The Birth Of A Quant Trader

[Michael Akinyele]

My name is Michael Akinyele.

As an Economics undergraduate plagued with natural curiosity and far too much time on his hands I have turned my attention to the financial markets and the complex field of algorithmic trading.

Before touching any real-time trading software I have invested in the relevant literature and research to gain the grass roots knowledge necessary to not only find but understand why and when specific trading strategies work.

On the instruction of Ernst Chan in his appropriately titled "Quantitative Trading", I created this blog to act as a platform to educate and be educated by many. I hope that this is the beginning of both a profitable and an enjoyable relationship between myself and a growing readership.

p.s. - My reading list includes:
Quantitative Trading- Ernst Chan
Algorithmic Trading- Ersnst Chan
Algortihmic Trading & DMA - Barrry Johnson
Trading And Exchanges,MArket Microstructure for Practioners - Larry Harris
Inside the Black Box - Rishi Narang
Way Of The Turtle - Curtis M. Faith

If anyone has anyone has further suggestions regarding trading literature all comments and replies are welcomed. These books do not have to be directly related to algorithmic trading, the broader topic of Quant Trading is my focus at the moment

 

[gkishot]

My name is Michael Akinyele.

As an Economics undergraduate plagued with natural curiosity and far too much time on his hands I have turned my attention to the financial markets and the complex field of algorithmic trading.

Before touching any real-time trading software I have invested in the relevant literature and research to gain the grass roots knowledge necessary to not only find but understand why and when specific trading strategies work.

On the instruction of Ernst Chan in his appropriately titled "Quantitative Trading", I created this blog to act as a platform to educate and be educated by many. I hope that this is the beginning of both a profitable and an enjoyable relationship between myself and a growing readership.

p.s. - My reading list includes:
Quantitative Trading- Ernst Chan
Algorithmic Trading- Ersnst Chan
Algortihmic Trading & DMA - Barrry Johnson
Trading And Exchanges,MArket Microstructure for Practioners - Larry Harris
Inside the Black Box - Rishi Narang
Way Of The Turtle - Curtis M. Faith

If anyone has anyone has further suggestions regarding trading literature all comments and replies are welcomed. These books do not have to be directly related to algorithmic trading, the broader topic of Quant Trading is my focus at the moment

What's the name of the blog.

 

[Simples]

Momentum/trend following on daily timeframe. Why? Even randomly generated brownian motion-like timeseries may have trends that can be spotted in hindsight. So each live trade is an educated guess based on some factors where one hope to catch the ride in the right direction (long), usually at obvious places of continuation. This may sound easy, and if you lower your account risk and widen stop-losses, isn't too hard if you're content with investment horizons, appreciations and risks. However, if one wants to trade it, this needs to be improved until you can take on more risk while frantically being able to protect yourself from the downside and minimizing costs, which is hard, but perhaps not impossible. What makes trend-following so tough is that the trade is often over-crowded, causing abrupt halts and ugly swings that violently shakes out most risky trades fast. So expect to get whipsawed out of the trade alot. No matter how good an entry average winrate is usually well below 50%.

Anti-trend or mean reversion is becoming more popular, but still enjoys a much smaller crowd. If you can find statistical patterns that may provide good entries and protections, you could manage to trade against the trend, although since I haven't pursued this path, don't know much about it. Even though the statistical patterns may hold up more ie. on the short-side, on the surface of it, it does seem like picking up pennies in front of a bulldozer. This, unless one finds even more edge, which might even resolve into "full" reversals.

Maybe there are more ways to trade directionally, or maybe this is it (thinking stock markets here)?

Quant or not, one has to find a trading plan one can believe in (hypothesis), verify (test) and practically trade (execute) for oneself.

