Model discussion

[TraderD]

No indicator is perfect, of course and as traders we have the luxury of being able to put any indicator in the current market dynamics context which many model have difficulty doing. That is why many modern models (especially risk models) have volatility regime adjustments to calibrate factor volatilities to current market levels. But that is a very difficult thing to do if only because risk is non linear. Others use nonstationary stochastic processes (ARCH & GARCH models) in order to deal with the fact that model coefficient do change over time. However, RSI for example has the advantage of being between 0% and 100% and thus if this would reflect the distribution ( normal or otherwise) of historical value (OB/OS) it would be a major improvement over the absolute indicators currently available or the current arbitrary OB/OS hard coded numbers (i.e.: 70) currently being used by Pascal.

IIUC, portfolio factor calibration, unlike trading with stops, is prone to occasional black swans where the fat tail of the distribution isn't properly captured by the model. Add leverage to that with a quest for market-beating returns and you got a prescription for a blow up. I'm not sure I see the benefit of RSI over the current OB/OS oscillator, which is also bounded by a fixed range (-100,+100). Is it the non-linear mapping? RSI would also need to utilize threshold choices (typically 30/70).

Trader D

[Pierre Brodeur]

I'm not sure I see the benefit of RSI over the current OB/OS oscillator, which is also bounded by a fixed range (-100,+100).
Trader D

I am not suggesting the use of RSI at all. I am using it as an example in this discussion