Q uantitative T rading, E RNEST P. C HAN : Chp1

Q uantitative T rading, E RNEST P. C HAN

The book is organized roughly in the order of the steps that traders need to undertake to set up their quantitative trading business:

• finding a viable trading strategy (Chapter 2), 
• backtesting the strategy to ensure that it at least has good historical performance (Chapter 3), 
• setting up the business and technological infrastructure (Chapter 4), 
• building an automated trading system to execute your strategy (Chapter 5), and 
• managing the money and risks involved in holding positions generated by this strategy (Chapter 6). 
• Chapter 7 -  advanced concepts 
• Chapter 8 - how to find their niche and how to grow their business
• appendix : tutorial on using MATLAB.

blog: epchan.blogspot.com

Complicated strategies? As Einstein said: “Make everything as simple as possible.” But not simpler.

starting a quantitative trading business is very similar to starting any small business. We need to start small, with limited investment (perhaps only a $50,000 initial investment), and gradually scale up the business as we gain know-how and become profitable.

In other ways, it is very different from other small businesses:

• Scalability : very scalable (up to a point).  It is easy to find yourselves trading millions of dollars in the comfort of your own home, as long as your strategy is consistently profitable. scaling up = change your leverage. no negotiation needed -the brokerages stand ready and willing to do that. member of a proprietary trading firm?  trade a portfolio worth $2 million intraday even if you have only $50,000 equity in your account (a ×40 leverage).
• Demand on Time : Quantitative trading takes relatively little of your time.  Depends very much on the degree of automation you have achieved.
• "I consider myself to be in the middle of the pack in terms of automation. The largest block of time I need to spend is in the morning before the market opens: I typically need to run various programs to download and process the latest historical data, read company news that comes up on my alert screen, run programs to generate the orders for the day, and then launch a few baskets of orders before the market opens and start a program that will launch orders automatically throughout the day. I would also update my spreadsheet to record the previous day’s profit and loss (P&L) of the different strategies I run based on the brokerages’ statements. All of this takes about two hours.
• After that, I spend another half hour near the market close to direct the programs to exit various positions, manually checking that those exit orders are correctly transmitted, and closing down various automated programs properly."
• In between market open and close, everything is supposed to be on autopilot. Alas, the spirit is willing but the flesh is weak...  it is actually important to go to the gym during the trading day."
• little of your time = the operational side of the business. If you want to grow your business, or keep your current profits from declining due to  increasing competition, you will need to spend time doing research and backtesting on new strategies.
• "So, between the market’s open and close, I do my research; answer e-mails; chat with other traders, collaborators, or clients; go to the gym; and so on. I do some of that work in the evening and on weekends, too, but only when I feel like it—not because I am obligated to."
• The Nonnecessity of Marketing:  Unless you are managing money for other people (which is beyond the scope of this book), there is absolutely no marketing to do in a quantitative trading business.