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Trading carries a high level of risk, and may not be suitable for all investors. You should never invest money that you cannot afford to lose.

Tuesday, 4 December 2018

Strategy testing

  • Profit factor
  • Sharpe Ratio
  • Ulcer Performance Index
  • Compound Annual Growth Rate
  • Maximum Drawdown
  • Percent Profitable Trades
  • Average Win to Average Loss Ratio
  • Equity

Sharpe ratio

Sharpe ratio is the measure of risk-adjusted return of a financial portfolio. A portfolio with a higher Sharpe ratio is considered superior relative to its peers. 

The Sharpe ratio is a ratio of return versus risk. The formula is: (Rp-Rf)/ p

Rp = the expected return on the investor's portfolio
Rf = the risk-free rate of return
p = the portfolio's standard deviation, a measure of risk

Note that "sharpe ratio" is considering the volatility type of risk, ignoring that treasury notes are not really risk-free but involving other types of risks (inflation, interest rate risk, opportunity costs, etc)

Use Python to calculate the Sharpe ratio for a portfolio

Realised historical return is used to calculate ex-post Sharpe ratio while ex-ante Sharpe ratio employs expected return. 

Ulcer Index

Ulcer index is designed as a measure of volatility, but only volatility in the downward direction, i.e. the amount of drawdown or retracement occurring over a period.

Other volatility measures like standard deviation treat up and down movement equally, but a trader doesn't mind upward movement.

Flirting with Models: Looking into the Ulcer Index

Loss at a single point in time (max drawdown) is far less important than how a strategy manages losses over time (UPI).

Friday, 23 November 2018

Skin in the Game

Incerto is a  four book bundle written by Nassim Nicholas Taleb
  • Antifragile
  • The Black Swan
  • Fooled by Randomness
  • The Bed of Procustes
Nassim Nicholas Taleb's landmark Incerto series is an investigation of luck, uncertainty, probability, opacity, human error, risk, disorder, and decision-making in a world we don’t understand.

Thursday, 8 February 2018

Waiting for a recovery in BTC

Since BTC was at 20000$, because of the tail risk created by the previous parabolic growth, a huge swing to drop it 50% (to 10k) was expected, as last 3 dips in BTC were around 50% each time. But it happened with a large delay, 1 month later. That made Bitcoin lose its strength and enter in a wide range where trend became uncertain. Bulls rejected the support level at 10000$ and BTCUSD was going up for a while. Finally 9500$ support level broke-down and BTC found a strong support only at 6000$.

Good news it that this correction discharged tensions created by the exponential growth tendencies, but first I expect to hit a resistance somewhere below 12000$.

Short: Brent Oil going down

On short term, the Brent Crude Oil price started a possible trend reversal to the downside, after hit a hard resistance at 70$. At least on short term the downtrend is visibile. We have to wait it to break-down the 64$ support level.

Disclaimer: I am/we are short Brent Oil.

Monday, 22 January 2018

Beyond the Bitcoin Bubble (NY Times)

The entire world economy is booming

Why I don't think Bitcoin and Cryptocurrencies are in a bubble. According to analysts, we are in a "secular bull market".

Strategist Jeff Saut: The 8-year-old bull market still has up to nine more years left

"Raymond James believes there may be nearly a decade left in this secular bull market, which is defined as a market that's driven by forces that could be in place for years. It's not to say that there can't be corrections or even a bear market along the way. But he said the secular bull should prevail."

In other words:

  • all the assets are in a bull market: stocks (S&P 500, Dow Jones), Nikkei index (Asia/Japan), Commodities, crypto-currencies, the Euro vs Dollar, Chinese Yuan vs Dollar, etc. 
  • there will always be small corrections, or short-term bear attempts
  • the overall uptrend will prevail

Jeff Saut: "This is going to be the longest, strongest secular bull market of my career and I've been in the business 47 years."

So if you insist, you can say the entire financial system is in a huge bubble. In this case why should I care that Bitcoin is in a bubble?

Until now all the asset classes are highly correlated in long term. For this reason common sense tells me that if at some point the bubble will burst, the entire bubble will burst, unless the correlation will change.

Building something more important than wealth

The blockchain and the cryptocurrencies trend is building something much more important than wealth; It is a brand new technology with huge potential both technically and socially.  The blockchain is here to stay.

Beyond the Bitcoin Bubble (New York Times)

02/02/2018 Update: If you think only Bitcoin or only cryptocurrencies are in a big bubble, better take a look at the following chart

Trading carries a high level of risk, and may not be suitable for all investors. You should never invest money that you cannot afford to lose.

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Trading carries a high level of risk, and may not be suitable for all investors. You should never invest money that you cannot afford to lose.