Quote from bone:

Regarding the OP's original question: I discourage generalizations. However, generally speaking, you will find most experienced traders will fade highly volatile multi-sigma single day or event-driven moves and trend-trade the subtle grinding markets.

I agree with your observations.

But I've also read literature saying that a large vol is good for trend-following ... strange.

 

[mizhael]

Quote from Mike805:

That's kind of an ignorant statement buddy...

Ever hear of ARCH models? How about Heston models?

The OP directly asked about forecasting auto-correlation. I gave him a few clues on where to start.

Normally I prefer not to just give away answers and let people do their own homework.

Jeez, its posters like you who remind me of why I rarely post on ET nowadays.

Thank you for your hints! :=)

 

[mizhael]

Quote from SnakeEYE:

You should expect volatility to increase by the 20th of each month.How about this for starter?

Why? Option Expiration Date?

 

[mizhael]

Quote from Rodney King:

It's not that he asks questions of others -- that's fine -- it's that he doesn't do any legwork himself, or share any of his own findings or insights. He takes but never gives.

What do you mean? I hope I am also contributing by asking questions.

Lets take this particular thread as an example - as you can see, I have read lots of literature on trend-following and mean-reverting...and I have read conflicting statements. And I don't agree with people using vol to define regimes... I laid out the background info and my confusion in my question and I was inviting thoughtful discussions on these matters. Moreover, I was inviting thoughtful discussions about what are precisely the "trend-following" systems and "mean-reverting" systems... and why is "vol" involved here ... This is not only my own confusions, my own questions, my own learning processes, but can also serve as a reference thread for other learners... Essentially I am like a journalist or the Tom on Bloomberg interviews... Had I not entered the trading field, I probably will do a journalist career... :=) And you are saying that I don't make any contributions?

 

[ammo]

miz,r u familiar with market profile,heres a 1 day pattern,the widest spot on the right is the mean

 

[ammo]

here are multiple sets of that pattern stacked,

 

[mizhael]

Quote from ammo:

miz,r u familiar with market profile,heres a 1 day pattern

Wow, you are relating "trend-following" and "mean-reverting" to market profiling? Welcome! We always welcome new ideas and new perspectives!

I've heard about the name, but never used it. I have downloaded your plot - how shall I make sense of it?

Thanks a lot!

 

[mizhael]

Quote from bone:

No offense, Mizhael, because I like your questions and your proactive approach in terms of what knowledge might be important to building a viable strategy - but this is a valid point.

X3

Points well taken Bone!

As you can see - I am asking some "deep" questions - I know you are against "generalization" for this matter... as you said, "generalization" is dangerous. But I cannot seem to clear my mind:

During 2008-2009, the vols were huge. Yet the best performing funds during that period were the CTAs (mostly trend-following I guess) ... how do you reconcile these?