Technical Analysis

Most techincal analysis strategies focus on trend following, and a smaller part on contrarian. Currently, we mainly focus on trend following.

Back Test Result

The strategy is tested on all the products trading in the three Commodity Future Markets in China, including SHFE, DCE, CZCE, between Jan 1st 2007 and Aug 1st 2017. Trading cost is set at 3%% either for buy or sell, and no leverage is used. The potential risk free return is not included.

Time Series Carry

The shrinking/enlarging of the carry return of a product also contains a trend to be captured. For contango products (near month is lower than deferred month), the shrinking carry return means the deferred month price is converging to the near month, thus a short position on dominant contract is preferred. For backwardation products (near month is higher than deferred month), the shrinking carry return means the deferred month price is converging to the near month, thus a long position on dominant contract is preferred.

Risk-Parity: determine the strategy’s weight

The weight of a product’s position is determined by its standard deviation’s reciprocal. More academic resources can be found in Qian2005

Any strategy is dependent on parameters. Constant parameters are preferred. However, the parameters are usually changing. We define the process to tune the parameters as “Model Review”.

The currency carry trade is a strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to buy a different currency yielding a higher interest rate.

More academic resources can be found here

5 day Moving Average is equivalent with a low pass fitler with coefficients b = [0.2, 0.2, 0.2, 0.2, 0.2] and a = 1. The volatility is relatively high frequency (from day to day), when compared with the price move on a 5 day range. The trend is mostly hidden in the low-frequency area in the frequency domain.