Quote from Martinghoul:
I am not really into "lecturing", so no satisfaction for Monsieur Swan...
I think there's another thread here where we sort of started to discuss the potential methods. In general, there's really no "correct" way of doing it. The main thing is to make gradual improvements to the process using some quantitative tools. Note that I am not suggesting anything like a "black box".
For example, time series analysis offers a lot of ways to formalize various relevant notions and put a framework around them. In rates space, for instance, PCA (principal component analysis) is a common framework. Heck, if you're reasonably careful, linear regression can do wonders.
It's hard to speak generally, since these techniques would vary depending on asset class and personal preference. In fact, techniques themselves aren't particularly important. What's important is that you should always question your process and have a very clear understanding of the key parts of every trade. I would be happy to expand on this, but maybe in a different thread?
