Some things to think about regardless of the level of your participation in markets:

* Every time that you leave a traditionally scripted order on any DMA connectivity apparatus, you are providing information to others.
* The Financial markets are set up to take money from the weak and give it to the strong via volatility AND the rules of engagement (agreements, exchange rules etc.)
* If you apply the techniques (and the published extensions thereof) gifted you from a high level technical education, then know this - you will lose when the distributions change. And they always do!
* You need to devise a way that allows you to have a different risk tolerance than ‘the market’ and a different ‘time period’ than ‘the market’. Neither of these two quantities should be fixed.
* Study what happens and why when things that have been working stop working and vice versa.

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More from @VitruviusCurve

5 Oct
My lasting memory as an incredibly fortunate Junior trader on the Proprietary Trading desk at a shiny US IB in the late 90’s was watching the best and brightest traders of their generation throw it all away betting against the internet and all of its late 90’s manifestations.
They were, of course, eventually proved correct but none survived. The almost tangible hatred of the market’s incredible advance came through in increasingly poor sizing and trade structure.
It accelerated my move to rules based and then fully quantitative trading in a holding period time frame where I found real Alpha.
Read 4 tweets
1 Oct
A note for Discretionary Traders - - -

My old boss runs one of the brand name legacy HF’s. He has the single best discretionary trading track record in published history.

He uses all manner of ‘indicators’ and gut feel.
He once asked me to do two things:

1. Test all the indicators he used systematically to see if they were bogus or not (they were and are)

2. He wondered if he waited 30 min. or until the most recent extreme price of the day re-traded instead of dealing with his gut would he
be better off? ( his returns would be wildly better!)

He still trades as he did before. Unchanged. And he still kills it.
Read 4 tweets
30 Sep
One kernel for Alpha hunters...

I would like to share with those wishing to hear, the basic experiments that I did that led to finding phenomena and regularities that I was able to systematise and apply in markets...
It is important to understand that there are no advanced concepts to be applied in the embryonic stage of alpha research and so "some will be frustrated at the simplicity".

Experiment No. 1 We need to understand the difference between reversion and momentum.
The easiest way to think about this is to look at runs and sequences of consecutive transactions in a market. It is instructive to study what is happening as run lengths increase and change sign.
Read 5 tweets
30 Sep
We used to say that the least predictive market with the tightest spreads and the most liquidity. I think generally that is correct - making FX (major FX anyway) the least predictive of things other than itself.
It is interesting to remind participants in FX that FX rates are bilateral.
Put another way, in a world where (allegedly) only the actions of CB’s matter, then one must look to BOTH CB’s (For eg. ECB and the FED for the EURUSD rate).
Looking at absolute levels and rate of change and the fact that there is nothing particularly frightening occurring in longer dated FX insurance... it is hard to see anything other than another false dawn for the foreign currencies.
Read 5 tweets
29 Sep
Were my Mentors right?

I was fortunate enough to have two superior mentors. One an absolute veteran responsible for much of what we call ‘Quant’ today and the second a ‘swashbuckling’ discretionary HF brand name.
The main advice from the ‘Quant’ - The market will reward trend following for a time and then reversionary strategies. The practitioner must accept that there exists considerable evidence that both are superior, so plan for this and push your edge.
This advice proved true and encouraged me to aim for BOTH high probability reversionary strategies and lower probability (but bigger!) momentum approaches.
Read 5 tweets
28 Sep
Here's one for the new players sitting there wondering what are the great secrets the big players know?

We have done a LOT of work over the past two decades - on and off - on runs versus reversals in price and other data.
Some has been very fruitful and has helped us make more money or helped us opportunistically reduce the volatility of our returns. I feel that all this work qualifies me to say one slightly contradictory statement: I cannot define what a trend is until it has already happened!
For the avoidance of doubt, we are almost 100,000 trades live so we are not just sitting there wringing our hands about definitional issues. But this is a matter of consequence. The greatest model that will ever be discovered is the one that a/ defines a ‘trend’
Read 4 tweets

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