Starting an investment business

[passingtime]

Have you factored in fees and slippage? Those can kill you if you are only trading low volumes initially.

 

[NameBack]



Have you factored in fees and slippage? Those can kill you if you are only trading low volumes initially.

Yeah, it's factored in. We're over-estimating fees, actually. Assuming $14 flat roundtrip, probably gonna use IB and pay more like $2/$4 roundtrip on test fund.

 

[NameBack]

We might want to tone down our margin estimates, though. We never hold a security longer than three days, and the security it's built on is SPY, so the likelihood of margin calls is pretty low as long as we keep leverage reasonable. Also shouldn't incur margin interest at most places if we keep all positions to 3 business days or less.

Additionally that means our short positions are also secured and won't be closed out early.

 

[StephenHero]

I'm glad you found a way to put your talents to use outside of DC. Good luck with it.

 

[NorCal]



It's not 200% annualized. Average annualized it's probably about in the 40-50% range -- which is still obviously very high -- because it performs better in these high-volatility markets and then slows down quite a bit when the market moves into a steady bull mode. And again, we do anticipate some falloff from the numbers on paper, just nothing incredibly dramatic. I'd be happy if we ended up doing half that in real life. 100% since 01/10 would be pretty darn nice.
And, I take your point -- believe me, we've thought about it -- but when you have numbers that validate consistently, that you've error checked, that you've had professionals look over, and that you can replicate across different periods of time, well, what are you supposed to think except that you have something that might work? Certainly I think it's worth the attempt. Of course it could all turn out to be useless and fall apart -- that's the nature of the business.

Well, rock on, and if it pays I expect a SF preferred membership in said baller fund.

 

[NameBack]



Well, rock on, and if it pays I expect a SF preferred membership in said baller fund.

Oh there will definitely be an SF preferred investor class. Reduced commission, all kinds of perks (mostly hookers, natch). Especially for fellow CE libs.

And first day of simulation went well, up 1%.

 

[BrianVarick]

Very interesting, I would love to keep track of how everything is going.

 

[NameBack]

New backtesting results, with a more consistent yield curve, and the decision to look at 3x leveraged ETFs as a trading option has made us decide to move up our real-cash test fund. We're now trying to get it started within a month. Turns out IB lets you margin on 3x leveraged ETFs, so we're going to be switching over. Between the lower transaction costs, higher leverage, and better model, our returns are looking much stronger.

 

[scientific]

so. two bumpkin amateurs, one a recent (reformed?) hippie/commie, the other a statistics phd student who is not alarmed by a perfect fit on his data, have discovered a trading strategy that beats all hedge funds ever, on their first try. stranger things have happened, but not many.

 

[Harold falcon]



so. two bumpkin amateurs, one a recent (reformed?) hippie/commie, the other a statistics phd student who is not alarmed by a perfect fit on his data, have discovered a trading strategy that beats all hedge funds ever, on their first try. stranger things have happened, but not many.

 

[DaveDr89]

good point RE the perfect fit to the data. Portfolio optimization problems are well-defined and the hard part is the estimation of the inputs, viz., the covariance matrix and the expected returns of the universe of investment choices. How are you estimating the covariance matrix? If you are estimating it with the sample covariance matrix then that is a sign that you guys still have some homework to do.

RE leveraged ETFs, hopefully you guys also know that these are only designed to be in sync with the advertised multiplier on a daily basis and that for longer holding periods they may be in the wrong direction? There is a lot of literature on this.

 

[NameBack]



so. two bumpkin amateurs, one a recent (reformed?) hippie/commie, the other a statistics phd student who is not alarmed by a perfect fit on his data, have discovered a trading strategy that beats all hedge funds ever, on their first try. stranger things have happened, but not many.

Perfect fit? Who said that.

Edit: and to be fair, you're kind of a nutjob asshole who has held a consistent grudge against me from CE, so you know, grain of salt and all that.

 

[NameBack]



good point RE the perfect fit to the data. Portfolio optimization problems are well-defined and the hard part is the estimation of the inputs, viz., the covariance matrix and the expected returns of the universe of investment choices. How are you estimating the covariance matrix? If you are estimating it with the sample covariance matrix then that is a sign that you guys still have some homework to do.
RE leveraged ETFs, hopefully you guys also know that these are only designed to be in sync with the advertised multiplier on a daily basis and that for longer holding periods they may be in the wrong direction? There is a lot of literature on this.

Yeah, we're aware of that problem with leveraged ETFs. However, with our system we aren't holding anything for longer than three business days, so we anticipate any effect should be very very small.

As for covariance matrix, you'd need to talk to my partner on that one.

Edit: want to be clear on the issue of perfect fit -- the ground truth for our validation sets are usually somewhere in the 100,000,000% to 1,000,000,000% range. We are obviously not getting results anywhere near that, and we are certainly not getting perfect fits. We're getting decent fits that consistently offer solid returns in backtesting, but nothing even close to perfect. There's a lot of losses mixed in there.

 

[NameBack]

If today's rally holds, we'll be up about 8% in the first four days of portfolio simulation. Not a significant sample size yet, of course, but nice psychologically.

 

[nootje]

Actually, it would be better for you if the first days/weeks were bad. Anyways, automated trades or trading signal+manual trade?