Trading Algorithm Navigation Using a Mixture Distribution Risk Model
By Andrew Milne, Anish R. Verma, Phil Goddard, & Clemens Adolphs
The CME Market Sentiment Meter (MSM) provides a daily risk–return estimate for eight products traded on CME Group exchanges: corn (C), crude oil (CL), euro/USD FX (EC), S&P 500 index e-minis (ES), gold (GC), natural gas (NG), soybeans (S), and 10-year treasury notes (TYF). The Market Sentiment Meter is computed by 1QBit using end-of-day settlement data published by CME Group. It is available as a subscription product through CME DataMine.
The MSM risk–return estimate can be used to ‘‘navigate’’ a trading algorithm. We do this by finding a ‘‘navigation parameter’’, typically an algorithm setting that works successfully at a constant value, but where the best value is sensitive to changes in market volatility. We then define a ‘‘predictor”, where an MSM time series is used to estimate the best value of the navigation parameter for succeeding days.
Most Recent Papers
CME Market Sentiment Meter Historical Market Analyses – Gold – 2019 Federal Funds Rate Cuts
Periods of Anxious market states for COMEX Gold futures (GC1) tended to be either short-lived or long-lived in the eight-year period ending in December 2019.
In 2018, the U.S. saw economic growth and the Federal Reserve hiked rates four times during the year. The year was dominated primarily by Balanced market states, and GC consistently fell once the rate hikes were announced.
The year 2019 saw slowed economic growth and increased tensions with China, Iran, and Russia. This led to a large rise in GC from July to November, and GC remained at a high relative to the beginning of the year. In 2019, the Federal Reserve made three rate cuts. During this time, the Market Sentiment Meter (MSM) indicated an extended period of Anxious market states from July to November.
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