During December 2011, the last month of the second year of Danica's live operation, the system continued on auto-pilot without parameter changes. While the forecasts for daily low and high were strongly positively correlated with reality, the predicted changes in the daily close were on average anti-correlated with the actual ones. Thus the system has ended the year in which it functioned as a surprisingly stable "anti-system", a curious quantitative phenomenon which no doubt will be useful to research and possibly exploit, but not the intended one. This system performance review consists of a summary section reporting the figures of merit for the forecasting quality, followed by 14 subsections, dedicated to the individual exchange rates tracked by the system. Those contain the usual green-yellow-blue-red color-coded charts of the performance, such as shown below, for each currency pair. Fig. 0: AUD/USD bar chart for December 2011, color-coded to indicate the degree of success in the forecast for close. Yellow and green bars have been predicted successfully as bearish and bullish respectively; blue and read are unsuccessful bearish and bullish predictions, respectively. AUD/USD was the currency pair of the system's worst performance for the month of December. The areas of alternating red and blue bars is when the system was getting out of sync with the reality it tries to predict. For comparison with the previous month, you may want to take a look at the October 2011 performance review.
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December 2011 performance review for Danica
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January 7 2012, 5:18pm | Comments »
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November 2011 performance review for Danica
During November 2011, the eleventh month of the second year of Danica's live operation, the system continued on auto-pilot without parameter changes. Many FX markets moved in recognizable trends this month, and the market average of the correlation coefficient between Danica's forecasts and the reality for daily close came out somewhat positive, while the forecasts for daily low and high were strongly positively correlated with reality. This system performance review consists of a summary section reporting the figures of merit for the forecasting quality, followed by 14 subsections, dedicated to the individual exchange rates tracked by the system. Those contain the usual green-yellow-blue-red color-coded charts of the performance, such as the one shown below, for each currency pair. Fig. 0: GBP/JPY bar chart for November 2011, color-coded to indicate the degree of success in the forecast for close. Yellow and green bars have been predicted successfully as bearish and bullish respectively; blue and read are unsuccessful bearish and bullish predictions, respectively. The system persistently stayed with the downward trend throughout much of the month despite a number of disappointing days, then turned around to catch the trend change almost perfectly, given the time scale of its operation. For comparison with the previous month, you may want to take a look at the October 2011 performance review.
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December 4 2011, 3:56pm | Comments »
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October 2011 performance review for Danica
October 2011, the tenth month of the second year of Danica's live operation, saw generally high risk appetites and ended with the long-awaited JPY intervention. The system continued on auto-pilot without parameter changes. The market average of the correlation coefficient between its forecasts and the reality for daily close came out strongly negative, while the forecasts for daily low and high were positively correlated with reality, in line with the established pattern of this system's live operation. This system performance review consists of a summary section reporting the figures of merit for the forecasting quality, followed by 14 subsections, dedicated to the individual exchange rates tracked by the system. Those contain the usual green-yellow-blue-red color-coded charts of the performance, such as shown below, for each currency pair. Fig. 0: USD/JPY bar chart for October 2011, color-coded to indicate the degree of success in the forecast for close. Yellow and green bars have been predicted successfully as bearish and bullish respectively; blue and read are unsuccessful bearish and bullish predictions, respectively. The BOJ intervention, which went against the predicted trend, created the long blue bar. For comparison with the previous month, you may want to take a look at the September 2011 performance review.
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November 4 2011, 1:37pm | Comments »
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September 2011 performance review for Danica
September 2011, the ninth month of the second year of Danica's live operation, will be remembered for the CHF intervention and the announcement of the so-called Operation Twist in the US. The system continued on auto-pilot without parameter changes. The market average of the correlation coefficient between its forecasts and the reality for daily close came out slightly positive, despite the strong negative contribution from USD/CHF, one of the pairs that suffered from the Swiss intervention. The system kept doing a good job making forecasts positively correlated with reality for the daily extremes (in all cases, logarithmic returns are analysed). This system performance review consists of a summary section reporting the figures of merit for the forecasting quality, followed by 14 subsections, dedicated to the individual exchange rates tracked by the system. Those contain the usual green-yellow-blue-red color-coded charts of the performance, such as shown below, for each currency pair. Fig. 0: EUR/JPY bar chart for September 2011, color-coded to indicate the degree of success in the forecast for close. Yellow and green bars have been predicted successfully as bearish and bullish respectively; blue and read are unsuccessful bearish and bullish predictions, respectively. Several successful alternations of green and yellow indicating successful switches in the direction of the trade, not prompted by losses, are seen in the chart. For comparison with the previous month, you may want to take a look at the August 2011 performance review.
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October 8 2011, 4:27pm | Comments »
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August 2011 performance review for Danica
August 2011 was the eighth month of the second year of Danica's live operation. The system continued on auto-pilot without parameter changes. The market average of the correlation coefficient between its forecasts and the reality for daily close came out negative, but the result is strongly dominated by a single market, EUR/USD, which was range-bound but at the same time volatile. The system kept doing a good job making forecasts positively correlated with reality for the daily extremes (in all cases, logarithmic returns are analysed). The best performing pair was EUR/AUD. This system performance review consists of a summary section reporting the figures of merit for the forecasting quality, followed by 14 subsections, dedicated to the individual exchange rates tracked by the system. Those contain the usual green-yellow-blue-red color-coded charts of the performance, such as shown below, for each currency pair. Fig. 0: USD/JPY bar chart for August 2011, color-coded to indicate the degree of success in the forecast for close. Yellow and green bars have been predicted successfully as bearish and bullish respectively; blue and read are unsuccessful bearish and bullish predictions, respectively. Several successful alternations of green and yellow indicating successful switches in the direction of the trade, are seen in the chart. For comparison with the previous month, you may want to take a look at the July 2011 performance review.
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September 3 2011, 1:14pm | Comments »
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July 2011 performance review for Danica-9am algorithm
July 2011 was the seventh month of the second year of Danica's live operation. The system continued on auto-pilot without parameter changes. The system continued to surprise with the stable, significant anti-correlation between its forecasts and the reality for daily close, while doing a good job making forecasts positively correlated with reality for the daily extremes (in all cases, logarithmic returns are analyzed). The largest contributors to the negative performance for daily close were AUD/JPY and AUD/USD. The best performing pair was EUR/CHF. This system performance review consists of a summary section reporting the figures of merit for the forecasting quality, followed by 14 subsections, dedicated to the individual exchange rates tracked by the system. Those contain the usual green-yellow-blue-red color-coded charts of the performance, such as shown below, for each currency pair. Fig. 0: EUR/CHF bar chart for July 2011, color-coded to indicate the degree of success in the forecast for close. Yellow and green bars have been predicted successfully as bearish and bullish respectively; blue and read are unsuccessful bearish and bullish predictions, respectively. The system successfully calls the local top (by daily close) in the last week of July trading. For comparison with the previous month, you may want to take a look at the June 2011 performance review.
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August 18 2011, 12:33pm | Comments »
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Demi performance review, June 2011
This post begins monthly peformance reviews for the Demi line of EUR/USD daily time frame trading systems. There are four systems in total, differing only according to the choice of the closing hour of the "day": 3, 5, 9 and 11 am Eastern time. The systems went live on August 25, 2010, after extensive back-testing. Since then, the parameters found in the course of the back-testing have been frozen. Even though the system output (see Demi section of the site) is available only to the registered members, the performance reviews will be available publicly. Fig.1.1 Evolution of Demi's simulated equity with time for the system with daily updates at 3am Eastern time (8am London). The moment of going live is marked by a vertical line. Time axis is labeled in MM-YY format.
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June 5 2011, 6:24pm | Comments »
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April 2011 performance review for Danica-9am algorithm
April 2011, the forth month of the second year of Danica's live operation, saw a continuation of risk appetite in the markets, with stock and commodity rallies. The system continued on auto-pilot without parameter changes. This system performance review consists of a summary section reporting the figures of merit for the forecasting quality, followed by 14 subsections, dedicated to the individual exchange rates tracked by the system. Those contain the usual green-yellow-blue-red color-coded charts of the performance, such as shown below, for each currency pair. Fig. 0: Danica's optimism on CHF is rarely perturbed by the pull-backs. USD/CHF bar chart for April 2011, color-coded to indicate the degree of success in the forecast for close. Yellow and green bar have been predicted successfully as bearish and bullish respectively; blue and read are unsuccessful bearish and bullish predictions, respectively. Note the alternation of yellow and blue bars: the system is bearish on USD/CHF in both cases. For comparison with the previous month, you may want to take a look at the March 2011 performance review.
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May 2 2011, 12:22pm | Comments »
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ForexAutomaton 2011. The Third Annual Summary of Research Progress.
The third year of ForexAutomaton's life has come to a closure. As usual, presented here is the summary of main problems that occupied me during the year, and the main achievements. For the first time, the annual report includes reviews of the actual trading and forecasting systems which have been running live on this web site since the beginning of 2010, free and accessible to the public. The report is structured around system performance and development while observational studies of market inefficiency take a back seat. The prediction engine remains a Black Box to the reader. Executive Summary. Statistical predictability of the direction in which each of the extremes of the price-chart bar evolves is proved to be insufficient to claim market inefficiency, and is understood to have mundane roots in the diffusion of price under conditions of limited price continuity, as is borne out by the random walk model. Differences between hypothetically efficient and real FX markets manifest themselves in higher order correlations, namely fourth order cumulants among certain real data and their proprietary forecasts. A strategy attempting to take advantage of these properties of the real FX markets, Demi, has been designed and launched. Results of the first seven months of its live paper trading are reviewed. A system making predictions on the hourly time frame, named Heidi, has been launched. Following a detailed analysis of the intra-day seasonality patterns such as the alternation of trend following and mean-reversion, Heidi has been improved for at least some of the intra-day time periods by making it seasonality-cognizant. The oldest system, Danica, generating predictions on the day scale, has so far been unable to provide systematic positive correlations between its forecasts for the direction of daily close and the actual direction in live operation, but the cause seems to go beyond the choice of the adjustable parameter.
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April 4 2011, 10:36am | Comments »
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Incorporating seasonality into Heidi. A concept of a better forecasting component for an intraday trading system.
Hourly time scale in forex provides roughly 24 times more statistics, than the daily scale. Therefore, if a single adjustable parameter for all currency pairs is justifiable in the daily system optimization (Danica), 24 parameters can be adjusted for Heidi without jeopardizing significance of the results. The natural way of increasing the number of parameters is to split the 24-hour day into time window "seasons" and treat the seasons as independent pattern recognition problems in the code and as independent optimization problems on the stage of optimization.
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March 7 2011, 7:21pm | Comments »
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February 2011 performance review for Danica-9am algorithm
During February 2011, the second month of the second year of live performance, the system continued on auto-pilot without parameter changes. This document consists of a summary section reporting the figures of merit for the forecasting quality, followed by 14 subsections, dedicated to the individual exchange rates tracked by the system. Those contain our usual green-yellow-blue-red color-coded charts of the performance (2 for the two hypothetic strategy triggers for each currency pair, 28 in total) and details pertinent to the specific currency pairs. Looking at the most important figure of merit, namely the correlation coefficient between predicted and actual returns for close, the forecasting system eked out a marginally positive result this month. The main contributors to the positive performance were USD/JPY where the system was able to quickly readjust to the yen rally in the second half of the month, and AUD/JPY. For comparison with the previous month, you may want to take a look at the January 2011 performance review.
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March 1 2011, 7:10pm | Comments »
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Intraday alternation of trending and mean-reversion in FX
This post is the first attempt to summarize intra-day seasonality findings from the six major exchange rates involving USD, focused on the hour-scale correlation structures. Taking advantage of the "non-trivial" (non-zero time lag) correlations in forex is complicated since their structure changes during the day, and a residual structure that survives the multi-day averaging is for this reason weaker than what may exist in a stable way at a certain time period during the day. Averaging is necessary to accumulate statistics and let the signals dominate the noise. But in doing that, I contain averaging within temporal classes or "bins", combining bars of the data recorded at the same or close times during different days, months and years of observation. When cyclicity of time is thus taken advantage of, a weak but significant and stable pattern of intra-day alternation between trend-like and mean-reversion behavior emerges.
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February 23 2011, 6:13pm | Comments »
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Japanese yen (JPY) intraday seasonality overview, 2003-2010
Intra-day seasonality in JPY is researched by averaging hourly logarithmic returns, grouped systematically into temporal "bins" according to the time of the day. Two types of average, the average across years of observation for each instrument, and an average across instruments for each year, are presented. The instruments are USD/JPY and four popular crosses involving AUD, EUR, GBP and CHF. The effects look practically insignificant given the typical levels of trading costs available to a retail trader, and given the lack of time stability.
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February 17 2011, 12:11pm | Comments »
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CHF/JPY intraday seasonality overview, 2003-2010
This CHF/JPY report completes a set of systematic intraday pattern research reports involving JPY as the base currency. This will be followed by a synthesis report for JPY, following the format already tried for USD.
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February 15 2011, 2:47pm | Comments »
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GBP/JPY intraday seasonality overview, 2003-2010
This GBP/JPY report contributes to a set of systematic intraday pattern results involving JPY as the base currency. GBP/JPY as most other currency pairs tends to experience mean reversion around CET midnight.
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February 10 2011, 12:37pm | Comments »
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EUR/JPY intraday seasonality overview, 2003-2010
A systematic search for forex inefficiencies in an unlikely place, the daily variation of temporal and cross-market averages of hourly logarithmic returns, initially undertaken for the sake of scientific completeness in the context where results were expected primarily from correlation observables, unexpectedly yielded non-trivial results. The results for exchange rates involving USD as the base currency have been summarized elsewhere. This EUR/JPY report contributes to another set of results involving JPY as the base currency.
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February 7 2011, 3:35pm | Comments »
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January 2011 performance review for Danica-9am algorithm
During January 2011, the first month of the second year of live performance, the system continued on auto-pilot without parameter changes. This document consists of a summary section reporting the figures of merit for the forecasting quality, followed by 14 subsections, dedicated to the individual exchange rates tracked by the system. Those contain our usual green-yellow-blue-red color-coded charts of the performance (2 for the two hypothetic strategy triggers for each currency pair, 28 in total) and details pertinent to the specific currency pairs. For comparison with the previous month, you may want to take a look at the December 2010 performance review.
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February 1 2011, 4:44pm | Comments »
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Intraday seasonality as a source of alpha
The effect discussed in this post became visible after analyzing intra-day hour-scale data for the six major currencies and synthesizing the findings. Much of the discussion and effort documented on this site is related to adaptive forecasting algorithms with the view that the direction of price would be conditioned somehow by the past direction in the same or different markets. In contrast, the effect I am about to describe amounts to the direction of price movement being dependent not so much on the history, but on the point in time (wall clock reading). To verify stability of the effect, I compare intermarket averages over several years and temporal averages over the six popular currency markets (AUD, GBP, EUR, CAD, CHF, JPY).
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January 28 2011, 2:20pm | Comments »
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EUR/CHF intraday seasonality overview, 2003-2010
The EUR/CHF hourly average log returns, even non-zero in a systematic way, are too low to offer a tradeable strategy. The time series is mean-reverting on the hour scale throughout the day showing no signs on a regime switch common to some other exchange rates.
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January 24 2011, 5:07pm | Comments »
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USD/CHF intraday seasonality overview, 2003-2010
USD/CHF tends to show bearish dynamics for several hours following the start of American trading. The European night has a bias towards mean reversion.
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January 20 2011, 1:15pm | Comments »