June 14th, 2011

Over the last few days, I've been busy writing a new paper to describe the implementation phase of the Alpha Power trading methods. It is not an easy task. But based on the Livermore challenge results, one is forced to reconsider the benefits of trading over an accumulative process.

This new paper should take a few weeks to complete and provide an overview of my trading methods. My goal is to simply show how controlling the inventory level over the investment period can greatly improve portfolio performance.

You first obtain some results that you don’t necessarily understand. Then, you start searching for reasons why the results even exist. You look at the portfolio management literature for answers and none are able to explain your results. You are therefore forced to design new mathematical models that can represent the same outcome as your trading methods.

After having designed a new working model for your trading strategy, you retest your portfolio on this same model. If the output of your new tests approaches your theoretical outcome then you might have to accept that your model can be a reasonable explanation for these same results. It is like in any scientific project: you obtain results that are hard to explain. Then you try to restructure your representation of the data with a new model that can incorporate what you see.