How Two Profitable Trading Systems for Eurodollar Futures Were Developed
61 Pages Posted: 25 May 2018 Last revised: 10 Jun 2018
Date Written: May 15, 2018
Two trading systems for Eurodollar futures were developed using the SAMM (Strategic Analysis of Market Method) described in the book The Strategic Analysis of Financial Markets (in 2 Volumes) Moffitt (2017a,b). The SAMM formalizes the process of trading system discovery and development. It involves two steps that are seldom discussed: (1) a systematic method for discovering potential trading edges without data analysis, and (2) a method for appraising the likely life span of a system using “strategic life cycles.” Using the SAMM, it is argued that futures expirations are likely “price distorters” because of semi-predictable FED actions, market segmentation of the yield curve, and probable inefficient forward markets. Using principal components analysis, independent components analysis, and smoothing methods, two systems whose maximum drawdown over the period from 1990-2008 was 20% were developed. System 1 traded 8 times per year for an annual return before fees of about 8.5% and System 2 traded 4 times per year for an annual return before fees of about 15%. It is argued that disclosure of Systems 1 and 2 will likely attenuate their future performances due to changing the timing of Eurodollar rolls, but this will not occur immediately.
Keywords: Trading System, Eurodollar Futures, ICA, PCA, Smoother, SAMM,Gambling, Betting, Trading, Algorithmic Trading, PPGS, Grationality, POPP
JEL Classification: G10, G14
Suggested Citation: Suggested Citation