High-frequency trading
Pairs trade
Alternative trading system
Electronic trading
Stock exchange
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The most profitable proven trading strategy appears to be momentum investing, which has consistently earned non-zero returns over time . This strategy involves selecting stocks based on their past performance over a specific time period, such as two to twelve months. It has been observed to earn average monthly returns of 1.57% over the period from 1965 to 2014, and even larger returns of 2.27% in the most recent ten-year period . However, it is important to note that the profitability of this strategy may be affected by transaction costs, especially when trading in smaller stocks . Nevertheless, a strategy that focuses only on the winner portfolio and avoids trading the loser portfolio has been found to earn strong and persistently abnormal profits, even after accounting for transaction costs .
Related Questions
What are some proven strategies for successful trading?4 answersSuccessful trading strategies include managing the social environment, understanding body language, and choosing the right tactics in negotiations. Additionally, accurate prediction models and time series analysis can help maximize profits when trading volatile assets like gold and bitcoin. Building competence and expertise as a trader is also crucial, with a focus on cognitive and behavioral techniques for enhancing performance. Detailed descriptions and mathematical formulas for various trading strategies across different asset classes are provided in a book, including strategies based on machine learning algorithms. Momentum investing has shown to earn persistently nonzero returns, particularly when focusing on the winner portfolio and avoiding high transaction costs.What is the most profitable portfolio?5 answersThe most profitable portfolio varies depending on the specific context and time period analyzed. In the context of portfolio design approaches, the mean-variance portfolio (MVP) performed the best in terms of risk-adjusted returns on out-of-sample data. However, the autoencoder portfolios outperformed their counterparts in terms of annual returns. In the analysis of momentum and contrarian portfolios, the contrarian portfolios were found to be the most profitable, particularly within the cross-sectional analysis. The optimal portfolio of risky assets, taking into account the investor's attitude to risk, can be determined by combining the efficient frontier with investor-specific indifference curves. In the study of optimal portfolios composed of LQ45 stocks, the optimal portfolio consisted of specific stocks and was only effective for a limited time period. Finally, in the analysis of a portfolio mimicking Bitcoin, mixed results were found in terms of portfolio returns and standard deviation compared to Bitcoin.What is the best trading algorithm?5 answersThe best trading algorithm is subjective and depends on various factors such as market conditions, trading goals, and risk tolerance. Different algorithms have been studied and proposed in the literature. Some popular algorithms include momentum, mean reversion, statistical arbitrage, and grid trading. Algorithmic arbitrage has been found to be the most profitable strategy, particularly in high-frequency trading. Grid trading is also considered effective in high-frequency trading due to its ability to mediate losses. However, it is important to note that there is no guarantee that algorithms that have performed well in the past will continue to perform well in the future. Therefore, traders should carefully evaluate and select algorithms based on their specific requirements and conduct thorough research before implementing them in their trading strategies.Which trading strategy beats buy and hold?5 answersThere are several trading strategies that have been shown to outperform the buy-and-hold strategy. Hui and Chan (2017) construct a time-dependent strategy that shows mixed results. Baumann proves mathematically that control-based trading strategies can generate positive gains, even with small and unknown trends. Hui and Chan also find that their strategy outperforms the buy-and-hold strategy when tested on real estate and equity indices. Tran showcases a wavelet trading strategy that consistently beats the market, contradicting the efficient market hypothesis. Tran further demonstrates that the wavelet trading strategy outperforms the market at a fast rate, providing a counterexample to the claim that the market is unbeatable.What are some of the strategies that can be used to trade forex?3 answersThere are several strategies that can be used to trade forex. One approach is to analyze fundamental factors such as economic indicators and news events to determine the direction of currency movements. Another strategy involves using technical analysis, which involves studying historical price patterns and using indicators to identify potential entry and exit points. Additionally, machine learning algorithms such as Random Forest and SVM can be employed to model forex price movements and make trading decisions. These algorithms can utilize classic technical indicators like moving averages as features to improve trading performance. Furthermore, risk management strategies such as forward currency contracts, currency options, and cross-currency hedges can be employed to manage foreign exchange risk. Overall, a combination of fundamental analysis, technical analysis, machine learning algorithms, and risk management strategies can be used to trade forex effectively.What are the profitable option strategies in trading and investing?5 answersProfitable option strategies in trading and investing include using calls and puts to modify risk positions and implement investment strategies. These strategies can be speculative, designed to make a profit if a certain market condition occurs, or defensive, providing protection against unfavorable market developments. Other strategies involve modifying the risk exposure of a long equity position, such as using a covered call or a protective put strategy. Collars can also be used to hedge the price risk exposure of a long equity security by setting price limits on the underlying asset. Additionally, option strategies can be constructed from a combination of calls and puts with different strike prices, such as bull and bear spreads and the straddle. Vertical Ratio Call Spread and Vertical Ratio Put Spread option strategies can also be used to improve long and short positions in case of negative stock price development.
