Spencer Bosma

@SpencerBosma

8 Tweets • 2021-11-12 •  See on Twitter

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How to find edge(s) in markets, a thread.

It's tempting to use common models using price and

volume (including technical analysis) on highly
analyzed and very liquid markets, like the S&P. But,
why would you expect to consistently make money
with MA crossovers on E-Minis?
You need something more than a simple system,
given that these assets are highly watched and very
accessible.

You can invest in more data and complicated models,

but now you have to deal with: overfitting, competition
with smarter more resourceful people, wasted time
and money.

The good news is you don't have to solve these

problems — you can find your edges in less frequently
analyzed and relatively illiquid (but liquid enough for
you) markets.

Trading firms will throw away strategies unless they

make a certain $/mo (author of further down paper has
put this at 20k/mo) to cover expenses (operations,
infrastructure, quantitative researcher salaries). Find
those strategies discarded by others. 20k/mo sounds
good to me.
Find your edges in the center of your Venn diagram.

You're a collection of expertise, knowledge, values,

hobbies, [lack of] expenses & constraints, resources,
and network. The intersection of them is shared by
very few people, or nobody at all, and it's your
advantage.

(This thinking is probably useful in your professional

(and romantic?) life in general, i.e. everyone is
special)

The "Developing & Backtesting Systematic Trading

Strategies" paper, which I highly recommend, () has
you list your constraints, costs and advantages before
thinking about developing a strategy.

https://r-forge.r-project.org/scm/viewvc

.php/*checkout*/pkg/quantstrat/sandbox/b

acktest_musings/strat_dev_process.pdf?ro

ot=blotter
Value your time by making clear, falsifiable hypothesis
that are rejected as early as possible.

Don't waste your time and money (see pinned)

optimizing simple strategies in well traded markets,
especially if you're a discretionary trader doing this
optimization in real time.

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