Efficiency Ratio Trend Signals for Government Bond Futures
Summary
The article adapts an efficiency ratio to a trend strategy for Chinese government bond futures. The ratio compares the absolute net price change over a lookback window with the sum of absolute price changes in that window. Values nearer one indicate a more directional path; values nearer zero indicate more back-and-forth movement. The described implementation uses the absolute ratio: it goes long when the measure is at or above a threshold and short when it is below. Position size is calculated from a risk capital amount and a risk window, and the strategy closes or reverses positions when the signal changes.
The article reports parameter tuning on continuous futures data for five-year bonds, with additional two-year and ten-year contracts, using an in-sample period and a longer evaluation span. It gives selected parameter settings but no performance statistics in the supplied text. The strategy is deliberately simple, and the authors note that previously published settings may no longer fit current conditions. The absolute-value signal also discards trend direction, so the stated long-on-strong-trend rule can go long in either rising or falling markets. Fees, slippage, continuous-contract construction, and out-of-sample robustness matter when interpreting the reported setup.
Key ideas
- The efficiency ratio measures net price displacement relative to total path length over a lookback window.
- A ratio near one in absolute value indicates a more directional price path, while a smaller ratio indicates more choppy movement.
- The implementation uses the absolute ratio to trigger long positions above a threshold and short positions below it.
- Position sizing is based on a risk capital input and a separate risk window.
- The article describes parameter tuning on several government bond futures contracts but provides no performance statistics in the supplied text.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.