Quant/Quant-Discretionary Trading Dilemma

C

CPTrader

Quant/Quant-Discretionary Trading Dilemma

I have a fully developed and back-tested multi-market multi-strategy quantitative trading program that I have near 100% confidence in.

Additionally, I have a quantitative strategy with a substantial discretionary overlay, let say 70% quantitative, 30% discretionary. This “overlay” strategy is more dynamic than the 100% quantitative strategy, has a smaller minimum capital requirement, and is far more nimble in containing losses due to the discretionary element. However, due to the discretionary component of this strategy, I don't have that "near 100% confidence" in it as I do in the 100% quant strategy.

If capital wasn’t an issue, I would trade the 100% quant program, but with such a high minimum capital requirement (high seven figures) I cannot trade it at this time unless I increase the leverage by 2-4 times and thus reduce its capital requirement. The risk of course in doing so is severe drawdowns.

So my dilemma is:

Do I trade a strategy (the 100% quant strategy) that I am virtually 100% sure of its potential at 2-4x higher leverage and risk severe drawdowns or do I trade the 70% quant-30% discretionary strategy; a more nimble, dynamic strategy with lower capital requirements but with lower confidence.

Your thoughts and ideas, please. I think there can be many lessons here about risk management, portfolio design, quant vs. discretionary trading.

Thank you.
 
Quote from CPTrader:

Quant/Quant-Discretionary Trading Dilemma

I have a fully developed and back-tested multi-market multi-strategy quantitative trading program that I have near 100% confidence in.

Additionally, I have a quantitative strategy with a substantial discretionary overlay, let say 70% quantitative, 30% discretionary. This “overlay” strategy is more dynamic than the 100% quantitative strategy, has a smaller minimum capital requirement, and is far more nimble in containing losses due to the discretionary element. However, due to the discretionary component of this strategy, I don't have that "near 100% confidence" in it as I do in the 100% quant strategy.

If capital wasn’t an issue, I would trade the 100% quant program, but with such a high minimum capital requirement (high seven figures) I cannot trade it at this time unless I increase the leverage by 2-4 times and thus reduce its capital requirement. The risk of course in doing so is severe drawdowns.

So my dilemma is:

Do I trade a strategy (the 100% quant strategy) that I am virtually 100% sure of its potential at 2-4x higher leverage and risk severe drawdowns or do I trade the 70% quant-30% discretionary strategy; a more nimble, dynamic strategy with lower capital requirements but with lower confidence.

Your thoughts and ideas, please. I think there can be many lessons here about risk management, portfolio design, quant vs. discretionary trading.

Thank you.
More...

Define "severe drwadowns" for your strategy...or in other words - not your Q/Q dilemma but your R/R ( risk / reward ) dilemma.
 
Quote from CPTrader:

Do I trade a strategy (the 100% quant strategy) that I am virtually 100% sure of its potential at 2-4x higher leverage and risk severe drawdowns or do I trade the 70% quant-30% discretionary strategy; a more nimble, dynamic strategy with lower capital requirements but with lower confidence.
More...

Pls explain why the 100% Q requires more capital. Don''t both startegies trade the same markets/instruments?
 
Quote from inefficient:

You got some insightful advice at http://www.tradingblox.com/forum/viewtopic.php?t=5991&highlight=

Return to research.
More...

Sluggo's post is insightful in some ways but doesn't address the dilemma.

My philosophical belief is that truly robust systems work on multiple markets, multiple sectors, multiple regions and are truly a "suite of systems". It is very difficult if not impossible to achieve robustness and good risk/reward metrics with a small account size without accepting some risk-reward limitations. So perhaps some more extensive research could address this problem, perhaps, but I doubt it can be fully addressed...can you drive a car with three good tires and one flat tire....YES..but not for long. Research has led to "run-flat' tires...but even the great research that led to run-flat tires can't solve the three good tires/one flat tire dilemma

I could easily have a one-market/one strategy system....but how robust is that; how "safe" is such an approach??
 
You must log in or register to reply here.
Back
Top