Serial Correlation of Winning and Losing Trades

I came across a comment on something the Turtle traders had done, which was to stay out of the market in the next trading period following a 2x size win or loss.   Interesting idea.   They must have made the following observations for their strategy:

  1. unusually large winning trades were followed by losing trades (negative serial correlation or mean reversion for big winners)
  2. unusually large losing trades were often followed by another losing trade (positive serial correlation for large losing trades)

My main strategy is multi-asset so probably doesn’t lend itself as well to a “rule” like this.   Interesting thought though.   I should do some analysis on the pattern of winners and losers and see whether there is a consistent pattern.

Certainly for a single asset, it is not unusual to see mean-reversion following a ramp up in price.

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4 Comments

Filed under strategies

4 responses to “Serial Correlation of Winning and Losing Trades

  1. Nik

    Hey tr8dr,

    Definitely an interesting thought, let us know how it affects your performance/backtests.
    Given that you now seem to be running your own strategies successfully, would you mind sharing your performance data with us? I.e. how is your Sharpe and over which horizon have you been trading now?

    Thanks
    -Nik

  2. Nik

    I take it you dont want to share it?

    • tr8dr

      As for results, I haven’t been trading the main strategy long enough to give a good sample.

      Let’s just say the trading falls into the “too good to be true” category. Back-tested showed annual profits > 200% and trading shows results consistent with that. But until I accumulate a few more months of track record, would prefer not to put on record yet.

  3. James

    Your blog is absolutely fantastic. I’ve learned more here than during my MFE. Keep it up!

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