Introducing Our Alpha Lab
Our Alpha Lab is meticulously designed as a dedicated space for research, development, and experimentation of innovative trading models, aimed to optimize our active portfolio management. We explore diverse areas of experimentation, ranging from mathematical functions and statistical models to physics-based methodologies. Our ultimate goal is to seamlessly integrate these approaches into our advanced in-house quantitative trading models, tailored for both cryptocurrency markets and traditional financial markets.
In the rapidly evolving digital transformation age, the financial and technological landscape is becoming increasingly competitive. The challenge lies in synthesizing ideas creatively and adapting them to compete effectively within this dynamic environment.
To thrive in this space, it is essential to conduct extensive research to discover the most innovative and creative ways of integrating our knowledge and experience in financial markets. By leveraging cutting-edge technology and applying mathematical and physics theories, we aim to extract maximum benefits from these models, fostering long-term growth in our portfolio while minimizing risk.
The Working Process
Our process begins with conceptualizing ideas grounded in our traditional market trading experiences, identifying potential applications for live trading models. Next, we develop a workflow and convert it into a flowchart, followed by coding implementation. Subsequently, we utilize our in-house backtesting engine to visualize the potential performance of our models across various trading assets. After rigorous backtesting, we construct codebases for hyperparameter tuning to prevent overfitting and conduct stress testing for a minimum of 3 to 6 months in our Alpha Lab portfolio. This ensures that our models align with our research, experiments, and theories while delivering optimal performance based on backtesting data before integration into our main portfolio.
A Case Study: Live Trading Models Performance (January 2022 - December 2022)
Our alpha models were implemented in 2021 and we stress-tested our trading models before incorporating them into our main portfolio. One of our alpha models, implemented in 2021, demonstrated resilience during the bear markets throughout 2022. Unfortunately, we faced losses on the FTX exchange due to its bankruptcy, resulting in the loss of some funds. This valuable lesson taught us the significance of counterparty risk, especially as young, energetic professionals venturing into the quantitative investment realm. Our experience highlights the importance of diversifying trading models, assets, and selecting brokers or exchanges with risk mitigation plans in place to minimize losses from exchange or brokerage collapses. As we learned from our missteps, we also discovered our strengths: several alpha models performed admirably during bear markets and tumultuous periods, such as the Russian-Ukrainian conflict and the collapse of Terra (UST and LUNA) and FTX exchange, both of which severely impacted market liquidity throughout 2022.