Automated Trader’s proprietary tradability metrics
First Published in Automated Trader Magazine Issue 10 Q3 2008
Automated Trader’s proprietary tradability metrics are environmental statistics intended to assist those building trading models/systems in determining which markets and timeframes are most favourably responsive to which generic types of model.
Trend Alphability
The Alphability stats for determining the ‘trend friendliness’ of markets shown here are based upon determining the amount of noise around a hypothetical trend. The simplest variant of Trend Alphability depicted here consists of the R2 (coefficient of determination) of a linear regression line plotted through the data points between the bars on which the low and high of a trading session were made (or the reverse if the high was made first). The calculation is based on the mid point of price bars in a variety of time frames. Multiplying this daily Alphability metric by the high/low range for the day (expressed as a percentage change) gives a ratio of ‘trendiness’ to the maximum available reward.
Reversal Alphability
Reversal Alphability follows similar general principles to Trend Alphability in that it provides a metric for the ease or difficulty of capturing a hypothetically optimal alpha. As the name implies, the differences lie in the generic types of model used. The variant of Reversal Alphability shown here is based upon two very simple reversal patterns, the short entry version of which is illustrated in Figure 1. For a short position the reversal entry logic is a bar (Bar 3) with a mid value greater than the preceding and succe...
The rest of this Article is only available to Paid Subscribers
You can get news like this delivered directly to your email inbox as a real-time alert or as part of a daily/weekly summary.
Click here to set your preferences now!
