I need to think about the next big strategy and the possibility (indeed the likelihood) that I won’t discover it.
I have posted about a massive ML/AI experiment that didn’t succeed (not giving up but… tik tok, tik tok).
2/5
Despite my background and quant trading bona fides, I am increasingly drawn to the Idea that the highest future returns will come from quantitative trading rules applied by experienced discretionary traders.
3/5
This might not be the sexy ‘silicon based life form’ outcome that is being talked about but, increasingly, I believe a kind of ’reverse takeover’ may occur in which ‘quant’ will be - If not taken over - then ‘absorbed’ into the discretionary framework.
4/5
I am still in the early stages of thinking about this but wouldn’t it be interesting if all the advances made in Quant - in the final analysis - 𝙈𝙚𝙧𝙚𝙡𝙮 𝙨𝙚𝙧𝙫𝙚𝙙 𝙩𝙤 𝙢𝙖𝙠𝙚 𝙝𝙪𝙢𝙖𝙣 𝙩𝙧𝙖𝙙𝙚𝙧𝙨 𝙗𝙚𝙩𝙩𝙚𝙧 𝙧𝙖𝙩𝙝𝙚𝙧 𝙩𝙝𝙖𝙣 𝙩𝙤 𝙙𝙚𝙨𝙩𝙧𝙤𝙮 𝙩𝙝𝙚𝙢.
5/5
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If you use any of the following arbitrary inputs in your process- ask yourself why?
1. Dealing at the Open.
2.Dealing at the Close.
1/4
3. Using low footprint strategies like VWAP for execution. Strategies that are in fact the antithesis of adding alpha during the execution phase. 4. Cutting 1/2 of your position when in profit or loss (why half? Why not 16%). 5. Relying on free data or execution.
2/4
6. Trading economic fundamentals/data release strategies without NLP and latency advantages and without proving to yourself that the data has anything whatsoever to do with the future distribution of prices.
3/4
A correspondent asked a few days ago who are my top follows...
@timebargains He has deleted his prior tweets and was force limited to what he could share... is now able to start sharing thoughts again. Every word is gold. I expect activity on his twitter account again soon.
1/7
The genius @cloudy_cl shares some trades live... and they are genius. He runs/owns over half a dozen quants like me.
Don't be shocked by his cussing :)
He is taking a break at the moment but should be back in a week.
2/7
The incomparable @darjohn25. He trades different to my style (we do spot he mostly does options from what I gather), but is a spectacular human and a mind to learn from. The net results are always similar... paths are different is all.7
3/
Market conundrums: 1. I need a definition of the word ‘Trend’ for any market to test.
2. Prices move but if your risk tolerance is the same as the market then normal path dependency or an exogenous event will take you out.
1/5
3. The market rewards those trading low probability scenarios (long smooth trends) until it decides to reward higher probability, lower risk reward reversionary approaches. 𝙏𝙝𝙚 𝙩𝙧𝙞𝙘𝙠 𝙞𝙨 𝙞𝙣 𝙩𝙝𝙚 𝙨𝙬𝙞𝙩𝙘𝙝.
2/5
4. PM’s/Traders/‘Investors’ 𝙈𝙐𝙎𝙏 take risk. There is less career risk implementing your strategy at full size than there is hiding under your mothers skirts.
5. Often the best entries occur at the most inconvenient times. This must be embraced.
3/5
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.
1/6
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...
2/6
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.
3/6
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).
1/4
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.
2/4
* 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.
3/4
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.
1/4
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.
2/4
It accelerated my move to rules based and then fully quantitative trading in a holding period time frame where I found real Alpha.
3/4