First attempt at negative EV trading. Was a good year!
This version purchases on the first day then holds for the year.
My goals are:
- Make new investments every month or when fundamentals update.
- Apply more signals against my universe to "weed out" bad stock.
- Learn more about negative EV so I can attempt a hedge strategy
The attached backtest is a more realistic year. I also realized I need to weight my orders and check for volume when attempting multiple buys and sells.
Additionally, I don't think signals can help me spend the money completely. I'm going to have excess. I'm thinking of implementing a ranking+limit with signals, and then weighting by risk, or vice versa.
Here is an algorithm that buys and then sells one year later. The position tracking is not perfect. I feel that is one area where Q could improve.
I tried some other time periods, and it's just not profitable after 2009. Maybe some tweaking would help improve it. I'm heading back to research!
Totally forgot I was weighting by volatility. Furthermore, I intended to use inverse volatility, not normal! So the above results are somewhat expected.
I quickly tested with equal weighting and got better results. I also tried filtering my fundamentals by "free cash flow (FCF)." Long story short, filtering for positive FCF seems to slightly outperform not filtering it -- when excluding MGT (27925).
MGT gives ~2000% returns, but it's negative free cash flow. Thus, the FCF strategy misses the phenomenal returns. However, I consider MGT to be anomalous -- thus until research proves otherwise, it seems like FCF is the better strategy.
Unfortunately, I can't find how to attach multiple backtests (not even in a notebook??)
Below is an algorithm that tries it's hardest to make independent trades every month and hold for a year -- with fundamentals filtered to include negative EV and positive free cash flow. Any feedback is welcome.
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