Negative. The concept is autocorrelation. It's basic undergraduate Univariate Probability. Autocorrelation detects the degree of randomness in a time series. Bonds and Currencies tend to exhibit a high degree of autocorrelation. The higher the autocorrelation found in a time series the lower degree of randomness therein. Simply said Bonds and Currencies tend to trend well and this is shown by their high degree autocorrelation and this in itself makes them fantastic trading vehicles. Obviously this why trend following systems tend to work well on Bond and Currencies. Conversely, a lower degree of autocorrelation is one of the reasons trend following systems work much less well in the Share market (i.e Shares tend to exhibit a higher degree of randomness). With regard to cross-correlation, I donât really care how the Bonds and S&Pâs correlate with each other because itâs not reliable. Sometimes theyâre highly correlated and sometimes theyâre highly negatively correlated, but this is based on other macro factors. And this is exactly where the âartâ of the trader trumps the âscienceâ of probability. Regards, Dr. Zhivodka
When speaking of more than one symbol and the way they relate to each other, the term is cross-correlation. Auto-correltion is nearlly worthless as a measure of "randomness," which you seem to be using as a measure of how well a marktet "trends." It is "standard" knowledge that maybe 4% of a time series from any market (diversified index) is described by any lag of it's self, which is the measure that AC is giving you. However, shorten the timeframe, and add cross-correlated markets, and the situation changes drastically. However, if you meant AC and not CC, to describe a single market, then I misparsed your sentence above. nitro
I was referring to only one market. Not how two or more markets relate to each other. Yes, you misunderstood my first reply. Dr. Zhivodka
if you trade bonds, you have to watch them all anyway, try to match your method with either one to se which gives you better signals. Papertrade both of them for one month and pick one which suits you better. Walter
Partial sidenote: The majority of CTAs employ a trend following strategy. And the least popular futures to trade are the indices while bonds and currencies are the most popular amongst commodity pools.
do you ever average down in bond complex ? maybe once ? or not at all ? do you risk 4 ticks / 8 ticks / 16 ticks on a typical daytrade ? ever trade overnight or find it better during daytime hrs ?