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Quantitative Trading

Quantitative Trading. Ari Siegel Principal Turning Wheel capital arisiegel@yahoo.com. What is Quantitative Analysis?.

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Quantitative Trading

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  1. Quantitative Trading Ari Siegel Principal Turning Wheel capital arisiegel@yahoo.com

  2. What is Quantitative Analysis? “A business or financial analysis technique that seeks to understand behavior by using complex mathematical and statistical modeling, measurement and research. By assigning a numerical value to variables, quantitative analysts try to replicate reality mathematically.” – www.investopedia.com Observe behavior Counting Statistics Price movement vs. technical vs. fundamentals Market moves may not repeat, but they often rhyme

  3. Where quants work • Buy side • Hedge Funds • Banks • Other prop trading desks (Trade, Insurance co’s, etc.) • Self • Sell side • Sales & Trading • Derivatives • Hedging

  4. Quant Roles Trader Programmer Analyst P/L vs. non-P/L Strategy generation vs. analysis and programming

  5. What is a trader? A trader buys or sells securities in a market. Execution Discretionary Proprietary Market Maker Floor Trade Speculator

  6. Trader vs. Securities Analyst TRADERANALYST Direction YES Size NO Entry Price & Strategy ? Hold time YES (ROUGH) Risk Management NO Exit Price & Strategy YES Act on Analysis NO P/L Responsibility ? High Compensation ? Long Hours YES Ever-morphing puzzle YES?

  7. How to find a Quantitative trade • Idea (observation, original thought) • Data collection • Price/technical/fundamentals database • Charts • Internet • Other resources • Data scrubbing • Testing – pencil/paper, Excel, statistical software • Trade it in small size for some time • Scientific method

  8. Statistics • Conditions • Forward expectation • Average move (Mu) • Standard Deviation (s) • # of observations (n) • T-score = Mu / (s/SQRT(n)) • Regressions, neural networks, AI

  9. Quant Trade Process Part 1Find a Trade • Conditions • Short term • Long term • Seasonal • Intermarket • Test • Compare to other patterns, current data

  10. Quant Trade Process Part 2Create a plan Direction Size Entry (Price, Time) Exit (Price, Time) What ifs

  11. Quant Trade Process Part 3Trade your plan Entry issues Unusual moves What ifs New data – change the plan? Exit issues

  12. Quant Trade Process Part 4Improve your trading • Track trades • P/L • Short vs. Long • Decisions – overrides, adds, longer holds, etc. • Analyze trading results • Optimize • Evolve

  13. Quant Trading Scenarios Black box vs. Human execution System vs. Discretionary Unusual circumstances Changing Cycles Efficient Markets??? NOT ALWAYS!

  14. Trading Futures • What are futures? • Physical vs Financial, delivery vs cash-settled • Index futures • S&P 500 futures= • Very liquid • Very transparent (marked-to-market each day) • Low commissions ($2.40 per $74,000) • High leverage • Low barriers to entry • Managed futures

  15. My Company – Turning Wheel Capital • Start up trading business similar to hedge fund • Manage money for outside clients and myself • Began Jan 1 2007 with $25,000 of my own $ while working at a hedge fund • August 1 2007 $62,000 in assets, my own $ • November 2007 $1.2MM in assets, 3 outside clients • Goals • February 2008 $3MM AUM • November 2008 $10MM • December 2009 $100MM

  16. My background • Victor Niederhoffer 2004-2007 • apprenticeship • MBA, Yale SOM 2004 • Start up companies 1999-2002 • Poker 1997-1999 • Start up companies 1994-1997 • Music 1988-1994 • NYU B.A. Music Technology 1992? • UNC-Chapel Hill 1987

  17. Money making personality • Appetite for risk • Analytical mind • Competitive • Driven to win • Sports, Poker, Games • Survivor • Quant Trader Characteristics • Puzzles, games • Counting • Logical, analytical, problem solving • Music • Patterns

  18. Be a star Figure out what you truly want – 95% of the game Be honest with yourself and others Take risk – but try to weigh consequences Hold out for what you want – don’t settle Trust your gut – have conviction Do your own research – question the experts Don’t be a sheep Try to be the best in your field, reach for brass ring Focus on the process and the results will come 800% return in 2007 Market Wizards by Jack Schwager

  19. Questions? ?

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