BWolinsky Trading

Mike805 · Dec 7, 2009

Beau,

When everyone questions your logic about assigning a name to a system and when that questioning happens to be unanimously against your position... well, its time to stop being stubborn and admit you have made a mistake. In fact this is the underlying theme in most of our posts here; you need to fess-up to your mistakes and take responsibility for what you don't know and what you're doing incorrectly.

As I rudely pointed out earlier, not being able to change your mind after strong contradictory evidence is presented is a sign of a certain type of pathology.

Based on talon's posts, I would consider him to be an expert in this field. I also have some knowledge about trading strategies as well.

Its been said before but I'll say it again: a "pairs system" implies a hedge!

You do not have a hedge. You position yourself directly on one side and are essentially trading a reversion. Your risk is not reduced and you are highly subject to directional volatility.

Let's do a hypothetical situation: if we were to take this matter into a legal proceeding, a judge would ask a panel of experts the following question:

"Based on B. Wolinsky's trading record, do you Mr. Talon, an expert in this field, believe he is trading a pair's system?". Mr Talon would say no. End of story, the next expert would say the same thing and so on. You would held liable for misleading people that do not have the investment saavy to see through the false premise.

How much clearer can we be here Beau?

Also, take talon off of ignore and learn something. There are very few people here that have the capacity and patience to take the time to explain your shortcomings. It is in your best interest to listen to him.

Mike

bwolinsky · Dec 7, 2009

Quote from Mike805:

Beau,

When everyone questions your logic about assigning a name to a system and when that questioning happens to be unanimously against your position... well, its time to stop being stubborn and admit you have made a mistake. In fact this is the underlying theme in most of our posts here; you need to fess-up to your mistakes and take responsibility for what you don't know and what you're doing incorrectly.

As I rudely pointed out earlier, not being able to change your mind after strong contradictory evidence is presented is a sign of a certain type of pathology.

Based on talon's posts, I would consider him to be an expert in this field. I also have some knowledge about trading strategies as well.

Its been said before but I'll say it again: a "pairs system" implies a hedge!

You do not have a hedge. You position yourself directly on one side and are essentially trading a reversion. Your risk is not reduced and you are highly subject to directional volatility.

Let's do a hypothetical situation: if we were to take this matter into a legal proceeding, a judge would ask a panel of experts the following question:

"Based on B. Wolinsky's trading record, do you Mr. Talon, an expert in this field, believe he is trading a pair's system?". Mr Talon would say no. End of story, the next expert would say the same thing and so on. You would held liable for misleading people that do not have the investment saavy to see through the false premise.

How much clearer can we be here Beau?

Also, take talon off of ignore and learn something. There are very few people here that have the capacity and patience to take the time to explain your shortcomings. It is in your best interest to listen to him.

Mike
More...

Anyone who knows what a pairs trade is would know what I'm doing is a pairs trading system.

2 things in a pairs model:

1)Sell short an Overvalued security
2)Buy an undervalued security

YOU DO NOT HAVE TO SELL SHORT

As in a pairs model, YOU ARE BETTING ON THE MEAN REVERSION.

The difference as I have it, and is quite ingenious is that you can go long the undervalued, BECAUSE THEY HAVE THE EXACT SAME UNDERLYING.

If this doesn't sink in, I do not want you posting anymore to this journal. You have lied repeatedly about me, and defamed my professional integrity. No more.

I can't help it if you guys really don't think an RIA Rep through Level I of the CFA Exam doesn't know what a pairs trade is. On top of that, one that programs, as well as coming from an institution offering a degree available at only 10 other institutions. Do I need to mention a math minor involving vector calculus and differential equations?

WTF.

I'm not going to discuss this any further. Do not question this, because the answer is right before you as I have outlined.

It pisses me off beyond words that you guys continue to berate me about semantics. I call it a pairs trade, and that is what it is, guaranteed.

Now move on.

bwolinsky · Dec 7, 2009

Pairs Trading QID QLD 2.0's Update

QLD Projection: 54.0576636513511 QLD Close: 54.5999984741211
QLD Projection: 54.956908416748 QLD Close: 54.5999984741211
QLD Projection: 54.3287046886626 QLD Close: 54.5999984741211

We're getting there. I believe we will be doing a trade on Wednesday. We are still oversold, and it was exactly for these situations that I created a formula to extrapolate the approximate level at which we would be considered "oversold" enough to trigger our first trade in over 6 weeks, as follows:


QLD Needs to drop -1.31126345695255%
Down Threshold is $ 53.8840486466333 on QLD

Again, these are estimates based on the percentage change in QLD relative to the approximate value change in the normalized z-score. I have tried to compile these into a system, but they are essentially estimates only as to the level at which we would take a position, so please don't base any transactions on these values. I just show them to demonstrate there is a lot of hard quantitative analysis beyond what you see here.--

Good Trading,

Good Luck,

Beau Wolinsky

bwolinsky · Dec 7, 2009

Cash Cow from BWolinsky Update

The SSO trade we came into the open with exited at 1:30 at 37.88. SSO closed here at 37.46 and appears to be up to 37.65 after hours.

The model fill in Wealth Lab Pro says the entry was expected to be 37.29, and C2 verified for us despite what appears to be a 12 second delay entered at 37.27. I also confirmed the exit bid price was 37.88, and that matches exactly with my time and sales window. I'm really not sure why there seems to be 12 second delays between my black box and C2, but every vendor who has ever come on there has complained about the lag, so I'm saying "I knew it would be there, and the system appears robust enough to overcome slight slippage and technical problems." Now that technical problems are out of the way, the best thing I can do is wake up every day and turn it on. Ideally Fidelity will grant me autotrading eventually, but they require a staggering 500 trades in a year prior to granting that. I have no idea when I will be doing that much trading.

Net Cash Cow shows us currently off 3.42% or $342 from $10,000 starting capital, and that's up 2.5% for December and 1.4% for November. I recall being -0.7% at one point this month, so that would imply the net profit percent was about 3.2% from leverage or 1.6% on SSO, and 0.8% or 9 points on ES from .SPX.

Definitely not a bad trade. The best so far.

Good Trading,

Good Luck,

Beau Wolinsky

talontrading · Dec 7, 2009

Ok... pay careful attention here BoWo... this will get a little complicated but a guy who passed Level 1 of the CFA should be able to get this so stick with it.

Yes, we get your ingenious plan... that you don't have to execute both legs of the pair to save commission. Actually, you can't execute both legs of the pair because you would actually have offsetting positions... we get this.

You are correct, the idea in a pairs trade is to sell something overvalued and buy something undervalued. You are also correct there is usually, but not always, the expectation that some directional market risk will be eliminated from the process of buying / selling. You are completely wrong and show your inexperience in saying that daily pairs trading is more efficient than intraday. I realize this is a limitation of your testing environment and lack of access to real data (bid/ask spreads historical lookback). The central idea with pairs trading is that instruments "should" (or do) trade in a normal relationship, however you define that. Departures from that normal relationship are trading opportunities for pairs models. These departures happen more often and with more predictability intraday. There are more trading opportunities and your risk is better controlled. It is very true that execution (which is a learned skill) plays a big part of intraday pairs trading and that costs will represent a much larger percentage of your P&L, but that is true of any intraday trading. If you do decide to investigate these intraday models I will caution you that you must work off bid / ask spreads. There are many intraday pairs that might look profitable to you using WealthLab, but the spread completely accounts for the total potential profit in the trade (thus, no trade.)

Now, here's where you need to pay attention because here's why your QID / QLD system will not work. You may use the f-word at me now, you may pretend you didn't read this, but 2 or 3 years down the road come back and re-read this. Ready?
-In a pairs system we look at the ratio between two securities. We find some kind of normal value and recognize trading opportunities when there are departures from that normal value.
-Your system uses double and double inverse QQQQ's. These instruments do a pretty good job (very small tracking error (look it up, probably in that stack of CFA books you should have studied...) of doing what they are designed to do which is to replicate twice and twice the inverse one day percentage return of the underlying.
-Thus, the ratio relationship is completely deterministic. Simple math (I'm not going to do it for you here) will show you that this ratio will flex according to the size and direction of the moves of the underlying. There is no rubber band... there is no flexing around value. You can build a simulation in Matlab (or Excel if it's all you've got) and see how this works... and then verify that the QID QLD spread behaves as the simulation would predict.
-Any optimization is basically asking the question: "Over the last two years what size pullbacks should I have been buying and selling in the Q's." You will get a good answer that will make your system results look great, but it is a function of the natural math of this flexing. You do not understand this. The parameters you optimize will have absolutely no carry forward because there is no actual pairs relationship.

How do I know this? I have never thought of this as a trading idea until last winter when a smart kid interviewing for a summer internship brought an idea very similar to your QID / QLD pairs system to us. (Wolinksy... you weren't the first to think of this lol.) in talking through it in the interview, I was able to lead the kid to see the error in his thinking in 3 or 4 minutes... like I said he was a smart kid. Afterward, I found the idea intriguing enough that we did a little simulation and testing to verify no trade.

It is easy to be fooled by relationships like this, especially when you don't have a lot of experience with these models and actual trading. I'm not criticizing you for making this mistake, but open your mind and consider carefully what I'm saying here. If you have questions, please ask... I will do my best to help you understand and to answer any questions.

I'm certainly not an expert at pairs trading. yes I have some pairs models that make pretty consistent money, but it's not what I would consider a passion or an area of expertise. Still, this is pretty simple.

There are more things to deal with... and you ignored my distribution I posted for you. What do you think of it? Appreciate your comments and thoughts.

Also... I posted some important information on doing stats in Excel you should consider... they probably didn't cover that in your classes, but it's important.

Have a good day Bo.

Also, these are not perfectly negatively correlated as you state over and over.

Quote from bwolinsky:

Anyone who knows what a pairs trade is would know what I'm doing is a pairs trading system.

2 things in a pairs model:

1)Sell short an Overvalued security
2)Buy an undervalued security

YOU DO NOT HAVE TO SELL SHORT, YOU FUCKING MORONS!

As in a pairs model, YOU ARE BETTING ON THE MEAN REVERSION.

The difference as I have it, and is quite ingenious is that you can go long the undervalued, BECAUSE THEY HAVE THE EXACT SAME UNDERLYING.

If this doesn't sink in, I do not want you posting anymore to this journal. You have lied repeatedly about me, and defamed my professional integrity. No more.

I can't help it if you guys really don't think an RIA Rep through Level I of the CFA Exam doesn't know what a pairs trade is. On top of that, one that programs, as well as coming from an institution offering a degree available at only 10 other institutions. Do I need to mention a math minor involving vector calculus and differential equations?

WTF.

I'm not going to discuss this any further. Do not question this, because the answer is right before you as I have outlined.

It pisses me off beyond words that you guys continue to berate me about semantics. I call it a pairs trade, and that is what it is, guaranteed.

Now move on.
More...

Mike805 · Dec 7, 2009

Quote from talontrading:

Ok... pay careful attention here BoWo... this will get a little complicated but a guy who passed Level 1 of the CFA should be able to get this so stick with it.

Yes, we get your ingenious plan... that you don't have to execute both legs of the pair to save commission. Actually, you can't execute both legs of the pair because you would actually have offsetting positions... we get this.

You are correct, the idea in a pairs trade is to sell something overvalued and buy something undervalued. You are also correct there is usually, but not always, the expectation that some directional market risk will be eliminated from the process of buying / selling. You are completely wrong and show your inexperience in saying that daily pairs trading is more efficient than intraday. I realize this is a limitation of your testing environment and lack of access to real data (bid/ask spreads historical lookback). The central idea with pairs trading is that instruments "should" (or do) trade in a normal relationship, however you define that. Departures from that normal relationship are trading opportunities for pairs models. These departures happen more often and with more predictability intraday. There are more trading opportunities and your risk is better controlled. It is very true that execution (which is a learned skill) plays a big part of intraday pairs trading and that costs will represent a much larger percentage of your P&L, but that is true of any intraday trading. If you do decide to investigate these intraday models I will caution you that you must work off bid / ask spreads. There are many intraday pairs that might look profitable to you using WealthLab, but the spread completely accounts for the total potential profit in the trade (thus, no trade.)

Now, here's where you need to pay attention because here's why your QID / QLD system will not work. You may use the f-word at me now, you may pretend you didn't read this, but 2 or 3 years down the road come back and re-read this. Ready?
-In a pairs system we look at the ratio between two securities. We find some kind of normal value and recognize trading opportunities when there are departures from that normal value.
-Your system uses double and double inverse QQQQ's. These instruments do a pretty good job (very small tracking error (look it up, probably in that stack of CFA books you should have studied...) of doing what they are designed to do which is to replicate twice and twice the inverse one day percentage return of the underlying.
-Thus, the ratio relationship is completely deterministic. Simple math (I'm not going to do it for you here) will show you that this ratio will flex according to the size and direction of the moves of the underlying. There is no rubber band... there is no flexing around value. You can build a simulation in Matlab (or Excel if it's all you've got) and see how this works... and then verify that the QID QLD spread behaves as the simulation would predict.
-Any optimization is basically asking the question: "Over the last two years what size pullbacks should I have been buying and selling in the Q's." You will get a good answer that will make your system results look great, but it is a function of the natural math of this flexing. You do not understand this. The parameters you optimize will have absolutely no carry forward because there is no actual pairs relationship.

