Anybody can give me some pointers about "market neutral" trading strategies? In my backtest, if I make my positions dollar-amount market neutral, the results were good; but when I changed my positions to other weightings, the results are bad... I began wondering why "market neutrality" is good... Any thoughts? Thanks a lot!
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Read especially this part to understand why so many emplying these methods went broke: "As a practical matter, true market neutrality is difficult to achieve. During periods of turmoil, markets tend to become highly correlated. " It basically says that it is a method for good times. Well, during good times, you can make money using much easier ways.
I am tired of people wanting to READ how about use your head a little you wanna be market neutral eh ........WHY ? so you don't lose money ??? Wrong it doesn't work, being market neutral is the same as picking a position and having smaller size being so called "market neutral" in its truest sense is a waste of time since you won't make or lose money except commission As for being "market neutral" in a sense where you minimize your loss, that's no different than picking a position with smaller size you know what, I really should stop posting who the fuk is going to pay me for continuously educating the masses Now I am angry with myself
if you want to play with the real pro's- market neutral is the only way to go. you can size up so much more dramatically if you are well hedged that sometimes money will just find its own way into your pocket. its kind of like going from making your money by giving the market papercuts with normal paper to using a piece of posterboard to do it. edit- it is the market neutral people you see working the bids and asks the size of which you it is hard to fathom. they get to trade that large because they lay most of the risk off so well it really is as if they are 10% or less the size. for me it is as if i'm about 2% what i show in the bond market because of how well i'm hedged.
market neutral pair trading CAN be a consistently profitable strat because of the high probabilities of mean reversion between SOME correlated and more importantly, highly cointegrated pairs. if you are holding overnight, systemic risk is decreased thus staving off a blowup in the rare cases of that overnight news that engenders a 3 sigma, bowel rending market gap the next morning. not saying that your individual stocks aren't going to have their own financially crippling events but in the could be problematic case of M&As, seems a good idea to be long the smaller cap so more likely to be the bought out and with any luck, you just happen to be short the aquirer