2005/08/16 by Marc Potters, Potters, Marc, Jean‐Philippe Bouchaud +2 · 1 citation
Computer Science · Economics, Econometrics and Finance · Mathematics · Physics and Astronomy · #Data Analysis #FOS: Economics and business #FOS: Physical sciences #Mathematical functions and polynomials #Matrix Theory and Algorithms #Other Condensed Matter (cond-mat.other) #Physics and Society (physics.soc-ph) #Portfolio Management (q-fin.PM) #Statistics and Probability (physics.data-an) #Stochastic processes and financial applications #cond-mat.other #physics.data-an #physics.soc-ph #q-fin.PM
paper · pdf · doi:10.48550/arxiv.physics/0508104
7 pages, 3 figures, submitted to Wilmott magazine
arxiv created 2005/08/16 · openalex publication_date 2005/08/16 · arxiv updated 2009/12/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We solve exactly a simple model of trend following strategy, and obtain the analytical shape of the profit per trade distribution. This distribution is non trivial and has an option like, asymmetric structure. The degree of asymmetry depends continuously on the parameters of the strategy and on the volatility of the traded asset. While the average gain per trade is always exactly zero, the fraction f of winning trades decreases from f=1/2 for small volatility to f=0 for high volatility, showing that this winning probability does not give any information on the reliability of the strategy but is indicative of the trading style.