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Quantitative Trading How to Build Your Own Algorithmic Trading Business by Ernest P Chan Book Review

Many individuals are under the misconception that Quantitative trading is for Institutional players and Hedge Funds.

Well, this book will clear the air and explain how an individual can also start his own Quantitative (Algorithmic) trading business and succeed.

Quantitative Trading: How to Build Your Own Algorithmic Trading Business by Ernest P Chan Book Review

Let’s get Quant

The author starts the book with a clear direction that the key to successfully applying Artificial Intelligence/Machine Learning to finance is to focus on Metalabeling – i.e., finding the probability of profit of your own simple basic trading strategy, and not to use it to predict the market directly.

The book’s target audiences are individuals aspiring to be Quant traders and those wanting to work for large institutions. Either way, it is always better to have a track record of your own as a profitable trader.

This invaluable experience forces you to focus on simple but profitable strategies and not get sidetracked by overly theoretical or sophisticated theories.

The book aims to teach you how to find a profitable strategy yourself. It teaches you the characteristics of a good strategy, how to refine and backtest a strategy to ensure that it has good historical performance, and, more importantly, to ensure that it will remain profitable in the future.

Where does one start?

If you are someone who is just a beginner, this book is just right for you. This book does not talk about how to analyze or trade complex derivative instruments. The kind of quantitative trading discussed here is statistical arbitrage trading.

One should aware of the fact that quantitative trading does not require you to be in front of your trading terminal all day. However, the urge to intervene manually is also strong when you have so much time.

The trick is to start small as you would do with any other business and scale up. Scaling up in quantitative trading is as simple as changing numbers in your program.

It all starts with a quest to find a strategy that will attempt to fulfill your trading goals. There are hundreds of trading ideas in the public domain, some even with back-tested results available. You would, however, need to understand how these work and back-test them yourself.

The Author, however, suggests that it is not just about the strategies available that you can choose from. It is about “YOU.”

Some considerations you may want to look into are:

  1. Working hours – How much time can you dedicate to trading.

  2. Your programming skills – If your programming skills are good enough, then you can explore high-frequency strategies.

  3. The trading capital – Your trading capital will decide what strategy suits you. It is one of the aspects that will dictate risk management and position sizing.

  4. Your goal – People who choose to become quant traders want to earn a steady and preferably increasing quarterly income. You will hence, choose a strategy that is the best fit for you.