A singular spectrum analysis based trend-following trading system

摘要

A comparison between Moving Averages (MA) and two versions of Singular Spectrum Analysis (SSA) methodology - the Caterpillar and the Toeplitz - is presented. Caterpillar had already been studied in this manner but the same is not true for the Toeplitz SSA. Toeplitz SSA assumes the stationarity of the time-series, which means that the process needs to be mean-reverting. However, such assumption is not a necessary condition for the Caterpillar SSA. In this paper both approaches are applied to a trend estimation problem in order to be used as an indicator in trend-following technical rules design. Similarities and differences between these techniques are addressed. The obtained results suggest that, although SSA approaches provides more flexibility to achieve a desired trend resolution compared to the traditional MA, the Toeplitz SSA exhibit some issues that might put it off its use in this particular application.