 

[Michael Akinyele]

Momentum/trend following on daily timeframe. Why? Even randomly generated brownian motion-like timeseries may have trends that can be spotted in hindsight. So each live trade is an educated guess based on some factors where one hope to catch the ride in the right direction (long), usually at obvious places of continuation. This may sound easy, and if you lower your account risk and widen stop-losses, isn't too hard if you're content with investment horizons, appreciations and risks. However, if one wants to trade it, this needs to be improved until you can take on more risk while frantically being able to protect yourself from the downside and minimizing costs, which is hard, but perhaps not impossible. What makes trend-following so tough is that the trade is often over-crowded, causing abrupt halts and ugly swings that violently shakes out most risky trades fast. So expect to get whipsawed out of the trade alot. No matter how good an entry average winrate is usually well below 50%.

Anti-trend or mean reversion is becoming more popular, but still enjoys a much smaller crowd. If you can find statistical patterns that may provide good entries and protections, you could manage to trade against the trend, although since I haven't pursued this path, don't know much about it. Even though the statistical patterns may hold up more ie. on the short-side, on the surface of it, it does seem like picking up pennies in front of a bulldozer. This, unless one finds even more edge, which might even resolve into "full" reversals.

Maybe there are more ways to trade directionally, or maybe this is it (thinking stock markets here)?

Quant or not, one has to find a trading plan one can believe in (hypothesis), verify (test) and practically trade (execute) for oneself.

Thanks for the very informative response and in light of everything you mentioned I will research both trend and anti-trend following strategies in the hopes of developing a comprehensive understanding of directional trading.
However, from the layman's perspective my largest concern with momentum strategies is the psychological aspect, although I aim to bypass this with the automation of my trading, in the case of trend-following would you agree that the trader becomes especially aware of their position as a member of a wider movement which does not come about frequently and as a result becomes prone to closing before saturation out of fear and ignoring indicators to a trend reversal out of greed?
Perhaps someone with a strong "buy low, sell high" mentality would prefer to devise a mean-reversion strategy due to its high frequency but relatively low profits per trade, rather, than mess-up on the higher risk, higher reward opportunity presented by trend-following?

 

[Simples]

Thanks for the very informative response and in light of everything you mentioned I will research both trend and anti-trend following strategies in the hopes of developing a comprehensive understanding of directional trading.
However, from the layman's perspective my largest concern with momentum strategies is the psychological aspect, although I aim to bypass this with the automation of my trading, in the case of trend-following would you agree that the trader becomes especially aware of their position as a member of a wider movement which does not come about frequently and as a result becomes prone to closing before saturation out of fear and ignoring indicators to a trend reversal out of greed?
Perhaps someone with a strong "buy low, sell high" mentality would prefer to devise a mean-reversion strategy due to its high frequency but relatively low profits per trade, rather, than mess-up on the higher risk, higher reward opportunity presented by trend-following?

I gave up manual trading long time ago as it's not for me. All automated, but not very nice code, more like duct & tape

It's a matter of perspective. You can watch a price chart and zoom in or out in time, and always be able to see some kind of consolidation and trend, just in different ranges of time. It's the same chart, just compressed or decompressed. Since I have only studied trend-following intensively, that's my preference, but if you can trade both, that's may be more optimal in light of uncertainty in the markets. However, trading is difficult enough, and I think it's wise to start with the best setup you can find and hone one setup first. Trading is often about filtering out trades that don't fit your criterias and waiting for the right opportunity. Especially technical trading, since you've got nothing else than price and maybe volume to go by. Later, one may find new opportunities that may complement one's trading. I'm currently more or less break-even, so continuing working on my one setup. Even if you are trend-following, you still can buy low, sell high though. Trend-following doesn't necessarily mean "buy at the highest price". Remember, no matter what people tell you, you need to check if you can break it or use it in new ways.

I believe it important to get some real experience at trading and the practical execution of it though, since any plan without good execution is no good at all.

 

[Rationalize]

Nattenberg - options
Maureen O'hara - microstructure
Baird - more options / market making / dynamic hedging & pitt trader heuristics