Trading Strategy based on ARMA Model

[David Hoareau]

Hi to all,

I would like to share with you what I am doing to get your point of view, and to make a better trading system in collaboration.

I am working on EURUSD forex, and I am trying to find a way to place order based on ARMA modelling.

Collecting Data, Data transformation, and Model fitting:

I am collecting each EOD Close of EURUSD instrument, and I calculate the log differencing to transform this time series in a stationary process. Then, using Box Jenkins, I fit the parameters of the ARMA Model.







Residuals Analysis:

After the model fitted, I analyze the residuals of the model. The process of the model residuals is a stationary process and follows a normal distribution.







Trading Strategy:

Like the model residuals is a normal distribution, I calculate the cumulative probability using the following formula:


Then I am able to display on the chart with a minor timeframe H4 or H1 what will be the tomorrow position with their respecting probability based on volatility max of 2 standards deviations:



Is that a good way to work with the ARMA model? What do you think about this strategy? Can we improve it together?

Thanks

David

 

[tradingcomputer]

You may want to combine ARMA with other indicators

 

[syswizard]

What's the expected ATIT (average time in trade) ?

 

[globalarbtrader]

are you fitting in sample, or rolling / expanding out of sample?

 

[debitspread]

Apparently an unreferenced cross-post from the Factory under the handle 'davidleyabe', rearranged a bit. I'm not sure how Baron feels about repurposed content -- you might want to ask.

 

[tradingcomputer]

If we have a question, we cannot post here if we have already post it somewhere? are there ET forum rules somewhere saying that? I recently got a notice for something else that I should not do.

Apparently a cross-post from the Factory under the handle 'davidleyabe', rearranged a bit. I'm not sure how Baron feels about repurposed content -- you might want to ask.

 

[David Hoareau]

You may want to combine ARMA with other indicators

Hi,

Thanks you for your reply.

Yes, in fact I plan to use it with RSI indicator. Do you have an other idea?

Thanks

David

 

[David Hoareau]

What's the expected ATIT (average time in trade) ?

Hi,

I was thinking to open a trade at the beginning of the day and close it at the end of the day. Then the expected ATIT will be 1 day. What do you think?

Thanks

 

[David Hoareau]

are you fitting in sample, or rolling / expanding out of sample?

Hi,

I am fitting in sample: every day, I run my program that will make the forecasting for the next days based on the past 3 years replacing the new value by the old one. What do you think?

David

 

[David Hoareau]

If we have a question, we cannot post here if we have already post it somewhere? are there ET forum rules somewhere saying that? I recently got a notice for something else that I should not do.

Hi to everyone,

Yes I posted the same question on another forum. Is that a problem?

Sorry, I did not know about that.

David