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Trading Strategies In Python | Introduction to Mean Reversion | Quantra courses - YouTube
Channel: Quantra
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Consider the price series of EUR/USD
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as shown on screen.
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How can you create a trading strategy on this series?
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You might be thinking of selling EUR/USD at $1.183
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and buying at $1.164
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and book the profit of $0.019.
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You identified the trading pattern correctly.
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Sell high and buy low.
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But you cannot hardcode the entry and exit points
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as in future the dynamics of time series might change.
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How would you determine the entry point
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and exit point for the trade?
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And how to figure out the probability that it will remain
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mean reverting in the future too?
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All these questions are answered in the course
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using statistical concepts and quantitative methods
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such as stationarity, cointegration
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ADF test, half life
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and Bollinger bands.
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Even if you figure out
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the most optimal entry and exit points
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in the real world
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you will hardly find any securities which are mean-reverting.
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Even if they are
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they might take a long time to revert to mean.
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How to find mean-reverting price series?
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No worries.
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If there are no naturally occurring time series
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then you can fabricate one.
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Suppose, the stock Apple is trading at $76
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and stock Qualcomm is trading at $86.
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When Apple moves by $10
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Qualcomm also moves by approximately $10.
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This trend has been observed over a long period.
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What this means is that the difference between
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Apple and Qualcomm prices hover around
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the same mean of 0.
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You can deploy a mean-reverting strategy on the difference.
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This is known as pairs trading.
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You can extend this concept to
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three securities
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four securities and so on.
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You will also learn about index arbitrage strategy.
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In index arb
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the trading signals depend on the relative value
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between a basket of instruments and an index.
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You will also learn a long-short strategy.
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These strategies have low beta or low correlation
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to benchmark indices and apply mean reversion principle
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on the portfolio of stocks or assets.
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In this course
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you will not only learn a spectrum of trading strategies
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but also to find best markets to find
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and apply these strategies.
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One of the most ignored areas in strategy development
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is risk management.
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But we have a dedicated section on risk management.
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And we will also walk you through
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the implementation and effectiveness
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of the stop loss in the mean-reversion strategy.
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Are these concepts and strategies very difficult to learn?
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We have taken care of that part.
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You will learn to create these strategies
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in a step by step fashion through animated videos
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and Jupyter notebook.
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And there would be lots of interactive exercises
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so you are learning by doing.
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You can also paper or live trade the strategies
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learnt in the course with a single click.
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It requires no download or installation on your local system.
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Everything runs on the cloud through your browser.
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You can also analyze the strategy performance in real-time.
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Let鈥檚 get started to learn mean reversion trading strategies
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and apply something new to your trading.
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If you have any doubts or queries
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at the time of implementation
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you can post them on the Quantra community page.
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Feel free to answer other鈥檚 queries as well!
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