This a very readable introduction to quantitative trading and is quite motivational at the same time. Ernest tells us that individual traders could seThis a very readable introduction to quantitative trading and is quite motivational at the same time. Ernest tells us that individual traders could set up profitable businesses thanks to the lack of restrictions that big hedge funds face. The content of the book can be classified into three sections: I. Introduction: Quantitative trading is defined and the status is described (1/3 of US trading volume as of his writing) II. Algorithmic Trading Business: the necessary steps in setting up a trading business are: a) Seeking a trading idea: sources for ideas include academic research, blogs and forums. b) Backtesting and evaluating against a benchmark and assessing consistency. c) Setting up the business, either with a retail broker or proprietary trading firm and ensuring the necessary physical infrastructure, which initially can be limited to a laptop, Internet access and uninterruptible power supply. d) Performing paper trading to check the performance of the strategy and make adjustments as necessary. e) Building the algorithmic trading system, either semi-automated or fully automated. f) Managing risk: taking into account the amount of leverage and stop loss transactions. Other risks to be considered include: model risk, software risk and disaster risk. III. Advanced subjects and round-up: Topics such as factor model, mean-reversion, momentum, stationarity, co-integration, seasonal trading are explored. Next steps such as testing for new strategies, looking for investors and sharing profitability with big hedge funds are discussed. Some biases that appear in the book include: survivorship bias, data snooping bias, look-ahead bias, and behavioral biases such as status quo bias and loss aversion, as well as emotions of fear and greed. Overall, this is a great handbook to start out; however, in order to fully profit from this book, one should be familiar with some kind of programming language, in this case with MATLAB. ...more
The books has two core functions, the first one of describing how banking works; it achieve this marvellously with simple and clear definitions. The sThe books has two core functions, the first one of describing how banking works; it achieve this marvellously with simple and clear definitions. The second one of prescribing how a financial system without banking would look like is very thought provoking. The model would be more conservative, but could eventually get rid of the major banking problem: bank runs....more
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