21 May 2021

Bitcoin Elasticity and Volatility

So the crypto markets on May 19th were fun!? If you have been a part of these markets for any time, this volatility is not that surprising. That said it is still pretty amazing that the price can drop 30% in a single day. This is maybe more surprising since it is to the backdrop of an increase in institutional investors and a narrative of “this time it’s different”. I was asked a question with regards to “how is this...

12 May 2021

The Rust Programming Language

I love programming! There is something really satisfying about solving a complicated problem concisely. That said I see programming languages as a tool to solve a problem rather than purely coding for coding sake. I have used a lot of programming languages over the last 20 years namely Java, R, Matlab, Python, C++ and now Rust. It is pretty common to read articles about language wars and which one is best. Would you write a website in assembler? Try embedding...

22 Mar 2021

GANs and Synthetic Market Data

I have been thinking a lot about risk lately. The liquidity injections from the FED are pushing risk assets higher and higher. There seem to be bubbles in nearly every speculative assets. The main concern long term would be rising rates at the same time as a falling dollar suggesting there is no longer a market for US debt. Recently however rates have been rising which is causing concern that the risk asset bubble might burst under the pressure of...

09 Feb 2021

Adventures in Horse Racing

Back in 2008 when I worked at Deutsche Bank I became interested in algorithmic trading. At the time we were working on some automated pricing models for trading Euro Gov fixed income which at the time was quite novel. The issue then was that professional markets were inaccessible and there was little in the way of retail offerings. I have never heard of Interactive Brokers and cryptocurrency was not even on the horizon. So I turned to Betfair. The thing...

08 Feb 2021

Bitcoin Options

I have been very busy lately trying to navigate the world burning down. I have managed to come up for air in between waves and can write a little bit about what I have been up to. There has been quite a lot of interest in regards to cryptocurrency options and it would seem like as the market has matured the options have become useful for estimating market expectations about the future distribution of prices. I studied options academically but...

01 Jan 2021

Fractional Differencing

To forecast prices they first need to be differenced to reduce their order of integration. The issue with integrated series is the patterns learnt from one time period dont apply to the future. If the values of the integrated series are very different, likely the learnt patterns are of little to no use. The process of calculating returns from prices is to make the series stationary to solve this issue. Stationarity is defined as

a stochastic process whose unconditional...

29 Dec 2020

Alpha Decay

I have been thinking a lot about reinforcement learning since it seems to be an interesting technique for creating trading strategies. Reinforcement learning is a simple idea and can be implemented in different ways from Q learning, actor-critic models and other deep learning techniques. The general idea is, given a set of actions A, there is a value function V which gives the quality of each action given the state S. A discrete action set is useful for micro-structure based...

28 Dec 2020

Informational Disadvantage of Market Makers

In 2014, I went to talk by a collection of asset managers hosted by Bloomberg. This is one of the nice perks of having a Bloomberg terminal. The speakers were large asset managers and not short term traders; their conclusion was to make money you need to be looking at quarterly returns since at lower time frames the noise is too significant. They were trading billions of dollars so likely their opinion was skewed by practical issues associated with execution...

16 Dec 2020

Return Classification

Today BTC finally broke the all-time high and seems to be holding well above 20k USD. At this point, all bets are off as to where the bull market will end. Technical analysis is not very useful when market profile or historic prices can not be used. The historical precedent is 10x gains which would mean targets of 100k are not unreasonable (some investment banks such as Morgan Stanley have price targets of 160-250k, Plan B has a S2F...

15 Dec 2020

Volatility and Time of Day

Given transaction costs are non-zero and funding rates are around 1 bps per 8 hours (depending on the exchange) it is a good idea to trade around times when the market is busy. I have done this analysis on other markets but have not applied it to cryptos. I was interested to know if volatility tends to cluster around certain days or hours. Before doing the analysis I had a suspicion that there tended to be a lot of activity...

