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How to Succeed in Quant Trading Business with a lot of trying

How to Succeed in Quant Trading Business with a lot of trying. Ernest Chan, Ph.D. QTS Capital Management, LLC. About me. B.Sc. (Physics, U of T) Ph.D. (Physics, Cornell) IBM Research (Statistical pattern recognition, NY, 1994) Morgan Stanley (Data mining, NY, 1997)

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How to Succeed in Quant Trading Business with a lot of trying

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  1. How to Succeed in Quant Trading Businesswith a lot of trying Ernest Chan, Ph.D. QTS Capital Management, LLC.

  2. About me B.Sc. (Physics, U of T) Ph.D. (Physics, Cornell) IBM Research (Statistical pattern recognition, NY, 1994) Morgan Stanley (Data mining, NY, 1997) Cumulative Profits = N/A Credit Suisse (Stat Arb, NY, 1998) Mapleridge Capital (Futures, Toronto, 2002) Millennium Partners (Stat Arb, NY, 2003) Maple Securities (Stat Arb, NJ, 2003) Cumulative Profits < -$2MM E.P. Chan & Associates (Everything, Toronto, 2006) EXP Capital Management (Everything, Toronto/Chicago, 2008) QTS Capital Management (Forex, Niagara-on-the-Lake, 2011) Cumulative Profits > $2MM

  3. Along the way … • Quantitative Trading blog epchan.blogspot.com, 2006). • “Quantitative Trading” book published by John Wiley & Sons, 2008. • Ongoing workshops in London, Hong Kong, Singapore.

  4. The 10,000-hour rule “10,000 hours of practice is required to achieve the level of mastery associated with being a world-class expert” – Malcolm Gladwell 1998-2007: after about 10,000 hours of trading research and practice, I finally reached consistent profitability!

  5. Key ingredients • Learn from others: • Blogs, books, papers, magazines, online forums • Partners, clients (!), spouse (!) • Readers (!) • Workshop participants (!) • Emotional detachment from daily profits. • Look for fundamental principles of financial markets • E.g. mean-reversion and cointegration, seasonality at different time scales, Kelly formula, linearity, etc.

  6. Key ingredients • Most importantly: “Make things as simple as possible, but not simpler” -Albert Einstein

  7. Key ingredients in details • Ideas generation • Mainly from the aforementioned sources! • The easiest part! • Backtesting • Choose a suitable platform for yourself. • Be aware of numerous pitfalls such as data snooping bias, look-ahead bias, survivorship bias, noisy/erroneous data, etc. • Paper trading • Which platform allows you to fully automate?

  8. Key ingredients in details • Live Trading • Always starts small. • Position sizing, capital allocation, and risk management using Kelly formula. • Beware of execution costs. • Continuous improvement and refinement of strategy. • Improvement in strategy and/or execution technology. • Can have dramatic impact on returns and Sharpe ratio!

  9. Raising capital • Your own savings should be the seed capital. • No pain no gain! • Friends and family? • Would be better if they are familiar with trading. • Proprietary trading firms • May impose too many restrictions. • May not allow full automation. • May be a good source of start-up capital. • Profit share goes from 10%-100%.

  10. Raising Capital • Starting your own fund. • Aforementioned PR is very helpful. • Investors always approach me, never the other way around. • Finding a good lawyer is important.

  11. Keep in touch! • Through email: ernest@epchan.com • Through my blog: epchan.blogspot.com • Through my website: www.epchan.com

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