Reprinted with permission of the MTA from the journal Technically Speaking, December 2014 edition
Anthony Abry is the President of InStat Research. He is based in Portland, Oregon.
How would you describe your job?
We help clients with research, development and trading strategy creation. We also reduce the manual workload needed for development and implementation of a strategy. We develop strategies, backtest and optimize them, and get a full understanding on the character of the strategy. We know when it has failed vs. when it is in a drawdown (or too high profit zone). For implementation, a client might have 5 big strategies with 20 sub strategies. They are end of day strategies and need to be updated daily. A report needs to be sent out as well to some signal generating service distributor. We develop the tools to make this possible with as few clicks as necessary. The data gets updated, the strategies update, the report gets generated with just a few clicks. Everything is quantified and developed in-house. Our main workhorse is Amibroker which we might extend with various scripts, plug-ins and the occasional excel.
My background as an analyst and a trader is a tremendous help in understanding the possibilities and workflow to execute this. InStat Research is my own firm. I also train new people - mainly in concepts of finance and TA, run everyday operations and talk with clients.
What led you to look at the particular markets you specialize in?
I have worked in various parts of the industry. There are opportunities and constraints everywhere. Often it is the regulatory environment which dictates the markets for investors. For instance, a US based RIA needs to pass FINRA or SEC compliance. This firm's strategies for retirees with $150k portfolios will have different objectives than the firm whose clientele are mainly accredited investors. They will need a certain percentage of bonds in the portfolio as well as less trading activity and possibly less drawdown. Their main objective might not be annual returns, it might be stability and k-ratios.
A European investor might receive tax free dividends by investing in their domestic market, but be slapped with a 30% US withholding tax as well as additional local taxes by investing in the US. Knowing this helps tremendously when developing a trading strategy as to not suggest something irrelevant to the client.
Do you look at any fundamental or economic inputs to develop your opinions?
When I was a full time analyst - of course. Anything which has numbers and can be plotted should be looked at, turned upside down, correlated, inputted into your preferred testing platform in order to develop a proper analysis. Currently, there is little demand from my clients - so I do not study it very much.
What advice would you have for someone starting in the business today?
Study as much as you can. Don't believe anything. Hearsay and assumptions are just that - hearsay. Learn to test it yourself with whatever platform you are comfortable with. There are lots of myths out there. Learn a computer language. TA is only valid if you can prove it, first with a track record, second with math - or vice versa. Quantify, quantify, quantify.
What is the most interesting piece of work you've seen in technical analysis recently?
Intermarket analysis is very interesting. Domino effects, symbiotic relationships, seasonalities. They are easy to implement.
Strategy development and optimization - at what point are we overfitting whatever we are using. Pardo's "The Evaluation and Optimization of Trading Strategies" is a healthy study.
Wrong position size and incomplete strategy development (inability to recognize strategy failure) are the main reasons I see people stopping to trade.
What research area do you think offers the greatest potential in technical analysis at this time (something like an indicator, charting technique or trading tool)?
There are so many research possibilities.
There is a lot of data out there. Any data not easily available is frontier country and holds great potential. Detailed COT data after 2006, sentiment data, twitter tweets analysis, new combinations for intermarket analysis.
Also, real time strategy probabilities. The indicator is overbought? How often was this true/not true? In what kind of market? How far did the market move afterwards? Given those conditions, how much should be invested? This is easy to implement. No new wheel needs to be invented - existing tools are just being used better.
How about combining strategies - just like real life - and quantifying it. What does the combined equity curve look like? How about plotting the equity curve as candlesticks and develop a position sizing algo based on it? How will that improve my sharp ratio? All these 3 points are up and coming and show lots of room for further study. We are excited to be part of it.
Anthony Abry, MBA, CMT is the owner and co-founder of Instat Research, a firm which helps institutional and retail clients develop trading strategies. Current internal R&D is focused on development and implementation of trading strategies tools, such as automated optimization routines, portfolio level position sizing algorithms, and automated trading tools.
He made his first investments in the late 80s and later taught fundamental analysis in college before discovering technical analysis. He has worked since as a consultant, trader, financial advisor and system's developer in Japan, Austria and the US. He holds a BA in anthropology from Long Island University and an MBA from the Ecole Nationale des Ponts et Chaussees in Paris, France. Anthony can be contacted at email@example.com.