ANN on RUT: live!

30Jul11

The blog has been neglected in the last 1-2 months. Beside the summer beach holiday, the other reason was that we took the time and prepared the ANN strategy to be played live.
This event may be regarded as a very important milestone in the life of this blog. The sole purpose of the research (that we recorded in this blog) was to develop an algorithm based on Machine Learning (preferable Artificial Neural Network kind) that can be played live on the stock exchange.
We are happy to announce that we reached that milestone.

Actually, 2 versions are played now.

1.
The Aggressive version.

This one is the ANN(T-0, T-1). There are no ensemble groups. It is a single ANN with 2 inputs.
It means its inputs are the today and yesterday price change of the RUT index.
We don’t use the day of the week input here. It only drags down the performance.

It is a risk taker. It never goes to cash.
You can check somewhere in the previous blog article reports about its performance numbers. The unleveraged version did about 35% gCAGR, and 40% drawdown in the past. We know nothing about the future.

2.
Conservative version.
This one actually has 4 ensemble groups.
-ANN(T-0)
-ANN(T-0) // it is the same as the first group; mostly for stability
-ANN(T-1)
-ANN(day of the week for T-0)

All 4 groups have to agree. They have to be in consensus.
There are 3 possible scenarios:
– All 4 groups vote +1 for next day: consensus is Up
– All 4 groups vote -1 for next day: consensus is Down
– otherwise: consensus is cash

So, if this strategy is not convinced, not confident enough about the next day direction, it goes to cash. That is the conservative approach.
This conservative version had about 18% CAGR and 30% drawdown in the backtests.

Past backtests are based on playing it on the unleveraged RUT index. However, it is not possible to play the RUT index in real life. Either we play the futures or play ETFs. We picked the double ETF (ultra, and ultra short) and we play that.

That is how these strategies performed in the last month:

Interesting that the Agressive version is the laggard; albeit we expected it to have better performance than the Conservative.
Note has to be made that we were lucky with timing: if we start of the portfolio 2 weeks earlier, the profit wouldn’t be as good as now.

Obviously, the period is too short to be happy about it or draw serious conclusions. So, let’s wait and follow them.

Real live trading will be extended with another trick. We plan to use some kind of money management, in case the strategy turns sour. For example, the ‘playing the equity curve’ technique.
It hasn’t been developed yet. It should improve the future drawdowns.

Advertisements


No Responses Yet to “ANN on RUT: live!”

  1. Leave a Comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: