Trading Strategy based on ARMA Model

Hi to all,

I would like to share with you what I am doing to get your point of view, and to make a better trading system in collaboration.

I am working on EURUSD forex, and I am trying to find a way to place order based on ARMA modelling.

Collecting Data, Data transformation, and Model fitting:

I am collecting each EOD Close of EURUSD instrument, and I calculate the log differencing to transform this time series in a stationary process. Then, using Box Jenkins, I fit the parameters of the ARMA Model.







Residuals Analysis:

After the model fitted, I analyze the residuals of the model. The process of the model residuals is a stationary process and follows a normal distribution.







Trading Strategy:

Like the model residuals is a normal distribution, I calculate the cumulative probability using the following formula:


Then I am able to display on the chart with a minor timeframe H4 or H1 what will be the tomorrow position with their respecting probability based on volatility max of 2 standards deviations:



Is that a good way to work with the ARMA model? What do you think about this strategy? Can we improve it together?

Thanks

David

 

You may want to combine ARMA with other indicators

 

What's the expected ATIT (average time in trade) ?

 

are you fitting in sample, or rolling / expanding out of sample?

 

Apparently an unreferenced cross-post from the Factory under the handle 'davidleyabe', rearranged a bit. I'm not sure how Baron feels about repurposed content -- you might want to ask.

 

If we have a question, we cannot post here if we have already post it somewhere? are there ET forum rules somewhere saying that? I recently got a notice for something else that I should not do.

 

Hi,

Thanks you for your reply.

Yes, in fact I plan to use it with RSI indicator. Do you have an other idea?

Thanks

David

 

Hi,

I was thinking to open a trade at the beginning of the day and close it at the end of the day. Then the expected ATIT will be 1 day. What do you think?

Thanks

 

Hi,

I am fitting in sample: every day, I run my program that will make the forecasting for the next days based on the past 3 years replacing the new value by the old one. What do you think?

David

 

Hi to everyone,

Yes I posted the same question on another forum. Is that a problem?

Sorry, I did not know about that.

David