Monday, November 12, 2007

Model Facing a Crisis

My trading model has been performing poorly in recent months - the model is frequently stopped out - the market moves more than 1.25% in the opposite direction - far more than in other periods in recent years. As a result I have low confidence in placing trades according to the model. I've been in a desperate search to find a way to improve the model, but haven't found anything better than what I already have. The question is whether this is a temporary phenomenon or are the markets changing in some fundamental way? In the meantime, the best I can do is use the model as a guide to doing some intraday (or intranight) trades. I haven't done many of those recently either. I'm going to experiment a bit with some nonlinear model ideas, but I don't think they are likely to yield anything either.

2 comments: said...

LTCM found out to it's great cost that a model only works if the future looks the same as the past, and it's often impossible to predict when things are going to suddenly change and if they'll ever go back to how they were before. As Mark Twain might have said "History Doesn't Repeat Itself, But It Rhymes".

Anonymous said...

Don't feel bad. There is massive manipulation going on and even some of the big quant funds are getting hurt. Pretty much every short-term trading system I see is getting killed.

Sit back and watch the programs blow through as the big boyz move it where they want.