Thread by @TerribleQuant

For those of you who aren’t aware of the types of funds. When someone says CTA, they’re usually a momentum fund or capture some well known futures effects. A lot of these guys are a strange form of levered beta and not really alpha because a lot of their methods work best…
1/n

when lots of others use them so strangely enough not the most advanced or accurate model is the best model because really it’s just this greater fool theory flow. You can pretty easily frontrun this shit, because they typically ease into positions because they have…
2/n

Quite large books, and they compound their positions based on the simple rule of add to winners and cut losers (basically the entire premise behind momentum where losing money is a get out signal and making money is the get in signal). Anyways, if you know there is…
3/n

Lots of CTA flow there and it’s making money, just make the momentum trade and quickly cut losses. It’s something that there’s not a literature on but when should you cut losses, assuming losses are a sign of no more alpha? It’s a problem of building a really good signal…
4/n

Estimation (Kalman? CNN?, savgol?, wavelet?, I won’t give it away, since this sort of problem comes up a lot where finding a suitable signal estimation is key, and I don’t want to give away all my alpha). But generally the goal is to use ML to find the ideal exit point…
5/n

IMO this is a nice merger between algoquant and trading flow for a cyborg trading operation. CTAs say they’re in commodities as the name suggests but really this type of fund will be in everything from treasuries to futures. Basically anything that trades on a futures…
6/n

contract they’ll capture momentum and other well know futures effects like spot-futures relationships etc. They make for a decent alternative asset from a capital allocation standpoint but are hardly immune to market drawdowns and 08 saw momentum on equities get hammered…
7/n

Maybe not so bad for CTA, but still REALLY bad performance. Either way that just a bit of insight into the role of these things and their flow in general. That way when you hear CTA you don’t think commodities fund you think futures momentum/ crowd effects everyone knows about.

La fin

Read this again and the grammar is so bad. Hopefully it’s all somewhat comprehensible