How do I know this? I have never thought of this as a trading idea until last winter when a smart kid interviewing for a summer internship brought an idea very similar to your QID / QLD pairs system to us. (Wolinksy... you weren't the first to think of this lol.) in talking through it in the interview, I was able to lead the kid to see the error in his thinking in 3 or 4 minutes... like I said he was a smart kid. Afterward, I found the idea intriguing enough that we did a little simulation and testing to verify no trade.

It is easy to be fooled by relationships like this, especially when you don't have a lot of experience with these models and actual trading. I'm not criticizing you for making this mistake, but open your mind and consider carefully what I'm saying here. If you have questions, please ask... I will do my best to help you understand and to answer any questions.

I'm certainly not an expert at pairs trading. yes I have some pairs models that make pretty consistent money, but it's not what I would consider a passion or an area of expertise. Still, this is pretty simple.

There are more things to deal with... and you ignored my distribution I posted for you. What do you think of it? Appreciate your comments and thoughts.

Also... I posted some important information on doing stats in Excel you should consider... they probably didn't cover that in your classes, but it's important.

Have a good day Bo.

Also, these are not perfectly negatively correlated as you state over and over.
More...

Very good post talon.

Bwol,

From http://en.wikipedia.org/wiki/Pairs_trade : you are not making a bet on the direction

How exactly is taking a single position in QID or QLD hedge sector- and market-risk?

Mike

P.S. LOL, your think you math skills are super-duper don't ya? Vector calc? Please. Beau, if you only knew... ah what the hell, I'll brag - Beau, I have an M.S. in Electrical Engineering from a top 10 engineering Graduate School. I dropped out of a PhD program (just got the MSc) to pursue trading... do you really want to talk math skills? LOL... get a grip. Do you even know what kind of math is required in a grad. engineering program? Suffice to say it blows econometrics and financial modeling out of the water...

TSGannGalt · Dec 7, 2009

Well...

1. After reading the last few posts between talon and Bwolinsky, I guess what the kid is doing is a cash on cash Single Leg Gamma Scalp. And yes... Single Leg Gamma has been around for a long long long long long long long long long long long long long long long long long long long long long long long long time.

I wouldn't exactly say it will lose money. But it's equally not a model that I would go around bragging to people. The concept = viable... how he's running it = "not good" (I'm not going to say bad... because I haven't tested them...).

2. Wikipedia's Pairs Trading is way too generalized. Pairs (Stat. Arb.) is alot more sophisticated that what's on there. Like I mentioned, Single Leg Gammas do exist and viable given that you know what you're doing. So coming back with a "is it hedging... market risk..." part is a bit off. Honestly, I don't see the border line between Stat. Arb and Pairs these days... and depending on the person Single Gamma can be considered part of a Pairs. It's all semantical... nothing wrong with that in context.... just causes misunderstanding which can be corrected.

I don't have a Math / Engineering background from school. I'm not sure if talon does... How's that relevant to this thread? If you want to make a point, try doing so by writing with some context... rather than quoting someone... You sound like those puny posse standing behind a bully gawking and snitching at someone.

3. Bwolinky... you should really pick up Matlab, R, or Python (actually, any kind of programming) so that you can graduate from all the retail packages. I find it very hard to manage a Pairs / Stat. Arb operation using retail package on a single computer.

Anyways... good post talon.

Quote from Mike805:

Very good post talon.

Bwol,

From http://en.wikipedia.org/wiki/Pairs_trade : you are not making a bet on the direction

How exactly is taking a single position in QID or QLD hedge sector- and market-risk?

Mike

P.S. LOL, your think you math skills are super-duper don't ya? Vector calc? Please. Beau, if you only knew... ah what the hell, I'll brag - Beau, I have an M.S. in Electrical Engineering from a top 10 engineering Graduate School. I dropped out of a PhD program (just got the MSc) to pursue trading... do you really want to talk math skills? LOL... get a grip. Do you even know what kind of math is required in a grad. engineering program? Suffice to say it blows econometrics and financial modeling out of the water...
More...

bwolinsky · Dec 7, 2009

Both Mike805 and TalonTrading are on ignore now. They have nothing further to add to this dialogue.

People like Talon, specifically, have no idea what is out there in terms of trading systems. If they had, they'd actually do research into the providence of my system. The pairs model I have was published in ActiveTrader Magazine in 2001. If you want more info, see that article entitled Pairs Trading. The model uses static overbought, oversold levels, and I guarantee is a pairs model.

The dialogue on WL4.wealth-lab.com for the script translated into wealth script code, has a statement, "It works pretty good if you find the right pairs." They don't get any better than QID, QLD, SDS, SSO, MVV, MZZ, DXD, DDM. These can all be arbitraged as pairs by purchasing only the undervalued.

Mike805 · Dec 7, 2009

Quote from TSGannGalt:

Well...

1. After reading the last few posts between talon and Bwolinsky, I guess what the kid is doing is a cash on cash Single Leg Gamma Scalp. And yes... Single Leg Gamma has been around for a long long long long long long long long long long long long long long long long long long long long long long long long time.

I wouldn't exactly say it will lose money. But it's equally not a model that I would go around bragging to people. The concept = viable... how he's running it = "not good" (I'm not going to say bad... because I haven't tested them...).

2. Wikipedia's Pairs Trading is way too generalized. Pairs (Stat. Arb.) is alot more sophisticated that what's on there. Like I mentioned, Single Leg Gammas do exist and viable given that you know what you're doing. So coming back with a "is it hedging... market risk..." part is a bit off. Honestly, I don't see the border line between Stat. Arb and Pairs these days... and depending on the person Single Gamma can be considered part of a Pairs. It's all semantical... nothing wrong with that in context.... just causes misunderstanding which can be corrected.

I don't have a Math / Engineering background from school. I'm not sure if talon does... How's that relevant to this thread? If you want to make a point, try doing so by writing with some context... rather than quoting someone... You sound like those puny posse standing behind a bully gawking and snitching at someone.

3. Bwolinky... you should really pick up Matlab, R, or Python (actually, any kind of programming) so that you can graduate from all the retail packages. I find it very hard to manage a Pairs / Stat. Arb operation using retail package on a single computer.

Anyways... good post talon.
More...

well, beau's got talon on ignore so i'm quoting to make sure beau sees the post. also , beau has had a few of my posts removed where, admitedly, i'm being a bully.

the engineering comment is in reference to beau bragging about being some math wiz earlier. lots of people know a whole more math than he or i do. his "im the best and smartest" monologue while touting a degree in fiancial econ (i.e. psuedo science) is laughable.

hell, wiki calls it a market neutral trade. i don't claim mastery over this stuff, but, i would think taking reversion trades without hedging via the underlying defeats the purpose... seems simple. whatever , if it makes money, then great. if it doesn't and investors are involved, then theyll want to know why the were sold on a product that wasn,t hedged.

bwolinsky · Dec 7, 2009

Quote from Mike805:

well, beau's got talon on ignore so i'm quoting to make sure beau sees the post. also , beau has had a few of my posts removed where, admitedly, i'm being a bully.

the engineering comment is in reference to beau bragging about being some math wiz earlier. lots of people know a whole more math than he or i do. his "im the best and smartest" monologue while touting a degree in fiancial econ (i.e. psuedo science) is laughable.

hell, wiki calls it a market neutral trade. i don't claim mastery over this stuff, but, i would think taking reversion trades without hedging via the underlying defeats the purpose... seems simple. whatever , if it makes money, then great. if it doesn't and investors are involved, then theyll want to know why the were sold on a product that wasn,t hedged.
More...

All disclosures on trading are complete in the excel spreadsheet posted many pages ago. Everything they require about the system is there, and I do my best to make them understand the strategy perfectly.

I only trade this with personal money that you see on covestor. I can only invest or trade this with the approval of my compliance department, and only if they are "accredited investors." I've guaranteed that they are accredited by only working with institutions directly, or attempting to. All C2 subscribers are covered under the TOS as I have a first amendment right to free speech, and no "individualized advice" is ever given.

Such a dipshit for thinking Financial Economics is pseudo-science. When I get the time, I'll post my econometrics project, which was titled IQ and Income and involved the largest dataset ever utilized by any Centre College Econ student.

You are definitely not at all a master of pairs trading, and I don't have any reservations about telling you I have both the best pairs trading model in the world, but am the best trading strategy developer in the world.

Talon has no systems annualizing greater than 30%, and I seriously doubt 20%, even. I truly sense there's a lot of envy that comes in realizing someone's model is an actual breakthrough, especially for somebody who writes e-mails from non-work addresses. That specifically leads me to believe that while Talon may be aware of some of the strategies, he has no access to the good ones, which is why, he, like a dumbass, posts an institutional level trading system in a thread for the sake of instructing others. Now who is stupider? The one who gives it away, or the one who knows how valuable what he has actually is?

There's no debate as to which is better, and until Talon posts his results of pairs models, which it is doubtful he will, because they won't even annualize greater than 30%, I know he's just trying to figure out what I've done.