14 Dec 2020

Bitcoin Microstructure

I find bitcoin market microstructure very interesting since it is so different to any market I have looked at. I come from a fixed income HFT background, and a lot of the instruments I have previously traded tend to be deep markets. The 10Y UST T-Note future (ZN) contract on CME-Globex normally has about 5000 contracts of 100k USD value per contract each price level. Moving the price even a few ticks in one go requires very deep pockets. Bitcoin,...

12 Dec 2020

Slippage Analysis - Part 4

The slippage saga is thankfully coming to an end. Even after all my best efforts, it seems that the issue was related to something I had not foreseen. The experience has helped confirm the use of this blog as a cardboard chewbacca. During research about hidden size on BYBIT and book cleaning, I was reading the API change logs and noticed that the open-api was in the process of being deprecated. I didn’t think too much of it other...

11 Dec 2020

Slippage Analysis - Part 3

I ran some backtests overnight to try to work out if latency is likely an issue. If the slippage issue is due to latency in production and the simulation is accurate then we would expect to see the same negative effect of latency on pnl in the simulations.

Results from the simulation over the last 30 days.


Latency has an effect on pnl, but it is not that significant and doesn’t explain the amount of slippage...

10 Dec 2020

Slippage Analysis - Part 2

It turns out I was wrong about there being no slippage between paper and live. There is slippage, and it is pretty bad! There was a bug related to multithreading that was fixed and now after analysing the new data the multi-threading issue was masking the fills with bad slippage. The good thing is that the orders with slippage are few (10%), the bad thing is quite how significant the slippage is in some cases. The execution strategy is designed...

09 Dec 2020

Paper vs Live Slippage Analysis

I recently went live with a crypto mean reversion strategy on BYBIT. The reason for choosing to test the strategy on this exchange is mainly that they offer rebate fees of -0.025% if you are a market maker. This is much more attractive than the fees on many other exchanges. BYBIT in my experience is pretty much a carbon copy of BITMEX and seems to have a very stable API. BITMEX has its issues regarding becoming unresponsive in times of...

08 Dec 2020

Joel On Software

Joel Spolsky is a computer scientist and blogger who wrote many books about programming and software development. Some of his observation about programming are timeless, and his books are worth a read. The writing style is light and enjoyable making his articles both educational as well as easy to read. His blog joel on software was also compiled into a series of books. Some of the blog posts are pertinent today and even explain my interest in maintaining...

07 Dec 2020

MCMC for Return Distributions

How do you know if a return distribution is skewed? The empiricist method is to fit the data to a normal and skew-normal distribution and to compare the AIC or BIC of each fit. I would like to present an alternative that is more powerful and is also useful for giving confidence intervals to estimate the quality of fit of each parameter. This is especially useful for computing correlation matrices since most techniques only give point estimations and not parameter...

06 Dec 2020

Savitzky Golay Swing Points

Swing points are localised high or low prices in a time series. Swing point can be used to estimate optimal stop loss or take profit orders since they often become support/resistance at a later point in time. Collections of swing points can be used to identify technical patterns such as ranges, triangles, flags etc. They can also be used for identifying trends and return distributions. Having an automated technique to identify swing points reliably is quite a useful goal.

05 Dec 2020

Savitzky Golay Filter

There are various kinds of smoothers and moving averages. One that I have used a lot and am a particular fan of is the savitsky-golay filter. The filter fits a local polynomial to the data sequentially. The main advantages of this are both that the fit is closer to the data but also the ability to fit a polynomial means that the derivatives as also easy to compute.

from scipy.signal import savgol_filter...
01 Dec 2020

Classifying returns

I recently came across tr8dr.github.io and specifically this post. I only recently found this site and its older version even though it has been around for a long time. I am a big fan of this blog and after reading the post was wondering if the technique could be used to train an online labeller using an HMM model. The idea is to use the labeller offline to generate 3 return classifications, trend up, down and no trend....

30 Nov 2020

The Problem with Moving Averages

Moving averages are so prolific that even price action traders (a notoriously anti indicator group) often include a single moving average. Many other indicators such as MACDs use moving averages and moving averages of differences in moving averages. Even with its extensive usage, there is one major drawback to moving averages which is they lag the data. Even though lag is a commonly known issue there is little discussion of how much lag there is, it’s implications and how it...