Keys to Success in Algorithmic Trading | Podcast | Dr. E.P. Chan

Dr. Ernest P. Chan is the Managing Member of QTS Capital Management, LLC. He has worked for various investment banks (Morgan Stanley, Credit Suisse, Maple) and hedge funds (Mapleridge, Millennium Partners, MANE) since 1997.

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Quantitative trading or trading, in general, is considered one of the most difficult professions to break into or to succeed in, and let me quote somebody I will tell you who wrote recently that quantitative trading became more challenging with every passing year.

None other than Dr.D.E.Shaw was quoted saying that in a book by Professor Andrew Lo. Now if as you know D.E.Shaw was one of the real early pioneers of quantitative trading and has built a multi-billion dollar extremely profitable hedge fund in New York.
He has at his hands’ hundreds of PhDs and millions of dollars of supercomputing power at his disposal and yet he said that even for him quantitative trading has become more challenging with every passing year.

Now let’s hold this thought for a moment in a mind.
Why is it still worth doing if it is so difficult.

Well, I would say that this field is not any more difficult to be successful than to become a successful actor or a successful singer, or model or a fiction writer or a visual artist.
Of these fields are extremely difficult to be highly successful and algorithmic trading is no different.
However, that doesn’t mean that nobody should try to become an actor nobody should try to become a fiction writer and so for.

However, one should be prepared for failure that is who anybody who enters into any one of these professions including quantitative trading should be prepared for.

Now therefore my first advice is if you are not already into the financial industry make sure you don’t quit your day job when you graduate and started your first trading strategy.

One of the things I am gonna talk about today is what I have done wrong in the past and hopefully, you would be able to avoid these pitfalls.
One of the things that I have done wrong and extension of being true optimistic about the past performance of a strategy is that I would leverage too high.

The second thing that I have done wrong is related to the first one which is that strategy performance typically is not trending that is the mistake many even sophisticated individuals make I certainly made myself.

The third thing that I have done wrong in my career in terms of trading is that I didn’t invest much of my profit into data equipment and personnel my times were good. A lot of traders did that especially independent traders they think wow we had a great year so I should take out all my profits put into the bank but that’s not the best way to run a business.

Well, what I have done right is that I have started with simple strategies that have intuitive justification.

I didn’t start when I was trading with my money the strategies build based on recurrent neural networks, deep learning and so for. No, I started with strategies that I can understand and that even some of the people have already talk about but I have been able to improve on them by adding some thousand whistles.

I advised you to start from the same.
So with that, I don’t want to bore you further and again congratulate you for your success in completing the course and the best of luck for your trading career.

Quantra is an online education portal that specializes in Algorithmic and Quantitative trading. Quantra offers various bite-sized, self-paced and interactive courses that are perfect for busy professionals, seeking implementable knowledge in this domain.

[soonpaomeng]

Really good confession and honest, encouraging

[albertosantangelo]

Great investor despite his non exceptional academic research (which says a lot about the practical utility of academic research in finance)

[navketan]

SEEKING YOUR WISDOM, SIR, I have 2 choices--1) buy one given forex pair every new day at the open at market price wth take profit(TP) 50 pips and stop loss(SL)50 pips on one ticket as one order 2) second choice is to buy same pair but order is placed as pending order at the open of every new day--buy the same forex pair 100 pips below the open price as pending order with take profit of 50 pips and stop loss of 50 pips all on the same ticket.And after one year of every day trading which strategy is more likely to make any money?And what answer SUPERCOMPUTER would give to my question?

[Calg]

Now I know why his books are 99% math and 1% English.

[mikiallen]

thanks ernie, great, yet I may ask you a question, under which circustances and which properties (e.g. intraday versus interday, order-book based versus non-orderbook based )of strategy that you traded 2007 that allowed the hiring manager to provide you with 100 x leverage ? that is just not possible !!!
your comment is highly appreciated

[soonpaomeng]

Trade 1 millions trades, non HFT over 10 years data, diverse symbols, then stess with synthetic data, 2000 trades a day in backtest, 3 millions trades

[loganbranjord]

I disagree right off the bat w his message. It sounds like someone who expects you to fail. That never works. You need to be the person who says, I’d rather be burnt alive toes first than quit. I will study every detail. I’ll endure any punishment. For that person: you have 100% chance of succeeding beyond your wildest dreams.