Abstract
This paper aims to establish a quantitative trading strategy of commodity futures based on market money flows. Firstly, we use Accumulation/Distribution index to respectively construct the CMF index which represents the ratio of total capital flows to total volume, and the CHO index which represents the exponential moving average of the cumulative capital flows. In view of the different flows of money between buyers and sellers, the establishment of the transaction net volume index VTL is used to describe respectively the flow of money between buyers and sellers. On this basis, the HMM model is introduced, and the above three kinds of indexes are combined to choose the time, at which we execute the stop-loss operation and risk control. Finally, all performance index values of the strategy are as follows: the rate of initial capital return is 193.77%, the annual rate of return is 99.86%, the maximum retracement rate is 15.73%, the Sharpe rate is 2.05 and the price earnings ratio is 4.01.
Highlights
This paper aims to establish a quantitative trading strategy of commodity futures based on market money flows
We use Accumulation/Distribution index to respectively construct the CMF index which represents the ratio of total capital flows to total volume, and the CHO index which represents the exponential moving average of the cumulative capital flows
Clark (1974) proposed Mixture Distribution Hypothesis (MDH) and thought every day there was an unpredictability that went into the stock market and had an impact on stock trading
Summary
Money flows includes the flow direction and volume of money , which is a standard technical index, reflecting the excess demand or supply on one stock of current market. Viewing the active buying of a stock as a capital inflow and the active selling as a capital outflow, if the difference is positive, an excess demand will be formed and if it is negative, an excess supply will be formed. In theory, the money flow index is correlated with the rate of return on the current stocks, and the rate of return on future stocks. Frazzini and Lamont (2008) used mutual fund flows as a measure of individual investors' sentiment toward different stocks, they found that the current high sentiment led to lower stock returns in the future. Gao Li and Weidong Fan (2002) through the cash flow estimation of the stock market in China, analysed the influence of the macro capital structure change caused by the source of funds, the capital structure and so on in the stock market on the market behavior of macroeconomic main body. Liuqi Lang (2008) did the research on aided computer analysis system of the securities funds flow from the perspective of computer engineering, computer
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