Good and bad books on strategy design?

Quote from kut2k2:

The real grown-ups are those of us who realize price can't be modelled. Modelling price is a fool's errand, or a childish fantasy: take your pick. Price isn't random but that doesn't mean it's predictable, and the whole point of modelling is prediction.

If your "grown-up" quants are so capable, why are they scared to death of directional trading? Everything with those wimps is hedges, arbs, swaps, and other pussy market moves. Present them with anything that isn't market-neutral and they need a change of underwear. :p
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I think the key is to construct a stationary time series via transformations or linear combinations. I believe once you have stationarity, then you can make inferences on population parameters, which in turn lets you formulate probabilities. So it's not about being scared or wimpy, but simply rational.
 
Quote from sle:

Ok, so you are doing some simple noise analysis and some simple autoregressive modelling and are saying that it has actually worked for you. That, however, does not mean that more involved methods are trash, as you seem to indicate.


A PhD in CS-oriented physics and 15 years institutional trading experience, as a market maker and now as a portfolio manager. I trade mainly volatility products.
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Simple noise analysis and simple autoregressive modelling. Sounds like stuff they teach in CS-oriented physics programs.

I do optimal noise reduction and multitemporal trend extraction. Aka stuff they don't teach in CS-oriented physics programs.
 
Quote from Rationalize:

Something about just doing what's profitable, while facilitating the edgeless outright directional punts of excited degenerates..
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If what quants do is just profitable, why aren't they all rich?? I was referring to the fact that directional trading is just plain more profitable than market-neutral strategies when done correctly. So if the quant way is the right way, why are they scared of directional trading?
 
Quote from ssrrkk:

I think the key is to construct a stationary time series via transformations or linear combinations. I believe once you have stationarity, then you can make inferences on population parameters, which in turn lets you formulate probabilities. So it's not about being scared or wimpy, but simply rational.
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The problem is that price series are so emphatically nonstationary, trying to forcefit them into an ARIMA model is akin to forcing a square peg into a round hole and declaring it a good fit. Tsay's book deludes readers into thinking they can get some useful information from ARIMA and other ill-fitting models of financial series. Maybe econometricians can, but it's a waste of time for traders.
 
Quote from kut2k2:

The problem is that price series are so emphatically nonstationary, trying to forcefit them into an ARIMA model is akin to forcing a square peg into a round hole and declaring it a good fit. Tsay's book deludes readers into thinking they can get some useful information from ARIMA and other ill-fitting models of financial series. Maybe econometricians can, but it's a waste of time for traders.
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You sound like you're analyzing single instruments for stationarity.
 
Quote from kut2k2:

The problem is that price series are so emphatically nonstationary, trying to forcefit them into an ARIMA model is akin to forcing a square peg into a round hole and declaring it a good fit. Tsay's book deludes readers into thinking they can get some useful information from ARIMA and other ill-fitting models of financial series. Maybe econometricians can, but it's a waste of time for traders.
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Exactly, price series are emphatically nonstationary. That's why one needs to transform or take linear combinations or trade volatility or some other novel tradable derivative combination that is stationary.
 
Quote from artemiso:

@sle, could you share some insight on what is "threshold chaining"?

Also, I wouldn't take what kut2k2 said seriously.
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perhaps he is talking about threshold cointegration.
 
Quote from Rationalize:

You sound like you're analyzing single instruments for stationarity.
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No, what I wrote doesn't sound anything like that.
 
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