{"id":2022351,"date":"2015-05-08T20:53:08","date_gmt":"2015-05-08T15:23:08","guid":{"rendered":"http:\/\/stockviz.biz\/index.php\/?p=2022351"},"modified":"2015-05-08T20:53:08","modified_gmt":"2015-05-08T15:23:08","slug":"machine-learning-long-short-trend-following","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2015\/05\/08\/machine-learning-long-short-trend-following\/","title":{"rendered":"Machine Learning Long-Short Trend Following"},"content":{"rendered":"

Introduction<\/h3>\n

Our previous post<\/a> discussed how a simple SMA On\/Off Switch<\/em> based tactical algo can be enhanced by a volatility metric. We generated significant alpha by following a simple rule: <\/p>\n

\nGo short if either or the volatility signal or the 50-DMA indicates a negative bias and long otherwise.\n<\/div>\n

But what if we trained a machine on the same data and allowed it to decide when to go long and short?<\/p>\n

Support Vector Machines<\/h3>\n

We fed an SVM our volatility metric and the percentage distance from 50-day SMA. A 5-year training set was used to predict the next year daily long\/short. We will not delve into the details of how SVMs work, Wikipedia<\/a> does a decent job introducing the concept. <\/p>\n

Performance<\/h3>\n

To make it easier to compare, we plot the wealth-charts for the NIFTY and BANKNIFTY indices side-by-side. <\/p>\n

The black line is the Machine Learning Long-Short Model and the blue line is buy-and-hold. NIFTY and BANKNIFTY since 2011:<\/p>\n

\"nifty.machine.learning.2011\"<\/p>\n

\"banknifty.machine.learning.2011\"<\/p>\n

NIFTY and BANKNIFTY since 2013:<\/p>\n

\"nifty.machine.learning.2013\"<\/p>\n

\"banknifty.machine.learning.2013\"<\/p>\n

Cumulative Returns<\/h3>\n

Buy-and-hold has two big advantages over a trading strategy: transaction costs and tax treatment. Here is how the different strategies compare with buy and hold:<\/p>\n

\"NIFTY<\/p>\n

\"BANKNIFTY<\/p>\n

It appears that the ML(V + 50-DMA) Long Short strategy works better on the BankNifty than on the Nifty. The out-performance of the ML model on the BankNifty more than compensates for transaction costs and taxation.<\/p>\n

Conclusion<\/h3>\n

The ML model outperformed the NIFTY by an average of 12% in the last 4-years and the BANKNIFTY by 94% in the same period. The out-performance on the BANKNIFTY is considerable enough to warrant further exploration.<\/p>\n","protected":false},"excerpt":{"rendered":"

Introduction Our previous post discussed how a simple SMA On\/Off Switch based tactical algo can be enhanced by a volatility metric. We generated significant alpha by following a simple rule: Go short if either or the volatility signal or the 50-DMA indicates a negative bias and long otherwise. But what if we trained a machine … <\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3471,9],"tags":[3411,3391,2761,3551],"class_list":["post-2022351","post","type-post","status-publish","format-standard","hentry","category-investing-insight","category-your-money","tag-banknifty","tag-nifty","tag-quant","tag-support-vector-machine","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2022351","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=2022351"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2022351\/revisions"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=2022351"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=2022351"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=2022351"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}