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Master the lucrative discipline of quantitative trading with this insightful handbook from a master in the field

In the newly revised Second Edition of Quantitative Trading: How to Build Your Own Algorithmic Trading Business, quant trading expert Dr. Ernest P. Chan shows you how to apply both time-tested and novel quantitative trading strategies to develop or improve your own trading firm.

You'll discover new case studies and updated information on the application of cutting-edge machine learning investment techniques, as well as:

  • Updated back tests on a variety of trading strategies, with included Python and R code examples
  • A new technique on optimizing parameters with changing market regimes using machine learning.
  • A guide to selecting the best traders and advisors to manage your money

Perfect for independent retail traders seeking to start their own quantitative trading business, or investors looking to invest in such traders, this new edition of Quantitative Trading will also earn a place in the libraries of individual investors interested in exploring a career at a major financial institution.

Table of Contents

  1. Cover
  2. Title Page
  3. Copyright
  4. Dedication
  5. Preface to the 2nd Edition
    1. REFERENCES
  6. Preface
    1. WHO IS THIS BOOK FOR?
    2. WHAT KIND OF BACKGROUND DO YOU NEED?
    3. WHAT WILL YOU FIND IN THIS BOOK?
    4. REFERENCES
  7. Acknowledgments
  8. CHAPTER 1: The Whats, Whos, and Whys of Quantitative Trading
    1. WHO CAN BECOME A QUANTITATIVE TRADER?
    2. THE BUSINESS CASE FOR QUANTITATIVE TRADING
    3. THE WAY FORWARD
  9. CHAPTER 2: Fishing for Ideas
    1. HOW TO IDENTIFY A STRATEGY THAT SUITS YOU
    2. A TASTE FOR PLAUSIBLE STRATEGIES AND THEIR PITFALLS
    3. SUMMARY
    4. REFERENCES
  10. CHAPTER 3: Backtesting
    1. COMMON BACKTESTING PLATFORMS
    2. FINDING AND USING HISTORICAL DATABASES
    3. PERFORMANCE MEASUREMENT
    4. COMMON BACKTESTING PITFALLS TO AVOID
    5. TRANSACTION COSTS
    6. STRATEGY REFINEMENT
    7. SUMMARY
    8. REFERENCES
    9. NOTE
  11. CHAPTER 4: Setting Up Your Business
    1. BUSINESS STRUCTURE: RETAIL OR PROPRIETARY?
    2. CHOOSING A BROKERAGE OR PROPRIETARY TRADING FIRM
    3. PHYSICAL INFRASTRUCTURE
    4. SUMMARY
    5. REFERENCES
  12. CHAPTER 5: Execution Systems
    1. WHAT AN AUTOMATED TRADING SYSTEM CAN DO FOR YOU
    2. MINIMIZING TRANSACTION COSTS
    3. TESTING YOUR SYSTEM BY PAPER TRADING
    4. WHY DOES ACTUAL PERFORMANCE DIVERGE FROM EXPECTATIONS?
    5. SUMMARY
  13. CHAPTER 6: Money and Risk Management
    1. OPTIMAL CAPITAL ALLOCATION AND LEVERAGE
    2. RISK MANAGEMENT
    3. PSYCHOLOGICAL PREPAREDNESS
    4. SUMMARY
    5. APPENDIX: A SIMPLE DERIVATION OF THE KELLY FORMULA WHEN RETURN DISTRIBUTION IS GAUSSIAN
    6. REFERENCES
    7. NOTES
  14. CHAPTER 7: Special Topics in Quantitative Trading
    1. MEAN-REVERTING VERSUS MOMENTUM STRATEGIES
    2. REGIME CHANGE AND CONDITIONAL PARAMETER OPTIMIZATION
    3. STATIONARITY AND COINTEGRATION
    4. FACTOR MODELS
    5. WHAT IS YOUR EXIT STRATEGY?
    6. SEASONAL TRADING STRATEGIES
    7. HIGH-FREQUENCY TRADING STRATEGIES
    8. IS IT BETTER TO HAVE A HIGH-LEVERAGE VERSUS A HIGH-BETA PORTFOLIO?
    9. SUMMARY
    10. REFERENCES
  15. CHAPTER 8: Conclusion
    1. NEXT STEPS
    2. REFERENCES
  16. APPENDIX: A Quick Survey of MATLAB
  17. Bibliography
  18. About the Author
  19. Index
  20. End User License Agreement
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