Being Right or Making Money, 3rd Edition

CHAPTER 4 A Simple Model for Bonds

LOREN FLATH

About 10 years ago Ned got wind of a TradeStation seminar at the Venetian Hotel in Las Vegas. He is always looking for new ideas on markets and trading, and he thought I might learn something about new software or new analytical techniques. It was a three-day ordeal, with workshops of various kinds hosted by some very sharp people with truly interesting—and in some cases, somewhat complicated—trading methodologies. A number of the presenters had advanced degrees and managed money with the techniques they were showing us. Originally called System Writer, TradeStation started as a computer program for developing trading systems that could use a plethora of technical analysis tools. By 2004 it had evolved into a very sophisticated platform complete with automated trading: If you built a model with specific rules for buying and selling, you could put the system on automatic pilot.

On the last day of the seminar there was an elaborate lunch. Following our meal we were introduced to the guest speaker, Nelson Freeburg. I remember quite well his discussion of real-time models, and how so few of them actually continue to work as time passes. After investigating many models he had found only four true to their back-testing promises. He discussed the details of each, and when he got to number four he emphasized that he had saved the best for last. Then he proceeded to show the real-time results for the bond model presented in Marty Zweig's ...