Friday, March 27, 2009

A reader comments on trading using Excel VBA and Factor Model

Thoughtful comments from a reader John S. from the UK on his experience with trading technology and models:

"I have been developing my own personal automatic trading systems using Excel VBA and based on rules I have developed over the years as an active private trader investor using both technical and fundamental data analysis.

One of the key merits in adopting an automatic trading system approach that has helped me is to avoid the temptation for manual interference and thereby improving profitability by maintaining consistency. I have found the challenge of developing a successful system very rewarding from a personal perspective as I recognise that there are many that have tried and failed. However one problem I have encountered is my ongoing desire to regularly modify and improve the system which I have found can become counter productive as there is a real danger that system development becomes an end in itself! I just can't seem to stop tinkering as soon as I come up with a new idea or feature!

One advantage of using Excel VBA that I have found is that it is inherently flexible as it facilitates the processing of data which can be important especially when using fundamental data as part of the system. In this respect I recognise that every trader is trying to build in an edge that will make the system more profitable. I have noticed that many traders seem to only focus on price by trying to seek an edge by looking at special indicators or combination of indicators etc. Combining price data analysis with a Factor Model approach is a challenge which is ideally suited Excel VBA as it can be easily used to process both fundamental and macroeconomic data into a form that can be integrated with price data analysis.

I recognise from your book that Matlab is more powerful than Excel VBA and may be just as flexible in integrating fundamental and macroeconomic data but I just wanted to draw your attention to benefits I have found using Excel VBA which may suit those who like myself are more comfortable in using Excel VBA and are reluctant to change. Other features that can be exploited that I have found helpful when back testing are automatically producing Price Charts that incorporate Entry and Exit points which provides visual reassurance that the system is working as intended as well as generating automatic Word reports recording key output for future reference.

I am sorry if I sound too much like an advert for Microsoft!"

Friday, March 13, 2009

Mean-reversion is getting stronger

As I mentioned in various previous blog posts, (e.g. see here), I believe mean-reversion strategies have been performing very well in the last year. Now here is an article (hat tip: Laurence) that provides concrete analysis to support this hypothesis. In fact, the author points out that most of the mean-reversion in recent years comes from the overnight close-to-open reversal.