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Calc Strat - Jimmy

The document outlines a trading strategy framework utilizing calculus concepts to maximize returns while managing risk. Key components include using derivatives to analyze price movement, optimizing position sizing with expected value, and employing specific indicators like EMA and ATR for buy and sell signals. The strategy emphasizes backtesting and risk management through techniques such as the Kelly Criterion and log returns calculation.

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hermesjacobs67
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40 views2 pages

Calc Strat - Jimmy

The document outlines a trading strategy framework utilizing calculus concepts to maximize returns while managing risk. Key components include using derivatives to analyze price movement, optimizing position sizing with expected value, and employing specific indicators like EMA and ATR for buy and sell signals. The strategy emphasizes backtesting and risk management through techniques such as the Kelly Criterion and log returns calculation.

Uploaded by

hermesjacobs67
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as TXT, PDF, TXT or read online on Scribd
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### 📈 **Trading Strategy Framework Using Calculus Concepts**

#### 🎯 Objective:

Maximize returns with tight, consistent risk using **rate of change**, **slope**,
and **volatility** — inspired by quantitative trading models.

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### 🧠 Core Concepts from Calculus

1. **Derivative (Rate of Change)**

* Think of **price movement as a function**, where the **first derivative**


(slope) tells you how fast and in which direction the price is changing.
* You’ll use **EMA (slope)** and **ROC (Rate of Change)** indicators as proxies.

2. **Concavity (Second Derivative)**

* Momentum shift or acceleration. If price change is **accelerating**, trend is


likely strong.

3. **Optimization**

* Use **expected value and variance** of trade outcomes to optimize position


sizing over time.

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### 📊 Strategy Setup (No Paid Tools Needed)

#### Indicators:

* EMA 9 & EMA 21


* ATR 14
* Rate of Change (ROC)
* Optional: RSI for momentum confirmation

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### ✅ Buy Signal Logic (Modeled with First Derivative Concepts):

1. **Trend**: EMA 9 above EMA 21 (positive slope = ∂P/∂t > 0)


2. **Acceleration**: ROC > 0 and increasing (momentum increasing)
3. **Volatility Check**: ATR not spiking unusually high (controls risk)
4. **Entry**: Price pulls back toward EMA 21 and bounces
5. **Stop-Loss**: Entry - 1×ATR
6. **Target**: Entry + 2×ATR or based on max favorable excursion (MFE) curve

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### 🔻 Sell Signal (Derivative < 0):

1. EMA 9 below EMA 21


2. ROC < 0 and falling
3. Price pullback to EMA 21 and rejects
4. Entry on bearish confirmation
5. SL = Entry + 1×ATR, TP = Entry - 2×ATR

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### 🔬 Optimization Inspired by Simons:

* Use **Kelly Criterion** to determine how much to risk per trade


* Log returns calculation:
$R = \ln(\frac{P_{exit}}{P_{entry}})$ for compounding effects
* Backtest 100+ trades, filter by:

* Max drawdown
* Win rate
* Expectancy:
$E = (P_{win} \times AvgWin) - (P_{loss} \times AvgLoss)$

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### 📘 Summary:

| Step | Tool/Concept |
| --------------- | ------------------- |
| Trend direction | EMA slope (∂P/∂t) |
| Acceleration | ROC increasing |
| Entry timing | Pullback near EMA |
| Risk control | ATR-based stop-loss |
| Sizing | Kelly Criterion, EV |
| Compounding | Log returns |

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