How Two Profitable Trading Systems for Eurodollar Futures Were Developed

61 Pages Posted: 25 May 2018 Last revised: 10 Jun 2018

See all articles by Steven Moffitt

Steven Moffitt

Stuart School of Business, Illinois Institute of Technology

Date Written: May 15, 2018

Abstract

Two trading systems for Eurodollar futures were developed using the SAMM (Strategic Analysis of Market Method) described in the book The Strategic Analysis of Financial Markets (in 2 Volumes) Moffitt (2017a,b). The SAMM formalizes the process of trading system discovery and development. It involves two steps that are seldom discussed: (1) a systematic method for discovering potential trading edges without data analysis, and (2) a method for appraising the likely life span of a system using “strategic life cycles.” Using the SAMM, it is argued that futures expirations are likely “price distorters” because of semi-predictable FED actions, market segmentation of the yield curve, and probable inefficient forward markets. Using principal components analysis, independent components analysis, and smoothing methods, two systems whose maximum drawdown over the period from 1990-2008 was 20% were developed. System 1 traded 8 times per year for an annual return before fees of about 8.5% and System 2 traded 4 times per year for an annual return before fees of about 15%. It is argued that disclosure of Systems 1 and 2 will likely attenuate their future performances due to changing the timing of Eurodollar rolls, but this will not occur immediately.

Keywords: Trading System, Eurodollar Futures, ICA, PCA, Smoother, SAMM,Gambling, Betting, Trading, Algorithmic Trading, PPGS, Grationality, POPP

JEL Classification: G10, G14

Suggested Citation

Moffitt, Steven, How Two Profitable Trading Systems for Eurodollar Futures Were Developed (May 15, 2018). Available at SSRN: https://ssrn.com/abstract=3179171 or http://dx.doi.org/10.2139/ssrn.3179171

Steven Moffitt (Contact Author)

Stuart School of Business, Illinois Institute of Technology ( email )

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Chicago, IL 60616
United States
630-660-0400 (Phone)

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