For my sins, I am ‘experienced’ enough to have seen all of ‘Macro’, ‘L/S Equity’ and ‘Trend Following’ implode inward to varying degrees (Clearly, firms have survived in all three).
One notes, regrettably, that it is beginning in the ‘Quant’ space. I believe I am qualified to state with some measure of certainty, the reasons-

* Most new entrants come from the same echo chamber schools with the same knowledge.
* Very, very few have actually bought or sold anything in their lives.

* A completely baffling belief that being a world class programmer means they will find better systematic alpha than a ‘non programmer’ given excellent testing software.
* Firms only allowing research into published strategies (WHAT THE F.)

• • •

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More from @VitruviusCurve

12 Oct
Alpha Seekers - Understanding Path Dependency

Here is an interesting (although heavily contrived) experiment that is very helpful in *actually understanding* path dependency and, done often enough, can lead to some very good ideas.
Take three markets that, on a close to close basis, tend to have a correlated ‘sign’ (+ or -).

Put another way, all three tend to close in the same direction over time.

Maybe EURUSD, GBPUSD & AUDUSD. What’s intriguing from a research angle is the different paths...
that they take between the opening and the close. (Or any two points in time really)

Things worth trying to quantify:

* Leads and lags between them.

* Absolute and relative sizes of moves.

* Reactions to ‘X’ time period highs and lows.
Read 6 tweets
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
5 Oct
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!
Read 5 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

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