Alpha trading signals

Users of ORTEX will be familiar with our Alpha signals. There are seven of them – namely the RSI, MACD, STOCH, EPS, PE and Short Increase signals, plus the​.
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Steady profit & Trading guidance

Alpha capture can be seen by some as a zero-sum game; the first to the line takes the prize. In fact, a lot depends on the type of alpha generated. Most firms seek robust alpha that can stand up under variable conditions, even as independent market participants begin to simultaneously trade the same signal. Beginning in the early s, speed became an important differentiator for firms who kept investing in new technology to improve the latency of market data delivery and trading.

From direct feeds to co-location to FPGAs and wireless wide area networking WAN , the goal was to shave latencies to microsecond-, and then sub-microsecond speeds for the fastest market participants—high-frequency traders HFTs. Once a critical mass of HFTs had achieved these speeds, their speed-based alpha advantage began to erode.

Enterprising firms began using machine learning to study patterns of market data in real time, using them to predict imminent price and liquidity changes. While it originally was limited to large institutional investors with the resources to hire teams of data scientists, signal services have begun to democratize that technology, making it available more widely.

How to keep all those new adopters from eating into your alpha?

The answer requires a measurable and flexible approach. Firms need the ability to quantify the performance of predictive signals daily, if not in real time. They also need the ability to set and change parameters on signals to optimize those that are most useful to their strategies. Finally, firms must scale and accelerate their adoption of signals by integrating signal services.

Those that do can invest more effort in their own algorithms and proprietary signals, using signal services as a foundation for more sophisticated strategies to stay ahead of the pack.


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Some alpha decay from signals is inevitable. But like latency before it, signals will become foundational sources of data that allow firms to refine existing strategies while staying in the hunt for the next trading frontier.

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One of the most important decisions to make in using signals is setting parameters for when to act. As these funds include various fees normally expressed in percent terms, the fund has to maintain an alpha greater than its fees in order to provide positive gains compared with an index fund. Historically, the vast majority of traditional funds have had negative alphas, which has led to a flight of capital to index funds and non-traditional hedge funds.


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It is also possible to analyze a portfolio of investments and calculate a theoretical performance, most commonly using the capital asset pricing model CAPM. Returns on that portfolio can be compared with the theoretical returns, in which case the measure is known as Jensen's alpha. This is useful for non-traditional or highly focused funds, where a single stock index might not be representative of the investment's holdings.

Is Negative Alpha a Signal to Sell an Investment?

It is the intercept of the security characteristic line SCL , that is, the coefficient of the constant in a market model regression. It can be shown that in an efficient market , the expected value of the alpha coefficient is zero. Therefore, the alpha coefficient indicates how an investment has performed after accounting for the risk it involved:.

In this context, because returns are being compared with the theoretical return of CAPM and not to a market index, it would be more accurate to use the term of Jensen's alpha. A belief in efficient markets spawned the creation of market capitalization weighted index funds that seek to replicate the performance of investing in an entire market in the weights that each of the equity securities comprises in the overall market.

In fact, to many investors, [ citation needed ] this phenomenon created a new standard of performance that must be matched: an investment manager should not only avoid losing money for the client and should make a certain amount of money, but in fact should make more money than the passive strategy of investing in everything equally since this strategy appeared to be statistically more likely to be successful than the strategy of any one investment manager.

The name for the additional return above the expected return of the beta adjusted return of the market is called "Alpha". Besides an investment manager simply making more money than a passive strategy, there is another issue: although the strategy of investing in every stock appeared to perform better than 75 percent of investment managers see index fund , the price of the stock market as a whole fluctuates up and down, and could be on a downward decline for many years before returning to its previous price.

The passive strategy appeared to generate the market-beating return over periods of 10 years or more. This strategy may be risky for those who feel they might need to withdraw their money before a year holding period, for example. This site requires JavaScript to be enabled to fully function.

Cookies on this website We use cookies to make your interaction with our website easy and meaningful, to better understand your use of our website and to improve your experience on our website. Overview WorldQuant develops and deploys systematic investment strategies across a variety of asset classes and global markets.

Signals | Build Alpha

Investment Approach The Future of Alpha. TM It is our mission and our method to turn alpha discovery and securities trading into a disciplined and efficient process. Investment Process At WorldQuant, researchers, portfolio managers and technologists work to rigorously identify sources of alpha.