The goal of this research was applying a nonlinear approach to the detection of market regime transitions: mean reversion to momentum regimes and vice versa.It has been shown that the transition process has nonlinear scenarios: slow and fast bifurcations. Slow bifurcation assumes that control parameter is changing slowly in relation to the system characteristic time. Gradual absorption of information provides stability loss delay effect.Fast bifurcation has a discrete non equilibrium nature. Each transition from one attracting cycle to another one is preceded by passing through fixed point state: an effect of precatastophic stabilization exists. Two analytical methods have been developed for recognition of slow and fast bifurcation : R analysis and D analysis correspondingly.Combined R/D tool has been incorporated for analysis of world financial crisis of 2008.It turned out that R analysis is more convenient for long term investment while D analysis suggests middle- and short-term approach.R/D analysis has been applied as a filter for currency positional trading system. Slow and fast bifurcation patterns have been applied for the filtering of breakdown signals. Incorporation of a filter allowed to reduce twice the number of trades and to increase systemefficiency, Calmar ratio, by seven times. R/D filter allowed decreasing sensitivity to volatility: duration of equity stagnation has fallen down to two months in relation to one year for the original breakdown system. It has been shown that R and D patterns may improve the long term efficiency and stability of a momentum quantitative trading model .
In this paper mechanisms of reversion - momentum transition are considered. Two basic nonlinear mechanisms are highlighted: a slow and fast bifurcation. A slow bifurcation leads to the equilibrium evolution, preceded by stability loss delay of a control parameter. A single order parameter is introduced by Markovian chain diffusion, which plays a role of a precursor. A fast bifurcation is formed by a singular fusion of unstable and stable equilibrium states. The effect of a precatastrophic range compression is observed before the discrete change of a system. A diffusion time scaling is presented as a precursor of the fast bifurcation. The efficiency of both precursors in a currency market was illustrated by simulation of a prototype of a trading system .
R
The goal of this research was applying a nonlinear approach to the detection of market regime transitions: mean reversion to momentum regimes and vice versa.It has been shown that the transition process has nonlinear scenarios:
In this paper mechanisms of reversion - momentum transition are considered. Two basic nonlinear mechanisms are highlighted: a
R
bifurcations. Slow bifurcation assumes that control parameter is changing slowly in relation to the system characteristic time. Gradual absorption of information provides
bifurcation. A slow bifurcation leads to the equilibrium evolution, preceded by
R
effect.Fast bifurcation has a discrete non equilibrium nature. Each transition from one attracting cycle to another one is preceded by passing through fixed point state: an effect of precatastophic stabilization exists. Two analytical methods have been developed for recognition of slow and fast bifurcation : R analysis and D analysis correspondingly.Combined R/D tool has been incorporated for analysis of world financial crisis of 2008.It turned out that R analysis is more convenient for long term investment while D analysis suggests middle- and short-term approach.R/D analysis has been applied as a filter for currency positional trading system. Slow and fast bifurcation patterns have been applied for the filtering of breakdown signals. Incorporation of a filter allowed to reduce twice the number of trades and to increase systemefficiency, Calmar ratio, by seven times. R/D filter allowed decreasing sensitivity to volatility: duration of equity stagnation has fallen down to two months in relation to one year for the original breakdown system. It has been shown that R and D patterns may improve the long term efficiency and stability of a momentum quantitative trading model
of a control parameter. A single order parameter is introduced by Markovian chain diffusion, which plays a role of a precursor. A fast bifurcation is formed by a singular fusion of unstable and stable equilibrium states. The effect of a precatastrophic range compression is observed before the discrete change of a system. A diffusion time scaling is presented as a precursor of the fast bifurcation. The efficiency of both precursors in a currency market was illustrated by simulation of a prototype of a trading system