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VOLUME 10
Fudancy Technology is a R&D entity focusing on coaching hedge funds and financial institutions and in developing
turnkey trading systems. We believe it's not about who we are. Research, performance and robustness of the systems
are what matters. That said, at Fudancy Technology, we all hold PHD degrees and we love what we do.
TABLE OF CONTENTS
CHAPTER I
CHAPTER III
REFERENCES
APPENDIX
I
In references [1-3], we have presented the theory and practice of the general search of small deviations with respect
to the random walk hypothesis in financial data.
We have then explored an idea based on Range Break Out strategies for intra-day data on commodity futures
based on a simple equation of motion:
dx = A(x-Rx) + Sigma dW
where x represents the price series, Rx is the price range and the couple (A,Sigma) are parameters of the equation.
In this expression, Sigma is the volatility and “A” is a coefficient that quantifies the deviation with the pure random
walk. When A is significantly non-zero and positive, this means that prices are expulsed from the range Rx. Then,
we tend to have a range break out phenomenon. On the contrary, when A is negative, this means that prices have a
tendency to be contained within the range Rx.
Based on a quantitative analysis of the price series [1], we have proposed a simple generic algorithm that translates
the idea into a well defined procedure:
The above algorithm has been proven to be reasonable in terms of its statistical significance and therefore can lead
to well defined strategies when applied on commodity futures: they are described in details in references [2-3].
II
ü We want to build a portfolio based on working codes presented in details in references [2-3]. Typically, we
want to use 2 codes and each one needs to produce a comparable amount of profits.
ü We need to limit the maximum intra-day (and inter-trade) draw-down with respect to the initial equity to a level
below 10% and below 4/5% at month end.
This requirements lead to a portfolio of 100k usd running on our working codes on SILVER (SI) and
PLATINUM (PL) with weights 1 and 3 respectively. This means that each trade for SI is done within 1 futures
contract and each trade on PL within 3 contracts. Note also that PL and SI can be traded simultaneously.
III
2008-2011
The portfolio defined in chapter II leads to the following gross results (all net of fees):
The average monthly return is 2.9% and the portfolio makes a profit of 135% in 4 years.
Finally, let us present the intra-day maximum draw-down (MDD) of the portfolio:
This was part of our requirements to get this MDD below 10% as a % of the initial equity. This requirement has
defined the size of the portfolio (100k usd) in view of the 2 codes and their respective weights.
Obviously, this is not possible to get a 135% global return (net of fees) on the analysis period without a certain level
of MDD. Profits need a part of risk that we quantify here within our working codes and working portfolio.
To conclude, we have shown in this booklet how to terns ideas [1-3] into clear profits. This is really our major
purpose in these series of research papers.
REFERENCES
[1] Algorithmic Trading - Algorithmic Trading Strategies – Example on Commodity futures [Kindle Edition],
Fudancy Research.
http://www.amazon.com/Algorithmic-Trading-Strategies-Commodity-ebook/dp/B0078NN9L4/ref=sr_1_3?
s=digital-text&ie=UTF8&qid=1329651208&sr=1-3
[2] Algorithmic Trading - Algorithmic Trading Strategies – Working Codes on Natural Gas and Platinum
[Kindle Edition], Fudancy Research.
http://www.amazon.com/Algorithmic-Trading-Strategies-Platinum-ebook/dp/B00791LBSI/ref=sr_1_1?s=digital-
text&ie=UTF8&qid=1329651208&sr=1-1
[3] Algorithmic Trading - Algorithmic Trading Strategies – Working Codes on Silver [Kindle Edition], Fudancy
Research.
http://www.amazon.com/Algorithmic-Trading-Strategies-Working-ebook/dp/B00791WFEC/ref=sr_1_4?s=digital-
text&ie=UTF8&qid=1329651208&sr=1-4
APPENDIX
Monthly returns: