Beware of the traps — Quantitative Trading Mistakes

  1. Understanding statistics/probability.
  2. Model implementation.
  3. Strategy back-test/simulation.
  4. Risk Management.

Understanding Statistics and Probability

  1. Correlate prices instead of returns (either log-returns or actual returns) — When we deal with time-series we usually deal with assets prices. Assets prices are “non-stationary” in their nature. “Non-stationary” process basically means that the asset presents a trend (or a non-mean-reverting process). If we will take, for example, Gold Spot price vs. US 10yr real yield we can clearly see the effect of using non-stationary data. This is a regression of the Gold/Yield prices
Gold/US 10y Real yield price regression. R²=0.81 , R=-0.9
Gold (Log Rtn)/10yr Real yield ($ change) . R²=0.18, R=-0.43

Model Implementation

USDJPY 1-week RVol vs UDSJPY 1-month RVol regression.

Model Simulation

Risk Management



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Harel Jacobson

Harel Jacobson


Global Volatility Trading. Python addict. Bloomberg Junkie. Amateur Boxer and boxing coach (RSB cert.)!No investment advice!