Key Components
 

Alpha Model: SVM Wavelet Alpha Model

  • SVM (Support Vector Machines): A powerful machine learning technique used for classification and regression. In this strategy, SVM is employed to predict future price movements based on historical data.
  • Wavelet Transforms: These are used to decompose time series data into different frequency components, allowing the model to identify and isolate significant patterns and trends at multiple scales.
     

Portfolio Construction: Leveraged Weighting Portfolio Construction Model

  • This component uses the predictive power of the SVM Wavelet model to allocate capital efficiently across a basket of currency pairs. The strategy uses a high leverage ratio of 20:1 to amplify returns, aligning with the Forex market's inherent volatility and liquidity.
     

Universe Selection

  • The strategy focuses on a diversified selection of Forex pairs: EURJPY, GBPUSD, AUDCAD, and NZDCHF. This selection provides exposure to major and cross-currency pairs, enhancing the potential for profit from various market conditions and economic events.
     

Brokerage and Benchmark

  • Brokerage: OANDA Brokerage with a margin account is used to facilitate high-frequency trading.
  • Benchmark: The performance of the strategy is benchmarked against the EURUSD currency pair, a widely followed Forex pair that provides a reliable standard for evaluating performance.


Strategy Mechanics

  • Data Resolution: Minute-level data resolution is used to capture and react to short-term price movements effectively.
  • Parameterization: The strategy includes configurable parameters for the SVM model period (defaulting to 152) and leverage (defaulting to 20), allowing for flexibility and optimization based on market conditions.
     

Expected Outcomes

  • Risk-Adjusted Returns: The strategy aims to generate superior risk-adjusted returns using a sophisticated machine-learning approach combined with wavelet analysis.
  • Diversification: Exposure to multiple currency pairs mitigates idiosyncratic risks associated with individual currencies.
  • High Leverage: Leverage seeks to enhance returns, though it also increases risk, making effective risk management and model accuracy critical to success.