Quantitative Trading
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Transcript Quantitative Trading
Quantitative Trading
ARI SIEGEL
PRINCIPAL
TURNING WHEEL CAPITAL
[email protected]
What is Quantitative Analysis?
“A business or financial analysis technique that seeks to
understand behavior by using complex mathematical and
statistical modeling, measurement and research. By assigning a
numerical value to variables, quantitative analysts try to replicate
reality mathematically.” – www.investopedia.com
Observe behavior
Counting
Statistics
Price movement vs. technical vs. fundamentals
Market moves may not repeat, but they often
rhyme
Where quants work
Buy side
Hedge Funds
Banks
Other prop trading desks (Trade, Insurance co’s, etc.)
Self
Sell side
Sales & Trading
Derivatives
Hedging
Quant Roles
Trader
Programmer
Analyst
P/L vs. non-P/L
Strategy generation vs. analysis and
programming
What is a trader?
A trader buys or sells securities in a market.
Execution
Discretionary
Proprietary
Market Maker
Floor
Trade
Speculator
Trader vs. Securities Analyst
TRADER
Direction
Size
Entry Price & Strategy
Hold time
Risk Management
Exit Price & Strategy
Act on Analysis
P/L Responsibility
High Compensation
Long Hours
Ever-morphing puzzle
ANALYST
YES
NO
?
YES (ROUGH)
NO
YES
NO
?
?
YES
YES?
How to find a Quantitative trade
Idea (observation, original thought)
Data collection
Price/technical/fundamentals database
Charts
Internet
Other resources
Data scrubbing
Testing – pencil/paper, Excel, statistical software
Trade it in small size for some time
Scientific method
Statistics
Conditions
Forward expectation
Average move (Mu)
Standard Deviation (s)
# of observations (n)
T-score = Mu / (s/SQRT(n))
Regressions, neural networks, AI
Quant Trade Process Part 1
Find a Trade
Conditions
Short
term
Long term
Seasonal
Intermarket
Test
Compare to other patterns, current data
Quant Trade Process Part 2
Create a plan
Direction
Size
Entry (Price, Time)
Exit (Price, Time)
What ifs
Quant Trade Process Part 3
Trade your plan
Entry issues
Unusual moves
What ifs
New data – change the plan?
Exit issues
Quant Trade Process Part 4
Improve your trading
Track trades
P/L
Short
vs. Long
Decisions – overrides, adds, longer holds,
etc.
Analyze trading results
Optimize
Evolve
Quant Trading Scenarios
Black box vs.
Human execution
System vs.
Discretionary
Unusual circumstances
Changing Cycles
Efficient Markets???
NOT
ALWAYS!
Trading Futures
What are futures?
Physical vs Financial, delivery vs cash-settled
Index futures
S&P 500 futures=
Very liquid
Very transparent (marked-to-market each day)
Low commissions ($2.40 per $74,000)
High leverage
Low barriers to entry
Managed futures
My Company – Turning Wheel Capital
Start up trading business similar to hedge fund
Manage money for outside clients and myself
Began Jan 1 2007 with $25,000 of my own $ while
working at a hedge fund
August 1 2007 $62,000 in assets, my own $
November 2007 $1.2MM in assets, 3 outside clients
Goals
February 2008 $3MM AUM
November 2008 $10MM
December 2009 $100MM
My background
Victor Niederhoffer 2004-2007
apprenticeship
MBA, Yale SOM 2004
Start up companies 1999-2002
Poker 1997-1999
Start up companies 1994-1997
Music 1988-1994
NYU B.A. Music Technology 1992?
UNC-Chapel Hill 1987
Money making personality
Appetite for risk
Analytical mind
Competitive
Driven to win
Sports, Poker, Games
Survivor
Quant Trader Characteristics
Puzzles, games
Counting
Logical, analytical, problem solving
Music
Patterns
Be a star
Figure out what you truly want – 95% of the game
Be honest with yourself and others
Take risk – but try to weigh consequences
Hold out for what you want – don’t settle
Trust your gut – have conviction
Do your own research – question the experts
Don’t be a sheep
Try to be the best in your field, reach for brass ring
Focus on the process and the results will come
800% return in 2007
Market Wizards by Jack Schwager
Questions?